WHERE BILLS OF LADING ARE ISSUED TO THE ORDER OF THE COLLECTING BANK

QUESTION

Dear Mr. Old Man,

I have some questions for your advice.

1) A full set of bills of lading made out to the order of the collecting bank was presented under a D/A collection. The collecting bank endorsed the bills of lading and released the documents to the drawee against the drawee’s acceptance.

Must the collecting bank pay in the event the drawee does not pay the tenor bill of exchange at maturity?

2) 1/3 bill of lading made out to the order of Bank C was sent directly to the drawee (importer). The drawee requested Bank C to endorse the bill of lading while Bank C has not yet received any collection instruction from the remitting Bank .

Should Bank C agree to endorse the bill of lading in this case?

Thanks and regards,
PNH
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ANSWER

Hi,

1) According to sub-article 10(e), where the goods are consigned to the order of the collecting bank and the drawee has honoured the collection by payment, acceptance or other terms and conditions, the collecting bank arranges for release of the goods, the remitting bank shall be deemed to have authorized the collecting bank to do so.

Therefore, if the collecting bank is instructed to release the documents against the drawee’s acceptance of a tenor bill of exchange and the collecting bank obtains the drawee’s acceptance when it releases the documents to the drawee, it has fulfilled its obligation. The collecting bank has no further liability in respect of the documents so released.

2) Where the drawee requests the collecting bank to endorse the bill of lading while the collecting bank has not yet received any collection from the remitting bank, the collecting bank may refuse to endorse the bill of lading. However, if the collecting bank agrees to endorse the bill of lading to enable the drawee to receive the goods, it should require the drawee to satisfy the following;

– to furnish the bank with a copy of contract and invoice(s) in order for the bank to determine the value of the goods shipped and other necessary information;
– to undertake to honour the collection by payment, acceptance or other terms and conditions;
– to undertake to indemnify the bank all costs, charges and expenses (if any) incurred by the bank in connection with the endorsement of the bill of lading;
– full cash deposit as security
– others if needed

Best regards,
Mr. Old Man