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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Under a documentary collection, Kestrel Co's bank sends documents to Ambrose Ltd's bank with the instruction 'documents against acceptance' (D/A). The bill is drawn at 90 days. Ambrose Ltd signs the bill and takes the shipping documents. At maturity Ambrose Ltd fails to pay. Which statement is correct?

Kestrel Co can enforce the accepted bill against Ambrose Ltd as acceptor, who is primarily liable at maturity. The collecting bank only followed the seller's instruction to release documents on acceptance, acts as agent, and gives no payment guarantee, so it is not liable for the buyer's default.

  1. AKestrel Co may enforce the accepted bill against Ambrose Ltd as acceptor, but has no claim against the collecting bank for non-paymentCorrect
  2. BThe collecting bank is liable to Kestrel Co because it released the documents on acceptance
  3. CKestrel Co has lost its rights because documents were released before payment
  4. DKestrel Co can sue only on the sale contract, as the accepted bill creates no separate liability

Explanation

Under D/A the documents are released on acceptance, giving the buyer credit and the seller the accepted bill. Ambrose Ltd, as acceptor, is primarily liable on the bill and Kestrel Co can enforce it. The bank acts as agent and, following its instructions, is not liable for the buyer's default. Release of documents on acceptance was what Kestrel Co instructed, so rights are not lost.

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