A bank that takes a documentary draft for collection shall present or send the draft and accompanying documents for presentment and, upon learning that the draft has not been paid or accepted in due course, shall seasonably notify its customer of the fact even though it may have discounted or bought the draft or extended credit available for withdrawal as of right.
Chapter 5Collection of Documentary Drafts
Section § 4501
This law says that when a bank receives a draft—like a document that demands payment or acceptance—for collection, it must quickly present the draft to whoever is supposed to pay it. If they find out the payment or acceptance hasn't happened in a reasonable time, the bank must promptly inform their customer. This duty holds even if the bank has already bought the draft or allowed the customer to access the funds based on it.
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Section § 4502
This law says that if a draft or instructions indicate that payment or acceptance is required upon the arrival of goods, the bank responsible for collecting doesn't have to present the draft for payment until it determines that a reasonable amount of time has passed for the goods to arrive. If the draft is refused because the goods haven't arrived yet, it's not considered a dishonor. The bank must inform whoever sent the draft about the refusal, but they don't have to present the draft again until they are told to do so or they learn that the goods have actually arrived.
If a draft or the relevant instructions require presentment “on arrival,” “when goods arrive” or the like, the collecting bank need not present until in its judgment a reasonable time for arrival of the goods has expired. Refusal to pay or accept because the goods have not arrived is not dishonor; the bank shall notify its transferor of the refusal but need not present the draft again until it is instructed to do so or learns of the arrival of the goods.
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Section § 4503
This law section describes what banks need to do when dealing with documentary drafts, which are payment orders involving documents. If the payment is due more than three days after the draft is presented, the bank must hand over the documents when the draft is accepted, not when the payment is made. In cases where the draft is dishonored (meaning it's rejected), the bank should consult a third party if specified, or diligently find out why and inform the previous party it worked with, asking for further instructions. The bank isn't responsible for the goods in the documents, except to follow any reasonable instructions it receives promptly. Additionally, the bank can ask for money upfront for expenses or compensation for costs incurred while following those instructions.
Unless otherwise instructed and except as provided in Division 5 (commencing with Section 5101), a bank presenting a documentary draft:
(a)CA Commercial Law Code § 4503(a) Shall deliver the documents to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment.
(b)CA Commercial Law Code § 4503(b) Upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions from any referee in case of need designated in the draft or, if the presenting bank does not choose to utilize the referee’s services, it shall use diligence and good faith to ascertain the reason for dishonor, shall notify its transferor of the dishonor and of the results of its effort to ascertain the reasons therefor, and shall request instructions.
However, the presenting bank is under no obligation with
respect to goods represented by the documents except to follow any reasonable instructions seasonably received; it has a right to reimbursement for any expense incurred in following instructions and to prepayment of or indemnity for those expenses.
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Section § 4504
If a bank is involved in a transaction with documents and the deal falls through, the bank can ask for instructions on what to do next. If they don’t get a response in time, they can store or sell the goods in a reasonable way. The bank can also cover its costs from handling the goods by claiming a right over the goods or their sale proceeds, similar to how a seller would if they weren't paid.
(a)CA Commercial Law Code § 4504(a) A presenting bank that, following the dishonor of a documentary draft, has seasonably requested instructions but does not receive them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner.
(b)CA Commercial Law Code § 4504(b) For its reasonable expenses incurred by action under subdivision (a), the presenting bank has a lien upon the goods or their proceeds, which may be foreclosed in the same manner as an unpaid seller’s lien.
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