URC 522 Explanations

URC 522 Article 26: “Advices” – Explanation

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Explanation of URC 522 Article 26 : Advices

Article 26 of URC 522 outlines the responsibilities of collecting banks regarding the provision of advice to the remitting bank during a collection process. Below is a detailed explanation of each clause, including examples for clarity.

a FORM OF ADVICE

“All advices or information from the collecting bank to the bank from which the collection instruction was received, must bear appropriate details including, in all cases, the latter bank’s reference as stated in the collection instruction.”

Explanation:
When a collecting bank provides advice or information to the remitting bank (the bank that issued the collection instruction), it must include specific details. This includes referencing the collection instruction number or any other identifier provided by the remitting bank. The aim is to ensure that the remitting bank can easily match the advice with the original collection instruction.

Example:
If the remitting bank’s reference number on the collection instruction is “RI12345”, the collecting bank’s advice should clearly mention “Reference: RI12345” to ensure proper identification and traceability.

b METHOD OF ADVICE

“It shall be the responsibility of the remitting bank to instruct the collecting bank regarding the method by which the advices detailed in sub-Articles (c)i, (c)ii and (c)iii are to be given. In the absence of such instructions, the collecting bank will send the relative advices by the method of its choice at the expense of the bank from which the collection instruction was received.”

Explanation:
The remitting bank must specify how it prefers to receive advice from the collecting bank. This could be through email, fax, or any other communication method. If the remitting bank does not provide these instructions, the collecting bank can choose the method and the remitting bank will bear any associated costs.

Example:
If the remitting bank specifies that it wants to receive advices via email, the collecting bank should send the advice via email. If no preference is given, the collecting bank might choose to send the advice by post, and the remitting bank will cover the postage cost.

c 1 ADVICE OF PAYMENT

“The collecting bank must send without delay advice of payment to the bank from which the collection instruction was received, detailing the amount or amounts collected, charges and/or disbursements and/or expenses deducted, where appropriate, and method of disposal of the funds.”

Explanation:
Once the collecting bank has received payment, it must promptly notify the remitting bank. This advice should include details such as the collected amount, any charges or expenses deducted, and how the funds were handled (e.g., credited to an account or remitted).

Example:
If the collecting bank collects $10,000 and deducts $100 in charges, it must send an advice to the remitting bank detailing: “Collected Amount: $10,000; Charges Deducted: $100; Net Amount Remitted: $9,900.”

c 2 ADVICE OF ACCEPTANCE

“The collecting bank must send without delay advice of acceptance to the bank from which the collection instruction was received.”

Explanation:
When the collecting bank accepts a collection instruction, it must promptly inform the remitting bank. This advice confirms that the collecting bank has accepted the documents and will proceed as per the instructions.

Example:
If the collecting bank receives documents and accepts them for processing, it must send an immediate notification stating: “Advice of Acceptance: Documents accepted as per collection instruction.”

c 3 ADVICE OF NON-PAYMENT AND/OR NON-ACCEPTANCE

“The presenting bank should endeavour to ascertain the reasons for non-payment and/or non-acceptance and advise accordingly, without delay, the bank from which it received the collection instruction. The presenting bank must send without delay advice of non-payment and/or advice of non-acceptance to the bank from which it received the collection instruction. On receipt of such advice the remitting bank must give appropriate instructions as to the further handling of the documents. If such instructions are not received by the presenting bank within 60 days after its advice of non-payment and/or non-acceptance, the documents may be returned to the bank from which the collection instruction was received without any further responsibility on the part of the presenting bank.”

Explanation:
If a collection fails (either due to non-payment or non-acceptance), the collecting bank must inform the remitting bank immediately, explaining the reasons if possible. The remitting bank should then provide further instructions on how to handle the documents. If no instructions are received within 60 days, the collecting bank can return the documents to the remitting bank without further obligations.

