Selected Judicial Cases on Letters of Credit and Trade Finance in China

Author: Jin Saibo / Country: Mainland China
Publisher:
Publishing Date: 2005-06-01
Features:
1. URR522 as an international practice in the application of collection cases in international collection cases
The first judgment of the Quanzhou Intermediate People's Court of the Fujian Province Quanzhou City People's Court
"China Bank Shizli Branch v. Defendant Shizli City Jinlong Footwear and Apparel Development Co., Ltd. for the Collection of Checks and the Dispute over the Advance Payment of Collection"
Keywords: Collection, International Collection, Uniform Rules for Collection, International Practice, URR522, Recourse, Refusal Certificate, Governing Law, Negotiable Instruments Law, Uniform Commercial Code of the United States.
Civil Judgment of the Quanzhou Intermediate People's Court of Fujian Province (2003) Quanjing Chu Zhi No. 13
Plaintiff: China Bank Shizli Branch, with its registered office at No. 332, Ji Er Road, Shizli City.
In charge: Li Youying, President.
Commissed Counsel: Yang Dongwei, Ke Shuangmu, lawyers of Quanzhou Zhili Law Firm.
Defendant: Shizli City Jinlong Footwear and Apparel Development Co., Ltd., with its registered office at Tangtou Village, Baogai Town, Shizli City.
Commissed Counsel: Cai Shurong, lawyers of Quanzhou Xie Li Ren Law Firm.
The plaintiff China Bank Shizli Branch (hereinafter referred to as Shizli Bank) and the defendant Shizli City Jinlong Footwear and Apparel Development Co., Ltd. (hereinafter referred to as Jinlong Company) for the dispute over the collection of checks and the advance payment, the case was originally accepted by the Shizli City People's Court and was later transferred to this court due to the case being a foreign-related case.
This court accepted the case on January 21, 2003, and formed a panel consisting of Judge Yang Jinsun as the presiding judge, Assistant Judge Zhuang Lina, and Assistant Judge He Guanxiong.
P236 The trial was held twice on February 26, 2003, and June 30, 2003.
The commissed counsel of the plaintiff Shizli Bank, Yang Dongwei and Ke Shuangmu, and the commissed counsel of the defendant Jinlong Company, Cai Shurong, attended the trial.
The case has now been concluded.
The plaintiff Shizli Bank claims that on April 28, 2002, the defendant Jinlong Company presented a check for $25,000 to the bank for collection. On May 21 of the same year, the Shizli Bank's parent bank, China Bank Quanzhou Branch (hereinafter referred to as Quanzhou Bank), transferred the collection amount to the bank. The next day, the bank immediately converted the amount into 206,612.50 yuan RMB according to the foreign exchange rate of the day (USD 100: RMB 826.45) and transferred it to the RMB account of Jinlong Company opened in the bank. Jinlong Company withdrew the funds in batches before May 27. Later, because the bill was "altered," Quanzhou Bank notified the bank of the refusal to pay and, on the same day, transferred the collection amount and return mail and telegraph fees totaling $25,005 from the bank. According to the terms on the application form for the collection of the defendant Jinlong Company and relevant laws, the bank has the right of recourse to this collection amount, and the defendant Jinlong Company should refund the full amount of the bill and related fees. After repeatedly urging the defendant Jinlong Company without success, the plaintiff requests that the defendant Jinlong Company return to the plaintiff 206,612.50 yuan RMB and return mail and telegraph fees and corresponding interest (from May 22, 2002, to the date of repayment).
The defendant Jinlong Company denies that:
1. Shizli Bank does not have the subject qualification of the plaintiff in this case. Because the endorsee of the disputed check in this case is Jinlong Company and the endorsee is China Bank New York Branch, if a right of recourse arises, it should be exercised by China Bank New York Branch.
2. From the perspective of substantive rights, the plaintiff has not provided evidence to prove that it has the right of recourse.
1. The disputed bill in this case is an international bill, and the applicable law should be determined in accordance with the provisions of Chapter 5 of the "Negotiable Instruments Law of the People's Republic of China" (hereinafter referred to as the "Negotiable Instruments Law").
2. Article 99 of the "Negotiable Instruments Law" provides: "Endorsement, acceptance, payment, and guarantee of bills shall be governed by the law of the place where the act is performed." The endorsement, payment, and other acts of the disputed check in this case all occurred in the United States, and U.S. law should be applied.
3. Article 3 of the "Uniform Commercial Code" of the United States stipulates that in order to make any endorser liable, the holder should make the necessary presentation, notify any refund reason, and make a refusal certificate for any refusal, otherwise the liability of any endorser will be released.
4. The plaintiff has not provided evidence to prove that it has made the appropriate presentation to the payee in accordance with the agreed or statutory period, nor has it explained the reason for the return of the check and notified Jinlong Company in accordance with the provisions, nor has it provided a refusal certificate. Moreover, from the plaintiff's operating procedures, the text recorded in the lower left corner of the collection application form provided by the plaintiff is a standard clause, which is not legally binding. Therefore, the plaintiff requests that the court dismiss the plaintiff's complaint or its claims.
