URC 522 article 21.
While article 21 covers delivering docs against payment in regard to waive/dont waive charges. It does not cover term bills.
An example is that the remitting bank requests presenting bank to deliver documents against acceptance of term bill. Also stated is that interest is payable for 30 days @ x%. The drawee accepts the B/E (no mention on the B/E as to interest but advised on the presenting banks covering schedule).
On due date, drawee refuses to pay interest. Given this, the presenting bank has 2 options:-
1. Advise remitting bank that drawee refuses to pay interest.Do not pay bill amount or interest. Ask for further instructions.
2. Advise remitting bank that drawee refuses to pay interest.Pay bill amount but not interest. Ask for further instructions.
Has there been any rulings in regard to the best approach.
Thanks
Interest charges under URC for Term bills
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MichaelFlanagan
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PGauntlett
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Interest charges under URC for Term bills
Payment of interest is covered by Art 20 which is similar to Art 21. There is always a greater risk for the drawer when docs are released against acceptance.
However, in my view, if the drawee agrees at time of acceptance to pay interest together with principle at maturity he cannot, at maturity, only pay the principle as that would form a part payment. In practice, though, the drawer might prefer to receive the principle amount instead of nothing.
If the drawee wants to refuse interest then he risks not having the docs released to him if Art 20c applies. Therefore if interest is properly due to a drawer he should instruct his bank to state 'interest may not be waived'
However, in my view, if the drawee agrees at time of acceptance to pay interest together with principle at maturity he cannot, at maturity, only pay the principle as that would form a part payment. In practice, though, the drawer might prefer to receive the principle amount instead of nothing.
If the drawee wants to refuse interest then he risks not having the docs released to him if Art 20c applies. Therefore if interest is properly due to a drawer he should instruct his bank to state 'interest may not be waived'
Interest charges under URC for Term bills
My views (drafted before reading Phil’s posting above), without responsibility on my part, are:
Article 20 is the relevant article that deals with where the ‘collection instruction specifies that interest is to be collected’. Sub-Article 20a states that where ‘the drawee refuses to pay such interest, the presenting bank may deliver the document(s) against payment or acceptance …… without collecting such interest, unless sub-Article 20(c) applies’.
Sub-Article 20c states that ‘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 …….’.
Therefore, in your example, if sub-Article 20c does not apply, the presenting bank may treat the collection as honoured per sub-Article 20a, i.e. it may ‘deliver the document(s) [the bill of exchange] against payment’. However, if sub-Article 20c does apply, the presenting bank must treat the collection as dis-honoured and act accordingly (e.g. not release the bill to the drawee). In this latter case, if the presenting bank did -nonetheless- receive and pay the bill amount to the remitting bank, I believe it might be at risk if it did not make clear to the drawee, and the drawee first agree, that payment would not discharge the collection (and thus, for example, that the bill would not be released), and that the payment would be passed unconditionally to the remitting bank i.e. without the possibility of its later recovery by the drawee etc.
Article 20 is the relevant article that deals with where the ‘collection instruction specifies that interest is to be collected’. Sub-Article 20a states that where ‘the drawee refuses to pay such interest, the presenting bank may deliver the document(s) against payment or acceptance …… without collecting such interest, unless sub-Article 20(c) applies’.
Sub-Article 20c states that ‘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 …….’.
Therefore, in your example, if sub-Article 20c does not apply, the presenting bank may treat the collection as honoured per sub-Article 20a, i.e. it may ‘deliver the document(s) [the bill of exchange] against payment’. However, if sub-Article 20c does apply, the presenting bank must treat the collection as dis-honoured and act accordingly (e.g. not release the bill to the drawee). In this latter case, if the presenting bank did -nonetheless- receive and pay the bill amount to the remitting bank, I believe it might be at risk if it did not make clear to the drawee, and the drawee first agree, that payment would not discharge the collection (and thus, for example, that the bill would not be released), and that the payment would be passed unconditionally to the remitting bank i.e. without the possibility of its later recovery by the drawee etc.