Example:
If the collecting bank is unable to secure payment and/or acceptance, it should notify the remitting bank with details like: “Advice of Non-Payment: Reason – insufficient funds.” If the remitting bank does not respond with further instructions within 60 days, the collecting bank will return the documents to the remitting bank without additional liability.

URC 522: Articles 24 and 25 : “Protest”, “Case-Of-Need” – Explanation

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Article 24: Protest

“The collection instruction should give specific instructions regarding protest (or other legal process in lieu thereof), in the event of non-payment or non-acceptance.”

Explanation:
This clause mandates that the collection instruction must include clear guidelines on what should be done if the payment is not made or the document is not accepted. If there are specific instructions for handling such situations, they must be detailed in the collection instruction to ensure proper legal recourse.

Example:
Imagine a company, ABC Ltd., issues a collection instruction for a trade document, instructing the bank to collect payment from XYZ Ltd. If XYZ Ltd. fails to pay or accept the document, ABC Ltd.’s instruction should specify whether the bank should protest the non-payment legally. If ABC Ltd. states, “In case of non-payment, protest the document at the chamber of commerce,” the bank follows this instruction. Without such specific instructions, the bank isn’t obligated to take any legal action.

“In the absence of such specific instructions, the banks concerned with the collection have no obligation to have the document(s) protested (or subjected to other legal process in lieu thereof) for non-payment or non-acceptance.”

Explanation:
If the collection instruction does not provide specific instructions for protest or legal action, the banks involved are not required to take any action in the event of non-payment or non-acceptance.

Example:
If ABC Ltd. does not specify any instructions regarding protest or legal processes, and XYZ Ltd. fails to make payment or accept the document, the bank is not obligated to initiate any legal proceedings or protest. The bank simply handles the collection as instructed without additional actions.

“Any charges and/or expenses incurred by banks in connection with such protest, or other legal process, will be for the account of the party from whom the collection instruction was received.”

Explanation:
Any costs or expenses related to protesting the document or undertaking other legal processes are the responsibility of the party who issued the collection instruction. This ensures that the bank’s costs are covered by the instructing party.

Example:
If ABC Ltd. instructs the bank to protest a document due to non-payment and incurs a fee for this legal action, ABC Ltd. will be responsible for covering this expense, not the bank. The bank will charge ABC Ltd. for the cost of the protest process.

Article 25: Case-of-Need

“If the principal nominates a representative to act as case-of-need in the event of non-payment and/or non-acceptance the collection instruction should clearly and fully indicate the powers of such case-of-need.”

Explanation:
This clause requires that if a principal designates a representative to handle matters in case of non-payment or non-acceptance, the collection instruction must specify the powers granted to this representative. The instructions should be comprehensive to avoid ambiguity.

Example:
If ABC Ltd. designates Mr. John Doe as the case-of-need representative, the collection instruction should detail Mr. Doe’s authority, such as whether he can negotiate or extend the payment deadline. For instance, the instruction might state, “Mr. John Doe is authorized to negotiate an extension of payment up to 30 days if necessary.” This clarity ensures that the bank knows exactly how Mr. Doe can act on behalf of ABC Ltd.

“In the absence of such indication banks will not accept any instructions from the case-of-need.”

Explanation:
Without clear instructions specifying the powers of the case-of-need representative, banks will not entertain or follow any instructions given by the representative. This clause ensures that the representative’s role and authority are clearly defined.

Example:
If ABC Ltd. appoints Mr. John Doe as the case-of-need representative but fails to specify his powers in the collection instruction, the bank will not follow any directives from Mr. Doe. The bank will only act according to the original collection instructions and will not engage with the representative.

URC 522 Article 22 and 23: “Acceptance”, “Promissory Notes and Other Instruments” – Explanation

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ARTICLE 22: ACCEPTANCE

Clause: “The presenting bank is responsible for seeing that the form of the acceptance of a bill of exchange appears to be complete and correct, but is not responsible for the genuineness of any signature or for the authority of any signatory to sign the acceptance.”