During the trial of this case, both parties have no objection to the following facts, which are hereby confirmed by this court:
On April 28, 2002, the defendant Jinlong Company presented a check for $25,000 to Shizli Bank for collection. On May 21 of the same year, the Shizli Bank's parent bank, China Bank Quanzhou Branch (hereinafter referred to as Quanzhou Bank), transferred the collection amount to Shizli Bank. The next day, Shizli Bank immediately converted the amount into 206,612.50 yuan RMB according to the foreign exchange rate of the day (USD 100: RMB 826.45) and transferred it to the RMB account of Jinlong Company opened in the bank. Jinlong Company withdrew the funds in batches before May 27. Later, because the bill was "altered," Quanzhou Bank notified Shizli Bank of the refusal to pay and, on the same day, transferred the collection amount and return mail and telegraph fees totaling $25,005 from Shizli Bank. The plaintiff, after failing to collect the funds from Jinlong Company, sued the Shizli City People's Court on June 19, 2002. The focus of the controversy between the two parties in this case is:
1. The nature of the case, the applicable law, and the legal issues.
2. Whether a refusal certificate should be issued if the check is refused to be paid in the United States, and who should bear the responsibility for the return of the check.
Regarding the first focus issue, the plaintiff Shizli Bank believes that the collection application form provided by the plaintiff can clearly show that there is actually a principal-agent relationship between the two parties, that is, the defendant entrusts the plaintiff to help it collect the amount due from the issuer of the bill through its foreign bank cooperation. Therefore, the nature of this case is a dispute over the return of the check arising from the collection of the check, not a dispute over the right of recourse arising from the negotiable instrument rights under the negotiable instrument law. Since the plaintiff and the defendant are in a principal-agent relationship for international settlement, the applicable law is the principal-agent agreement between the two parties and the "Uniform Rules for Collection." The defendant argues that this case should be governed by the "Negotiable Instruments Law," and even that the "Uniform Commercial Code" of the United States should be applied, because the defendant has confused the relationship of international settlement with the relationship of negotiable instruments, and this claim is completely untenable.
The defendant Jinlong Company believes that the nature of this case is a negotiable instrument dispute. The endorsement of the disputed check in this case has the seal of Jinlong Company affixed, and the seal of New York Bank is affixed in the middle of the back of the check, indicating that Jinlong Company has transferred the rights of the negotiable instrument to New York Bank through endorsement. Therefore, the plaintiff's request for Jinlong Company to return the amount due should be a dispute arising from the transfer of endorsement, and thus this case should be governed by the relevant provisions of the "Negotiable Instruments Law."
This court that Jinlong Company filled out the "Application for Collection of Funds from China Bank Quanzhou Branch" when it applied for business with the plaintiff in 2002. From the wording of the application form, the business relationship between Jinlong Company and Shizli Bank is a collection legal relationship. In this collection legal relationship, Jinlong Company is the principal, Shizli Bank is the collecting bank, and New York Bank is the collecting bank. Since the laws of the People's Republic of China and the international treaties concluded by the People's Republic of China have not made clear provisions on this issue, the relevant provisions of the "Uniform Rules for Collection" of the International Chamber of Commerce can be applied. The defendant Jinlong Company argues that this case is a negotiable instrument dispute and should be governed by the relevant provisions of the "Negotiable Instruments Law," which confuses the legal characteristics of international collection and negotiable instrument relationships. The plaintiff Shizli Bank and the collecting bank New York Bank are not the negotiable instrument parties of the disputed check in this case, and there is only a principal-agent relationship between Shizli Bank and Jinlong Company. Shizli Bank is in the position of the agent and only has the obligations of the agent to Jinlong Company, which conforms to the legal characteristics of the collection of the check. Therefore, the court does not accept the defendant Jinlong Company's objection.
Regarding the second focus issue, the plaintiff Shizli Bank believes that the original of the check provided by the plaintiff shows that the check collected by the defendant was indeed returned. As for the reason for the return, it is evidenced by the information issued by China Bank New York Branch, which indicates that the check was refused to be paid and returned due to "project changed." After consulting with China Bank New York Branch, the bank's reply is that according to its inquiry to the issuer, the check was not issued to Jinlong Company, and there is no trade relationship between the issuer and Jinlong Company at all. This is also evidenced by the fact that Jinlong Company cannot provide relevant commercial documents and procedures. Moreover, according to Article 17 of the "Uniform Rules for Collection," the defendant Jinlong Company did not make a special instruction in the collection application form as to whether a refusal certificate should be issued when the check is refused to be paid. Therefore, as long as the plaintiff proves that the collected check has been returned, the defendant has the obligation to return the funds advanced to the plaintiff in accordance with the collection agreement between the two parties. Moreover, according to the agreement between Quanzhou Bank and New York Bank provided by the plaintiff, it is shown that for checks for less than 35,000 U.S. dollars, they adopt immediate settlement services, that is, immediate credit. Quanzhou Bank paid the amount due to the defendant before the check was collected by New York Bank, and Quanzhou Bank retains the right of recourse against the defendant. The defendant's check was refused to be paid, and the defendant should first bear the responsibility. The defendant must provide international trade bills of lading or other shipping documents, and the defendant must prove the authenticity of the transaction. Moreover, according to Article 4 of the "Uniform Rules for Collection," if the collected check is defective, the responsibility does not lie with the plaintiff, and the legal consequences should be borne by the defendant. The "Application for Collection of Funds from China Bank Quanzhou Branch" submitted by the defendant Jinlong Company states: "If the above collected funds are collected and a return of the check and recourse occur in the future, I am willing to bear the full amount of the check and the postage and telegraph fees." Therefore, the defendant should return to the plaintiff the full amount of the funds advanced for collection and bear the postage and telegraph fees.
