|FROM:||The Legal Taxi|
Whether bank is responsible for the document in possession?
Plaintiff sold rugs on credit to a company he did not know, that had one retail location. This is a routine risk he took in doing business with an overseas corporation, when you do not request any security for payment, collateral, personal guaranty, or other protection.
With respect to the possibility of claims against Habib Bank, I am not sure what he is referring to. Amsar had an account at Habib, and we obtained the records of that account. We continue to try to see if there is anything suspicious in them that might lead to Amsar assets. So far we have been unsuccessful.
Habib otherwise had nothing to do with the transactions at issue, except as a bank acting as a medium for payments. It did not issue a letter of credit or otherwise guaranty payment to ORW. If you give me more details I will look at the issue again. But if this is just what we discussed with Mr. Dawda before, then I do not see any theory of liability against Habib.
Relevant Statute and Cases
Liability of Bank during a exchange of documents
New Jersey Compiled Laws & Case Law
In the Present case the documents were handed over by the bank without taking the payment from the defendant. The research plan revolves around the liability of Bank during the transaction.
§ 12A:4-104. Definitions and index of definitions
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(6) "Documentary draft" means a draft to be presented for acceptance or payment if specified documents, certificated securities (12A:8-102) or instructions for uncertificated securities (12A:8-102), or other certificates, statements, or the like are to be received by the drawee or other payor before acceptance or payment of the draft;
- (7) "Draft" means a draft as defined in 12A:3-104 or an item, other than an instrument, that is an order;
- (8) "Drawee" means a person ordered in a draft to make payment;
- (9) "Item" means an instrument or a promise or order to pay money handled by a bank for collection or payment. The term does not include a payment order governed by chapter 4A or a credit or debit card slip;
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N.J. Stat. § 12A:4-105 (2013)
- § 12A:4-105. "Bank"; "depositary bank"; "payor bank"; "intermediary bank"; "collecting bank"; "presenting bank" As used in this chapter:
- a. "Bank" means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union, or trust company.
b. "Depositary bank" means the first bank to take an item even though it is also the payor bank, unless the item is presented for immediate payment over the counter;
c. "Payor bank" means a bank that is the drawee of a draft;
d. "Intermediary bank" means a bank to which an item is transferred in course of collection except the depositary or payor bank;
e. "Collecting bank" means a bank handling an item for collection except the payor bank;
f. "Presenting bank" means a bank presenting an item except a payor bank.
In the present situation “Habib American Bank” can be treated as a Collecting bank because it is handling an item for collection. The document can be treated as an Item as per section 12A:4-104(e).
N.J. Stat. § 12A:4-202 (2013)
§ 12A:4-202. Responsibility for collection or return; when action is timely
a. A collecting bank must exercise ordinary care in:
(1) presenting an item or sending it for presentment;
(2) sending notice of dishonor or nonpayment or returning an item other than a documentary draft to the bank's transferor after learning that the item has not been paid or accepted, as the case may be;
(3) settling for an item when the bank receives final settlement; and
(4) notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.
- b. A collecting bank exercises ordinary care under subsection a. of this section by taking proper action before its midnight deadline following receipt of an item, notice, or settlement. Taking proper action within a reasonably longer time may constitute the exercise of ordinary care, but the bank has the burden of establishing timeliness.
- c. Subject to paragraph (1) of subsection a. of this section, a bank is not liable for the insolvency, neglect, misconduct, mistake, or default of another bank or person or for loss or destruction of an item in the possession of others or in transit.
N.J. Stat. § 12A:4-201 (2013)
§ 12A:4-201. Status of collecting bank as agent and provisional status of credits; applicability of chapter; item indorsed "pay any bank"
- a. Unless a contrary intent clearly appears and before the time that a settlement given by a collecting bank for an item is or becomes final, the bank, with respect to the item, is an agent or sub-agent of the owner of the item and any settlement given for the item is provisional. This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank, such as those resulting from outstanding advances on the item and rights of recoupment or setoff. If an item is handled by banks for purposes of presentment, payment, collection, or
- return, the relevant provisions of this chapter apply even though action of the parties clearly establishes that a particular bank has purchased the item and is the owner of it.
