promissory notes

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 8: “Creation of Documents” – Detailed Explanation

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“ARTICLE 8 CREATION OF DOCUMENTS”

Clause: “Where the remitting bank instructs that either the collecting bank or the drawee is to create documents (bills of exchange, promissory notes, trust receipts, letters of undertaking or other documents) that were not included in the collection, the form and wording of such documents shall be provided by the remitting bank, otherwise the collecting bank shall not be liable or responsible for the form and wording of any such document provided by the collecting bank and/or the drawee.”

Explanation: This clause in URC 522 Article 8 addresses the situation where the remitting bank asks the collecting bank or the drawee to create specific documents that were not originally included in the collection package. The clause emphasizes that if the remitting bank requires the creation of these documents, it must provide clear instructions regarding the form and wording of such documents.

The documents mentioned could be various types of financial instruments, such as bills of exchange, promissory notes, trust receipts, or letters of undertaking. The primary responsibility for ensuring that these documents are correctly formatted and worded lies with the remitting bank. If the remitting bank fails to provide the necessary instructions, the collecting bank is not liable for any issues that arise from the documents created by either the collecting bank itself or the drawee.

Example: Imagine a scenario where an exporter sends goods to an importer under a documentary collection arrangement. The remitting bank, acting on behalf of the exporter, forwards the documents related to the transaction to the collecting bank in the importer’s country. However, the remitting bank realizes that a trust receipt is needed but was not initially included in the documents. The remitting bank then instructs the collecting bank to create the trust receipt.

In this case, if the remitting bank provides specific instructions on how the trust receipt should be worded and formatted, the collecting bank must follow these instructions. If the instructions are not provided, and the collecting bank creates the trust receipt based on its discretion, the remitting bank cannot hold the collecting bank responsible for any errors or issues with the document.