Article 7

URC 522 Article 7: “Release of Commercial Documents” – Explanation

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Explanation of URC 522 Article 7: “Release of Commercial Documents”

“a. Collections should not contain bills of exchange payable at a future date with instructions that commercial documents are to be delivered against payment.”

Explanation:
Clause (a) under Article 7 of URC 522 specifies that if a collection includes a bill of exchange payable at a future date, it should not instruct that the commercial documents be delivered only upon payment. The reasoning behind this is straightforward—if the bill is due at a later date, the payment would also be made later. Therefore, demanding that documents be released only after payment would create a conflict, as the documents would have to be held until the payment is made, which contradicts the principle of releasing documents for the recipient to act upon before payment.

Example:
An exporter in India ships goods to an importer in Brazil under a collection arrangement. The bill of exchange is payable 60 days after sight. If the collection instruction states that the commercial documents are to be delivered against payment, this instruction is problematic because the payment is due after 60 days. As a result, the importer would not be able to take possession of the goods (or sell them) until payment is made, which isn’t expected for another 60 days.

“b. If a collection contains a bill of exchange payable at a future date, the collection instruction should state whether the commercial documents are to be released to the drawee against acceptance (D/A) or against payment (D/P). In the absence of such statement commercial documents will be released only against payment and the collecting bank will not be responsible for any consequences arising out of any delay in the delivery of documents.”

Explanation:
Clause (b) advises that when a bill of exchange payable at a future date is included in a collection, the instructions must clearly specify whether the commercial documents should be released against the acceptance of the bill (D/A) or only after payment is made (D/P). If the instructions are ambiguous or missing, the default action for the collecting bank is to release the documents only after payment. The clause also clarifies that the collecting bank will not be liable for any delays in document delivery due to this.

Example:
Imagine a scenario where an exporter in China sends goods to a buyer in Germany, with a bill of exchange due 90 days after acceptance. If the collection instruction fails to specify whether documents should be released against acceptance (D/A) or payment (D/P), the collecting bank in Germany will automatically wait for payment before releasing the documents. If the importer needed the documents to clear the goods at customs and the lack of clarity in the instruction causes a delay, the collecting bank would not be responsible for any resulting issues, such as storage fees or penalties.

“c. If a collection contains a bill of exchange payable at a future date and the collection instruction indicates that commercial documents are to be released against payment, documents will be released only against such payment and the collecting bank will not be responsible for any consequences arising out of any delay in the delivery of documents.”

Explanation:
Clause (c) reiterates the importance of clear instructions when dealing with bills of exchange payable at a future date. It emphasizes that if the instruction explicitly states that the documents are to be released only against payment, the collecting bank must adhere to this and release the documents only when the payment is made. Any delay in document delivery due to this will not be the bank’s responsibility.

Example:
Consider a situation where an exporter in Italy sends a shipment to a buyer in Japan under a collection arrangement. The bill of exchange is payable 120 days after acceptance, and the collection instruction specifies that documents are to be released against payment. The Japanese buyer cannot access the goods without the documents, but the payment is not due for another 120 days. The collecting bank in Japan will hold the documents until payment is made, and if the delay causes the goods to be stuck at customs or leads to penalties, the bank will not be liable.

URR 725 Article 7: Expiry of a Reimbursement Authorization – CDCS Guide

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URR 725 Article 7: Expiry of a Reimbursement Authorization

Article 7(a): “Except to the extent expressly agreed to by the reimbursing bank, the reimbursement authorization should not be subject to an expiry date or latest date for presentation of a claim, except as indicated in Article 9.”

Explanation: This clause emphasizes that, unless the reimbursing bank explicitly agrees, a reimbursement authorization should generally not have an expiry date or a deadline for the presentation of a claim. This means that the authorization remains valid until it is utilized or canceled. However, there is an exception in Article 9 of URR 725, which outlines specific scenarios where a date might be applicable.

Example: Consider a scenario where Bank A issues a reimbursement authorization to Bank B for a letter of credit (LC). According to Article 7(a), unless Bank B specifically agrees to a set expiry date for the authorization, it should remain open-ended. This ensures that beneficiaries can present their claims even if the original LC has expired, as long as the reimbursement authorization has not been explicitly terminated.

Article 7(b): “A reimbursing bank will assume no responsibility for the expiry date of a credit and, if such date is provided in the reimbursement authorization, it will be disregarded.”

Explanation: This clause clarifies that the reimbursing bank is not responsible for tracking or enforcing the expiry date of the underlying credit. If the reimbursement authorization includes an expiry date, the reimbursing bank will disregard it. The responsibility for the expiry of the credit lies solely with the issuing bank.

Example: If Bank A, the issuing bank, includes an expiry date in the reimbursement authorization sent to Bank B, the reimbursing bank, Bank B is not obligated to monitor this date. Even if the expiry date is mentioned, Bank B will disregard it, and the authorization will continue to be valid until it is either utilized or canceled.

Article 7(c): “The issuing bank must cancel its reimbursement authorization for any unutilized portion of the credit to which it refers, informing the reimbursing bank without delay.”

Explanation: This clause mandates that the issuing bank must cancel the reimbursement authorization once any portion of the credit remains unutilized. The issuing bank is required to notify the reimbursing bank immediately after canceling the authorization, ensuring that there is no confusion or ambiguity about the validity of the authorization.

Example: Suppose an LC issued by Bank A has a value of $100,000, but only $80,000 has been utilized. The remaining $20,000 is unutilized. According to Article 7(c), Bank A must cancel the reimbursement authorization for the unutilized $20,000 and inform Bank B, the reimbursing bank, about the cancellation without delay.