Explanation:

This clause outlines the obligations of the presenting bank when dealing with the acceptance of a bill of exchange under documentary collections. The presenting bank must ensure that the acceptance form is complete and appears correct in all visible aspects, such as dates, amounts, and other necessary details. However, the bank is not liable for verifying the authenticity of signatures or the authority of the person who has signed the acceptance. This means the bank does not have to investigate whether the person signing the document is genuinely authorized to do so or whether the signature is legitimate.

Example:

Imagine a scenario where a bill of exchange is presented for acceptance, and it appears complete with the necessary information like the date, amount, and place of payment. The presenting bank checks these details and finds everything in order, so it proceeds with the acceptance process. Later, it turns out that the signature on the acceptance was forged, or the person who signed it was not authorized to do so. According to this clause, the bank would not be held responsible for this forgery or lack of authority, as its obligation was only to ensure the form’s completeness and correctness, not the authenticity of the signatures.

ARTICLE 23: PROMISSORY NOTES AND OTHER INSTRUMENTS

Clause: “The presenting bank is not responsible for the genuineness of any signature or for the authority of any signatory to sign a promissory note, receipt, or other instruments.”

Explanation:

Article 23 emphasizes that the presenting bank bears no responsibility for verifying the genuineness of signatures or the authority of signatories on promissory notes, receipts, or other financial instruments submitted under documentary collections. The bank’s role is limited to the physical presentation and handling of these documents. It is not required to authenticate the signatures or confirm that the individuals who signed the documents have the proper authority to do so.

Example:

Consider a situation where a promissory note is presented to the bank for processing. The bank forwards the note without checking whether the signature on it is genuine or whether the person who signed it had the authority to commit to the payment. If it later comes to light that the signature was forged or unauthorized, the presenting bank is not liable for this issue, as its responsibility does not extend to verifying the authenticity or authority of the signatures on such documents.

URC 522 Article 21: Charges and Expenses in Collections – Explanation

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URC 522 ARTICLE 21 : CHARGES AND EXPENSES

Clause (a): “If the collection instruction specifies that collection charges and/or expenses are to be for account of the drawee and the drawee refuses to pay them, the presenting bank may deliver the document(s) against payment or acceptance or on other terms and conditions as the case may be, without collecting charges and/or expenses, unless sub-Article 21(b) applies. Whenever collection charges and/or expenses are so waived they will be for the account of the party from whom the collection was received and may be deducted from the proceeds.”

Explanation: This clause provides that if a collection instruction mandates that the drawee (the party expected to pay) is responsible for charges and expenses, and the drawee refuses to pay, the presenting bank (the bank handling the documents) may still deliver the documents against payment, acceptance, or under other terms, without collecting these charges from the drawee. However, the charges or expenses waived will then be charged to the party from whom the collection instruction was received, and these may be deducted from the collection proceeds.

Example: Suppose a seller in India sends a bill of exchange to a buyer in Germany through an Indian bank, with instructions that the German buyer is responsible for any collection charges. If the German buyer refuses to pay these charges but agrees to pay the bill, the German bank (presenting bank) may still deliver the documents to the buyer. The Indian bank would then be responsible for the charges, and it could deduct these from the funds received from the buyer’s payment.

Clause (b): “Where the collection instruction expressly states that charges and/or expenses may not be waived and the drawee refuses to pay such charges and/or expenses, the presenting bank will not deliver documents and will not be responsible for any consequences arising out of any delay in the delivery of the document(s). When payment of collection charges and/or expenses has been refused the presenting bank must inform by telecommunication or, if that is not possible, by other expeditious means without delay the bank from which the collection instruction was received.”

Explanation: This clause emphasizes that if the collection instructions clearly state that the charges cannot be waived and the drawee refuses to pay these charges, the presenting bank must not release the documents. The bank is also not liable for any delays caused by this refusal. Moreover, the presenting bank must immediately notify the bank that sent the collection instruction (remitting bank) using the quickest possible means of communication.

