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CREDIT INSTRUMENTS

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by

Jean Carlo Larasi

on 8 January 2015

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Transcript of CREDIT INSTRUMENTS

Credit Card
BILL OF EXCHANGE
OPEN BOOK ACCOUNT
INSIDE OF BOOK ACCOUNT
MAJOR DOCUMENTS USED N CREDIT TRANSACTIONS
Open Book Account

-gives the implied verbal promise of the debtor when he buys consumable goods on credit. The creditor enters this ledger to show the existence of the credit transaction.


CREDIT INSTRUMENT
-is a written instrument or evidence of the existence and nature of a credit contract. It is evidence of an obligation or a claim.

ADVANTAGES and DISADVANTAGES
Advantages:

A. Convenient
B. Simple
C. The absence of legal evidence is an advantage to the debtor for he gives no written evidence for his debt, and stimulates sales on the part of the creditor.
D. It may lead to prompt payments because debtors may take advantage of cash discounts granted by the creditors.
DISADVANTAGES
a. It may lead to disputes and misunderstanding.
B. Payment is dependent on the debtor's voluntary action.
C. Since there is no written evid
ence
the essential of negotiability are lacking in this type credit instr
ument.


an acceptance is originally an order
to pay. It

is a time draft. To make sure of its payment at maturity, the draft is presented for acceptance to the drawee. If the drawee accepts, he becomes liable for the draft and in effect assumes the burden
of payment at maturity.
Types of acceptances:

Trade Acceptance
Banker's Acceptance


If you are the buyer, you agree to pay at a certain date, at your own bank to the seller , in the amount of this certain indebtedness, by writing in the space provided, "ACCEPTED," the date, your name of your own bank and your signature thereon.
TRADE ACCEPTANCE
CI
FUNCTIONS OF CREDIT INSTRUMENTS:
1. Written documents make claims enforceable.
2. Credit instruments facilitate exchange transactions.
3. Credit instrument minimize disputes among the contracting parties.
4. Credit instrument facilitates production and consumption.
CLASSI
FICATION
OF CRE
DIT
INSTRU
MENTS:
A. Accep
tability
(general/
limited)
B. Form
C.Functi
on
Two Classifications:
1. Negotiable
2. Non-Negotiable
It is an unconditional written promise of the maker to pay the bearer or order a certain sum of money of at future determinable time.


*Single-name
*Double-name

ADVANTAGES
a. There is a tangible proof of the existence of the debt.
b. There is fixed time for payment.
c. Prompt payment can be expected rather than at the whim of the debtor.
d. It commands a higher as an asset especially for seeking, financial assistance.
e. It gives no opportunity to dispute the quality of goods purchased upon credit.
DISADVANTAGES
The inflexibility of the promissory note and its convenience of the part of the debtor have limited its use.
The debtor has no choice on whether to take advantage of cash discounts or not.



“an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.”
Kinds of Bill of Exchange
Foreign Bill
Domestic Bill
Reside in two different
Countries
Reside in the same
Country
Parts of a Bill
Date
Term
Amount
Stamp
Parties
Parties:

Drawer
Drawee
Payee
ADVANTAGES
Could settle
credit
Fixes the
date of
Payment
A written and Acknowledged Document
Convertible
to Cash
-Holders thereof are able to purchase goods and services on credit against
payments in the future.
Holders don't partake the nature of absolute right but rather as a sort of special privelege.
Applicants undergo:
(1)CREDIT INVESTIGATION
and
(2)CREDIT EVALUATION
before enjoying such privelege.
Approval means
FAVORABLE
CREDIT RATING.
Credit Crad has

STIPULATED EXPIRY DATE
In Renewal, same process of EVALUATION and INVESTIGATION occur based on Timeliness in the Payment of Obligation.
OTHER IMPORTANT DOCUMENT USED IN
CREDIT TRANSACTION

LETTER OF CREDIT
A letter issued by a bank authorizing a designated individual firm, or corporation
to draw on it up to the total amount for which the credit is established
Bill of Lading
Written account of goods shipped by any person, signed by the agent of the owner of the vessel, acknowledging receipt of the goods, and promising to deliver them safe at the port directed, except damages of the sea.
What are the three (3) IMPORTANT PURPOSES of Bill of Lading?
Trust Receipt
-Receipt given by the importer who has loaned money upon imported goods, or guaranteed the release of the goods, vesting title in the lender although the goods are in the possession of the importer.
When the importer signs a receipt:
A. Permitted to take the physical possession of the goods. Legal title of ownership remains with the bank.
B. Bank exercises legal control over imported goods to the extent that it could not be disposed of without prior authorization while the importer has physical possession over it.
C. Violation of his agreement in the trust receipt would make him liable to the banker as well as answerable to the state for misapplication of funds.

Warehouse Receipt
A written acknowledgement by warehousemen (licensed by the government) that he holds certain goods, identified by the receipt, for the person to whom the writing is issued; also a contract by which the warehouse agrees to deliver the goods to the holder.
Mortgage
The most commonly used legal instrument for secured borrowing in business.
Objects which be mortgage:
A. Immovable;

B. Alienable real rights in accordance with the laws imposed upon immovable. Nevertheless, movables may be the object of chattel mortgage.

Types of Mortgage:
Close-End Mortgage
Limited-Open Mortgage
Some Points to Ponder:

A. The ownership of the mortgaged property is transferred to the creditor (banker or mortgagee).
B. The possession of the property will be with the borrower.
C. A mortgagee can sell the property only with the permission of the court.
D. In a mortgage, a mortgagee (borrower) has the right of the foreclosure
Pledge
A pledge, also called a pawn or a security interest, is a piece of property (chattel) used to secure financing. A pledge can be any physical thing with liquid value, although the type of property that a lender requires typically relates to the reason for the loan.
Some Points to Ponder:
A. The security in pledge is an immovable property.
B. The ownership of the pledged property remains with the debtor (the pledge or borrower)
C. Delivery of the property is essential to a pledge, hence the goods delivered by the pledger or borrower will be in the custody of the banker.
D. In a pledge, the banker (pledgee) can sell the pledged property without the intervention of the Court.
E. A pledgee does not have the right of foreclosure
Check
The credit instrument which we have spoken of thus far have been, as already seen, evidence of obligations growing out of the transfer of goods between individuals an giving rise to obligations stated either in terms of goods or in terms of money. There is no reason, however, why the transaction should not be an operation in money throughout.
Trade Acceptance
Promissory Note
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