LAW OF OBLIGATION ACT, PART 8, CHAPTER 40, DIVISION 5

Division 5

Settlement by Collection 

  • 754. Definition of settlement by collection

(1) In the case of settlement by collection, a bank (the remitting bank) shall, on the instruction, at the expense and for the benefit of the drawer, act as an intermediary in the collection of a particular payment from a third party (the drawee). The objective of collection may also be the acceptance of any other collection or payment obligation.

(2) The remitting bank is entitled to involve another bank (a collecting bank) for the execution of a collection instruction.

(3) In the case of failure to execute the unsatisfactory performance of the instruction of the drawer, the bank which has failed to execute the collection instruction shall be liable to the drawer therefor.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 755. Execution of collection instruction

(1) Upon execution of a collection instruction, the banks shall be governed by the collection instruction and act with professional diligence.

(2) If the titles and numbers of the documents listed in the collection instruction and those sent for collection do not correspond, the collecting bank shall immediately notify the drawer or the bank which issued the collection instruction.

(3) Documents shall be delivered to the drawee in the form which they were received, except for the notes and inscriptions of banks which are necessary to execute collection actions.

(4) The collecting bank shall immediately transfer the amounts paid by the drawee to the drawer or to the bank which issued the collection instruction.

(5) The bank shall be liable for damage caused by the loss, damage or destruction of a document in its possession.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 756. Notification obligation

(1) The collecting bank shall immediately notify the remitting bank of any failure to receive payment or acceptance, and the remitting bank shall immediately notify the drawer and ask for further instructions.

(2) If the drawer fails to give instructions within a period of time considered as normal in banking or, in the absence thereof, within a reasonable period of time, the collecting bank may return the documents to the remitting bank.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 757. Liability

(1) The drawer shall be liable for the reimbursement of all expenses incurred by banks related to collection.

(2) Banks shall not be liable for failure to execute collection instructions issued to other banks or for failure to perform the obligations of the drawee.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

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