Example: Continuing with the previous scenario, if the Indian seller had explicitly instructed that the collection charges must not be waived, and the German buyer refused to pay these charges, the German bank would hold onto the documents and immediately inform the Indian bank. The German bank is not responsible for any delays in delivering the documents, even if this delay causes issues with the buyer or seller.

Clause (c): “In all cases where in the express terms of a collection instruction or under these Rules, disbursements and/or expenses and/or collection charges are to be borne by the principal, the collecting bank(s) shall be entitled to recover promptly outlays in respect of disbursements, expenses and charges from the bank from which the collection instruction was received, and the remitting bank shall be entitled to recover promptly from the principal any amount so paid out by it, together with its own disbursements, expenses and charges, regardless of the fate of the collection.”

Explanation: This clause provides that if collection instructions or the URC 522 rules state that the principal (the party initiating the collection) is responsible for charges, the collecting bank can promptly recover these costs from the bank that sent the collection instruction. The remitting bank, in turn, can promptly recover these costs from the principal, irrespective of whether the collection was successful or not.

Example: If the Indian seller’s collection instruction specifies that they are responsible for all charges, and the German bank incurs expenses in the collection process, the German bank can demand reimbursement from the Indian bank. The Indian bank, in turn, can demand these costs from the seller, whether or not the buyer in Germany ultimately pays the bill.

Clause (d): “Banks reserve the right to demand payment of charges and/or expenses in advance from the party from whom the collection instruction was received, to cover costs in attempting to carry out any instructions, and pending receipt of such payment also reserve the right not to carry out such instructions.”

Explanation: This clause allows banks to demand advance payment of charges and expenses from the party issuing the collection instruction (typically the principal). If the advance payment is not made, the bank reserves the right to refuse to execute the collection instructions.

Example: If the Indian seller sends a collection instruction to their bank but the bank anticipates that the collection might involve significant expenses, the bank can ask the seller to pay these charges in advance. If the seller does not pay, the bank has the right to refuse to process the collection.

URC 522 Article 20 : “Interest” – Explanation

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URC 522 Article 20: Interest

Clause 20(a):

“If the collection instruction specifies that interest is to be collected and the drawee refuses to pay such interest, the presenting bank may deliver the document(s) against payment or acceptance or on other terms and conditions as the case may be, without collecting such interest, unless sub-Article 20(c) applies.”

Explanation:
This clause deals with situations where the collection instruction from the remitting bank specifies that interest should be collected from the drawee. If the drawee refuses to pay this interest, the presenting bank has the authority to release the documents upon payment or acceptance of the bill without collecting the specified interest. The presenting bank may choose to deliver the documents on terms other than those initially outlined in the collection instruction, as long as clause 20(c) does not apply. This flexibility is provided to facilitate the collection process and ensure that the main payment or acceptance is not delayed due to a dispute over interest.

Example:
Suppose a bank in Germany sends documents to a bank in India with instructions to collect $10,000 along with 5% interest. If the Indian buyer (drawee) refuses to pay the interest, the Indian bank may still release the documents to the buyer upon payment of $10,000, unless clause 20(c) is applicable.

Clause 20(b):

“Where such interest is to be collected, the collection instruction must specify the rate of interest, interest period, and basis of calculation.”

Explanation:
This clause requires that if the collection instruction includes a directive to collect interest, the details of the interest must be clearly specified. The remitting bank must provide the exact interest rate, the period for which the interest is to be calculated, and the method for calculating the interest. This ensures clarity and prevents disputes between the parties involved.

Example:
For instance, if a bank in Japan instructs a bank in Brazil to collect an invoice amount along with 6% interest, the instruction must specify whether the interest is simple or compound, the time frame (e.g., from the date of shipment to the date of payment), and the principal amount on which the interest is to be calculated.

