Analysis and Insights on ISP98 Rule 4.18

DCW Editorial Note: This previously unpublished material reflects the thinking and writing of Professor James E. Byrne over the period of multiple years up to his passing in July 2018 in an effort to review and note usage of ISP98 during the first 20 years of the rules’ existence. Several leading bankers, lawyers, and corporate users of ISP98 offered constructive review and contributed valuable input to this material.

Throughout this 25th anniversary year of ISP98, DCW will be presenting additional writings of Professor Byrne on various rules. For more on the life and legacy of Professor Byrne, see DCW’s special tribute issue on the IIBLP website.

1. Generally. Rule 4.18 addresses standbys that require the presentation of negotiable financial documents and their negotiation by endorsement.[[1]] Negotiable documents can include promissory notes, bills of exchange, negotiable drafts, investment securities, bonds, or the like. This Rule applies to any document which is payable to the bearer or to the order of a specified person and that is transferable by endorsement and delivery and confers special rights greater than the transfer of a contract right.

2. Background of Rule 4.18. It is not uncommon for a standby to require the presentation of financial documents which are negotiable. Unlike UCP600 or URDG 758, ISP98 specifically addresses the issue of endorsement where a standby requires that a negotiable document be presented. The purpose of Rule 4.18 is to encourage the drafters of standbys to specify how and to whom these negotiable documents should be endorsed. To incentivise specificity, Rule 4.18 contains broad default rules for the presentation of negotiable documents which apply in case the standby does not provide whether, how, or to whom endorsement must be made.

3. Default Rule. Rule 4.18 is a provision that applies in a situation where the standby requires presentation of a negotiable instrument but does not indicate whether or how it is to be endorsed. In such a circumstance, Rule 4.18 provides that the negotiable instrument complies whether presented with or without endorsement and, if endorsed, in any manner including without recourse. The purpose of Rule 4.18 is to encourage the issuer to attach the desired format of the negotiable instrument as an exhibit to the standby.

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