The defendant Jinlong Company argues that according to Article 62 of the "Negotiable Instruments Law," "When a holder exercises the right of recourse, he shall provide relevant proof of the refusal to accept or pay." Providing relevant proof of the refusal to pay is a prerequisite for a holder to exercise the right of recourse. In accordance with the relevant provisions of the "Negotiable Instruments Law," the exercise of negotiable instrument rights can be carried out according to the statutory procedures by presenting the negotiable instrument. From the evidence in this case, it can be confirmed and recognized that the plaintiff has not fulfilled its obligation to present payment, and the disputed negotiable instrument in this case has lost its effectiveness. To prove that the disputed check in this case has been refused to be paid, the plaintiff has provided a certificate issued by New York Bank to the court. Although this certificate meets the formal requirements of foreign evidence, it is only a certificate issued by New York Bank, which is related to this case, and it does not meet the requirements of the "Negotiable Instruments Law" for a refusal certificate issued by the payee, and it cannot play the role of proving that the disputed check in this case has been refused to be paid. Therefore, the plaintiff's exercise of the right of recourse lacks a factual and legal basis, and the court requests the court to dismiss the plaintiff's claim in accordance with the law.
This court that according to Article 17 of the "Uniform Rules for Collection," the instructions for whether a refusal certificate (or other legal procedures that can replace it) should be made when a refusal to accept or pay occurs should be given special instructions. If there is no such special instruction, the banks involved in the collection have no obligation to issue a refusal certificate (or take other legal procedures that can replace it). The handling fees and expenses incurred by the bank due to the issuance of a refusal certificate or the adoption of other legal procedures are borne by the principal. In this case, the defendant Jinlong Company did not make a special instruction in the collection application form as to whether a refusal certificate should be issued. Therefore, it should be considered that a refusal certificate does not need to be issued. The returned check is marked with the words "ALTERED ITEM," that is, "item changed," which is consistent with the information returned by the collecting bank New York Bank, indicating that the collecting bank has fulfilled its obligation to present payment to the payee, and the reason for the return of the check is not caused by the fault of the bank involved in the collection, so the legal consequences should be borne by the principal Jinlong Company.
In summary, this court that this case is a dispute over the advance payment arising from the international collection relationship between the plaintiff and the defendant. Although the plaintiff and the defendant are domestic parties, the legal facts of this case occurred in New York, New York. In accordance with the provisions of the Supreme People's Court "Opinions on Several Issues of the Application of the Law" Article 304, this case is a foreign-related civil legal relationship. According to the provisions of Article 142, Paragraph 3 of the "Civil Law of the People's Republic of China," international treaties and the laws and regulations of the People's Republic of China have not made clear provisions on international collection issues, so this case can apply to international practice, that is, the "Uniform Rules for Collection" of the International Chamber of Commerce. As for the debts and obligations formed between the two parties based on the international collection relationship, the laws of the People's Republic of China should be applied. The plaintiff and the defendant are in a principal-agent relationship in the international collection relationship in this case. The check collected by Jinlong Company was returned due to "item changed," not due to the fault of the bank involved in the collection, so the legal consequences should be borne by the principal Jinlong Company, and the funds advanced for collection and the return of the check fees advanced by the plaintiff should be returned to the plaintiff, and the interest for the period of advance payment should be paid. The plaintiff's claim has a factual and legal basis and should be supported. The defendant Jinlong Company argues that this case is a negotiable instrument dispute and should be governed by the relevant provisions of the "Negotiable Instruments Law," which confuses the legal characteristics of international collection and negotiable instrument relationships. The court does not accept the defendant Jinlong Company's objection.
Accordingly, in accordance with the provisions of Article 84 of the "Civil Law of the People's Republic of China," the judgment is as follows:
The defendant Jinlong Company shall repay the plaintiff Shizli Bank the advance payment of 206,612.50 yuan RMB and the return of the check fee of 5 U.S. dollars within ten days from the effectiveness of this judgment, and pay interest on the advance payment (from May 22, 2002, to the date of repayment determined by this court, calculated at the overdue loan interest rate of the People's Bank of China).
The acceptance fee of this case is 5,609 yuan, which shall be borne by the defendant Jinlong Company.
If dissatisfied with this judgment, the defendant Jinlong Company may submit a petition to this court within fifteen days from the delivery of the judgment, and submit duplicates according to the number of the opposing party, and appeal to the Fujian Provincial High People's Court.
Presiding Judge: Yang Jinsun
Assistant Judge: He Guanxiong
Assistant Judge: Zhuang Lina
September 29, 2003