Clause 20(c):

“Where the collection instruction expressly states that interest may not be waived and the drawee refuses to pay such interest, the presenting bank will not deliver documents and will not be responsible for any consequences arising out of any delay in the delivery of document(s). When payment of interest has been refused, the presenting bank must inform by telecommunication or, if that is not possible, by other expeditious means without delay the bank from which the collection instruction was received.”

Explanation:
This clause outlines the situation where the remitting bank’s collection instruction explicitly states that the interest is non-negotiable and cannot be waived. If the drawee refuses to pay this mandatory interest, the presenting bank is instructed not to release the documents. The presenting bank is also absolved of any liability related to delays in the delivery of documents resulting from this refusal. Additionally, the presenting bank is required to immediately notify the remitting bank about the refusal of interest payment through the quickest communication method available.

Example:
Imagine a situation where a bank in the United States instructs a bank in France that a certain interest amount must be collected and cannot be waived. If the French buyer refuses to pay the interest, the French bank is obligated to withhold the documents and promptly inform the U.S. bank of the refusal. The French bank is not responsible for any delays caused by this situation.

URC 522 Article 19: “Partial Payments” – Explanation

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ARTICLE 19: PARTIAL PAYMENTS

Clause a:

“In respect of clean collections, partial payments may be accepted if and to the extent to which and on the conditions on which partial payments are authorised by the law in force in the place of payment. The financial document(s) will be released to the drawee only when full payment thereof has been received.”

Explanation: This clause allows for partial payments in clean collections, provided that the law in the place where payment is to be made permits such partial payments. Clean collections involve the collection of financial documents without accompanying commercial documents (like invoices or bills of lading). The key point here is that even if a partial payment is made, the financial documents (such as drafts or promissory notes) will only be handed over to the drawee (the party expected to pay) once the full payment is received.

Example: A bank in India is handling a clean collection for a draft of $10,000 drawn on a drawee in the USA. The drawee offers to make a partial payment of $6,000, but under US law, partial payments on such drafts are not permissible. As a result, the bank must refuse the partial payment. If US law did allow partial payments, the bank would still need to hold the financial document until the full $10,000 is paid.

Clause b:

“In respect of documentary collections, partial payments will only be accepted if specifically authorised in the collection instruction. However, unless otherwise instructed, the presenting bank will release the documents to the drawee only after full payment has been received, and the presenting bank will not be responsible for any consequences arising out of any delay in the delivery of documents.”

Explanation: This clause deals with documentary collections, where both financial and commercial documents are presented for payment. Partial payments can only be accepted if the collection instruction (instructions from the seller or remitting bank to the presenting bank) explicitly allows it. Even then, unless the collection instruction states otherwise, the presenting bank should not release the documents to the drawee until full payment has been made. The bank is also not liable for any delays in document delivery that result from this process.

Example: A seller in Germany exports goods to a buyer in Brazil under a documentary collection of $50,000. The collection instruction specifies that partial payments are acceptable. The buyer makes an initial payment of $30,000. However, the presenting bank in Brazil cannot release the shipping documents (e.g., bill of lading, invoice) to the buyer until the remaining $20,000 is paid, unless the collection instruction specifically allows for the documents to be released against partial payment.

Clause c:

“In all cases partial payments will be accepted only subject to compliance with the provisions of either Article 17 or Article 18 as appropriate. Partial payment, if accepted, will be dealt with in accordance with the provisions of Article 16.”

Explanation: This clause emphasizes that any partial payment, whether in clean or documentary collections, must comply with the relevant provisions of Article 17 (which deals with clean collections) or Article 18 (which deals with documentary collections). Moreover, any accepted partial payment must be processed according to the rules outlined in Article 16, which addresses issues related to the presentation of documents and payment.

Example: If a partial payment is accepted for a documentary collection under Article 18, it must follow the procedures for handling documents as per Article 16. For instance, if Article 16 requires that the documents be delivered to the drawee against payment, and a partial payment is accepted, the presenting bank must ensure that this requirement is still met. The documents should not be handed over unless the full payment conditions outlined in Article 16 are satisfied.