MARGINAL CREDIT.—By this name, or by the more exact term, "Marginal Letter of Credit," is known one of the means at time disposal of an importer for the payment of goods he has bought from abroad. The buyer, say in London, first opens a credit with his bankers here, that is to say he makes an arrangement %+ith them that they will accept on his behalf certain bills drawn on them by the foreign seller, and will issue a letter directed to the seller intimating their intention so to accept. These bills or drafts will represent the purchase price of the goods, and the credit, which is known as a marginal credit, will be either a " documentary." or an " open" one, according to whether or no there are any documentary conditions in the letter. In any case the bill appears in the margin of, or attached to the letter—whence the name. These credits are also frequently opened with private firms of merchants, and are not confined to the business of bankers. And, moreover, credits of this class are not used only in cases of the impor tation of goods into this country, or of consignments from and to countries abroad to the order of English firms. The financial centre of the world being London, it is a very usual practice for goods sold in one foreign country to a purchaser in another to be paid for with bills drawn on London. Foreign merchants, therefore, in respect of even foreign transactions, nake a very extensive use of English marginal credits. A first-class English bill is in many respects a more valuable international monetary medium than any currency. Open Credits, on the face of them, are unconditional under takings by the party granting them to accept the drafts drawn thereunder, provided, usually, that the drafts are drawn or presented within a given time. Documentary Credits undertake that the drafts shall be accepted only on condition that certain bills of lading and other shipping documents of title to goods are delivered to the intending acceptors when the drafts are presented for acceptance. The essential difference between an ordinary Letter of Credit and a Marginal Credit is that the former absolutely authorises the person indicated to draw money against it, while the latter authorises him to draw only bills of exchange as indicated in the margin and in accordance with the particulars, and subject to the conditions set out in the letter. The following specimen of a Marginal Credit—an Open Credit— is taken from that in the case of Maitland v. The Chartered Mercantile Bank of India From the facts in the above case it would seem that the course of dealing and practice relative to the issue and user of marginal credits differs con siderably in different parts of the mercantile world, and the terms of the issue and user depend upon the actual agreement between the parties, and upon the terms apparent on the face of the credits. It is a common, but by
no means an invariable practice, that when such a marginal credit as the above is granted by a bank in this country, in favour of a firm carrying on business abroad, and not upon the instructions and security of an English customer of the bank, the latter requires the express security of some firm carrying on business in England for the repayment of any money which may be paid in respect of any draft drawn under the credit. If, however, the credit of the foreign firm is good, such a security would not in all cases be considered necessary; and, accordingly, whether such a security is given or not depends on the credit and standing of the firm in whose favour the credits are granted. Marginal credits which are issued in this country, according to the usual practice, are sent to the foreign firm, not merely to enable it to raise funds for buying produce to be consigned to England, but as a guarantee to the purchasers of the bills of the foreign firm that such bills will on presentation be accepted, and also to give more complete facilities for raising money to the foreign firm in whose favour the marginal letters of credit are issued. And in the same case it was stated that it is a common but by no means uniform practice for a firm carrying on business, say at Shanghai, and which may hold an open credit, to draw thereunder, one or two days before the mail leaves for England, drafts for an amount sufficient to raise the sum required to pay for any produce which it may be about to consign to England, and to sell or discount those drafts. But open credits are also frequently used by the firms in whose favour they are granted for other purposes than raising money for the purchase of produce, and, in fact, to enable such firms to raise money for their general purposes as upon any other security. It is not the custom or practice for the banks or other persons who discount or purchase the drafts drawn under open credits, nor does the law expect them, to inquire into the authority under which the drafts are drawn. It does not matter, therefore, what private arrangement there may be between the London Cankers granting the credit and the English firm who guarantees it to them, the parties who bond fide discount the bills drawn under an open credit, or indeed any letter of credit, are only affected or prejudiced by the terms actually contained in the letter itself. Accordingly, if it is desired to make the presentation of the bills of lading and shipping documents a condition precedent to the acceptance of the bills, the credit should take the form of a documentary one. In a documentary credit there is no credit actually granted until the specified documents are duly presented. &c BILLS OF EXCHANGE; LETTER OF CREDIT.