- b. After an item has been indorsed with the words "pay any bank" or the like, only a bank may acquire the rights of a holder until the item has been:
- (1) returned to the customer initiating collection; or
(2) specially indorsed by a bank to a person who is not a bank.
As per your instructions we went through the provisions of Uniform Rules for Collections 522. These rules are only applicable if the documents sent for collection must be accompanied by a collection instruction indicating that the collection is subject to URC 522. Following are some of the relevant provision of the rules:
The URC 522 are the Uniform Rules for Collections. URC 522 came into effect on 01 January 1996.
URC 522 - Article 1
Article 2 Definition of Collection:
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(b) "Documents" means financial documents and/or commercial documents:
1 "Financial documents" means bills of exchange, promissory notes, cheques, or other similar instruments used for obtaining the payment of money;
2 "Commercial documents" means invoices, transport documents, documents of title or other similar documents, or any other documents whatsoever, not being financial documents.
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Article 1 Application Of URC 522
- (a) The Uniform Rules for Collections, 1995 Revision, ICC Publication No. 522, shall apply to all collections as defined in Article 2 where such rules are incorporated into the text of the "collection instruction" referred to in Article 4 and are binding on all parties thereto unless otherwise expressly agreed or contrary to the provisions of a national, state or local law and/or regulation which cannot be departed from.
- (b) Banks shall have no obligation to handle either a collection or any collection instruction or subsequent related instructions.
- (c) If a bank elects, for any reason, not to handle a collection or any related instructions received by it, it must advise the party from whom it received the collection or the instructions by telecommunication or, if that is not possible, by other expeditious means, without delay.
Article 4 Collection Instruction
- (a) 1 All documents sent for collection must be accompanied by a collection instruction indicating that the collection is subject to URC 522 and giving complete and precise instructions. Banks are only permitted to act upon the instructions given in such collection instruction, and in accordance with these Rules.
Article 9 Good Faith And Reasonable Care
- Banks will act in good faith and exercise reasonable care.
Article 10 Documents vs. Goods, Services, and Performances
- (b)Banks have no obligation to take any action in respect of the goods to which a documentary collection relates, including storage and insurance of the goods even when specific instructions are given to do so. Banks will only take such action if, when, and to the extent that they agree to do so in each case. Notwithstanding the provisions of sub-Article 1(c) this rule applies even in the absence of any specific advice to this effect by the collecting bank.
- (c) Nevertheless, in the case that banks take action for the protection of the goods, whether instructed or not, they assume no liability or responsibility with regard to the fate and/or condition of the goods and/or for any acts and/or omissions on the part of any third parties entrusted with the custody and/or protection of the goods. However, the collecting bank must advise without delay the bank from which the collection instruction was received of any such action taken.
Article 12 Disclaimers on Documents Received
- (a) Banks must determine that the documents received appear to be as listed in the collection instruction and must advise by telecommunication or, if that is not possible, by other expeditious means, without delay, the party from whom the collection instruction was received of any documents missing, or found to be other than listed. Banks have no further obligation in this respect.
- (b) If the documents do not appear to be listed, the remitting bank shall be precluded from disputing the type and number of documents received by the collecting bank.
- (c) Subject to sub-Article 5(c) and sub-Articles 12(a) and 12(b) above, banks will present documents as received without further examination.
The New Jersey statutes provide a clear set of standards and procedures governing the responsibility of a bank for collection or return of any Item and treating a bank as an agent, with respect to the item, of the owner. So the bank shall be vigilant and should have applied all the due reasonable care before handing over the document/Item of the party.
Uniform Rules for Collections 522 specifically states that banks should act in good faith and exercise reasonable care while collecting the documents and receiving the payments.
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