Uncategorized WHERE DOCUMENTS UNDER D/P ARE NOT PAID By Mr Old Man Posted on June 25, 2013 5 min read 4 0 4,828 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Dear Mr. Old Man, I have the following case that needs your advice: A seller signed a contract to sell sea products to a buyer in Italy. After the shipment was made, the seller presented the documents under D/P terms to his bank (remitting bank) and asked for discounting. The remitting bank discounted the documents on a with recourse basis and forwarded the documents to the collecting bank for collection under D/P terms. After sometime without receiving payment from the collecting bank, the remitting bank inquired the status of the documents and was informed by the collecting bank that it had delivered the documents to the buyer (drawee), however, the drawee did not pay. Therefore, it had to suspend the payment pending the court’s decision with regards to the dispute with the drawee. Not long after that the remitting bank debited the seller’s account to collect the amount that it had advanced to the seller plus the accrued interest. The seller did not agree with the remitting bank’s action and requested the bank to re-credit the amount to his account. However, the remitting bank refused to do so and suggested the seller to file a lawsuit against the collecting bank. My questions are: 1. Was the remitting bank correct in debiting the seller’s account to collect the advanced amount? 2. In case of a lawsuit against the collecting bank, who is appropriate, the remitting bank or the seller, to file the lawsuit? 3. Can the seller file a lawsuit against the buyer for non-payment? Your advice is appreciated. Yours sincerely, GTN ——————- ANSWER Hi, In collection transactions, the seller may bear the risk of being unpaid while the goods have been shipped. This is true to the case in question. If the discounting is with recourse, the discounting bank is entitled to have recourse to the seller in case it does not receive the payment under the documents when due. The fact that the remitting bank/discounting bank debited the seller’s account to collect the amount that it had advanced to the seller was in accordance with its right to recourse provided in the discounting agreement. The seller can, for his sake and benefit, file a lawsuit to the court of Italy against the collecting bank for having released the documents to the drawee not in accordance with the instructions (i.e., release of the documents against payment). However, please note that a lawsuit costs time and money. So, taking a lawsuit is the last resort after all other solutions fail. It is recommended that a letter of complaint threatening legal action be sent to the collecting bank’s CEO who, for the sake of the bank’s reputation and creditworthiness, may investigate the issue and urge his bank to pay. I do not think it is appropriate for the seller to file a lawsuit against the buyer in this case. It is the collecting bank that should sue the buyer for failing to pay as promised when taking up the documents from the collecting bank. Best regards, Mr. Old Man
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?