Draft

Draft

Summary of Draft

A written, unconditional demand upon a named party to pay a specified sum of money at a prescribed date. The person who makes the demand for payment, i.e., the person who prepares the draft, is known as the drawer or maker of the instrument; the party of whom payment is demanded is the drawee. Drafts are commonly used in international trade inasmuch as drafts calling for future payment, once accepted by the drawee, become debt obligations not dissimilar to promissory notes which may be held to maturity or discounted at a rate reflective of the credit worthiness of the drawee and prevailing interest rates. Drafts may be drawn at sight, that is, calling for payment immediately upon presentation, or may be time drafts drawn at thirty days sight, for example. The mere presentation of a draft to the drawee imposes no obligation upon that party; however, should the drawee accept the draft upon presentation, he is obliged to pay the exact amount upon maturity. A draft accepted by a bank is called a banker’s acceptance, while the acceptance on the part of anyone other than a bank is a trade acceptance.

A common use of drafts is in connection with letters of credit (read this and related legal terms for further details). A letter of credit is a document issued by a bank guaranteeing that drafts will be accepted by the bank within a specified period of time if the maker demonstrates the performance of certain stipulated actions, usually the shipment of goods, as evidenced by the submission of shipping documents, such as bills of lading.

It is important to note that, while the terms draft and bill of exchange (read here for further details) are used interchangeably even by experienced persons accustomed to these instruments, they are not, in fact, the same. A draft is redeemed in the same currency in which it was drawn (which is to say that the maker and drawee use the same currency; as a practical matter, this means they are probably in the same country); a bill of exchange involves an exchange conversion at some point. In addition, bills of exchange are always drawn to order and are, therefore, always negotiable; drafts may be, but not need be, negotiable.

See Direct Collection.

(Main Author: William J. Miller)

Spanish Translation of draft

This is the legal translation of English to Spanish in relation to draft and / or a definition of this topic: Minuta (in Spanish, without translation of the dictionary entry).

Draft in International Trade

Meaning of Draft, according to the Dictionary of International Trade (Global Negotiator): An unconditional order in writing, signed by a person (drawer) such as a buyer, and addressed to other person (drawee), typically a bank, ordering the drawee to pay a stated sum of money to yet another person (payee), often a seller. A draft, also called a bill of exchange, may be payable to a named person or his order (order draft), or to bearer (bearer draft). The most common versions of a draft are sight draft, which is payable on presentation or demand, and the time draft, which is payable at a future fixed (specific) or determinable (30, 60, 90 days, etc.) date. Should the beneficiary under a time draft require the money before the bill matures, he may discount his claim for immediate payment with his bank. Also called bill of exchange.

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  • Document
  • Information Science
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  • Legal Research
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