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Documentary Drafts Collection

Deals with the collection of documentary drafts concerning bank deposits and collections

By Chris Micheli, May 23, 2025 2:30 am

California’s Commercial Code, in Division 4, Chapter 5, deals with the collection of documentary drafts concerning bank deposits and collections.

Section 4501 requires a bank that takes a documentary draft for collection to 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, must 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.

Section 4502 provides that, 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. The bank must 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.

Section 4503 specifies that a bank presenting a documentary draft must deliver the documents to the drawee on acceptance of the draft if it is payable more than three days after presentment; upon dishonoring a draft, either in the case of presentment for acceptance or presentment for payment, the bank may seek and follow instructions from any referee in case of need designated in the draft.

Section 4504 provides that 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. And, 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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