A Study Of The Legal Relation Between Principal And Collecting Bank In Documentary Collection

Collection, as a payment mechanism which is more advantageous to importers, is being employed by exporters in international trade as a strategy in market competition. Since China has been recording consistent trade surpluses, Collection has become an important payment tool in China’s international trade. According to International Law, the collection has two types:"clean collection" and "documentary collection". "clean collection" is relatively simple, generally applicable to a small amount of the transaction. As such settlement doesn’t require accompanying shipping documents, so it has higher risk for both parties. While in the "documentary collection", the exporter will draw a bill of exchange after delivering the goods and then submit the shipping documents and the bill of exchange to collecting bank who will help the exporter collect payment, thus such collection method is more secure for both parties and is more widely applicable in current international trade. However,it also brings a lot of relevant disputes.Among these disputes, how to define the legal relation between the principal and the collecting bank, there is no completely unified view in academia. It also has no exact definition in the international "Uniform Rules for Collections"(here in after referred to URC522). How to define the legal relation between the two parties is a focus which can not be bypassed in juridical practice, thus clarifying the legal relation has important theoretical and practical significance. Several opinions exist toward such relation in China, including no direct contractual relation theory, indirect agency theory, subagency theory and tort relation theory.This paper is divided into four chapters:Chapter one discusses the academic definition of legal relation between the principal and the collecting bank. This part introduces the basic points about every theory, the limitation of traditional dominant theory. It points out that the contractual relation theory and tort relation theory can protect principal’s benefits better, but they also have insufficiency.Chapter two discusses the legal definition of legal relation between the principal and the collecting bank. This part introduces the relevant regulations of international usages, pointing out the insufficiency. It also compared civil law system with common law system on the definition of this legal relation, and explains the definition of China towards this relation. Finally, it discusses the relation between the definition of international usages and domestic law.Chapter three refers to the definition of judicature between the principal and the collecting bank. This part is divided into three types, points out the rationality and insufficiency of every theory by referred judicial cases. It also make comparison between every country’s practice dealing with such disputes, to conclude that the subagency theory have more support from China’s judicial practice.Chapter four discusses the reflection and development of legal definition between the principal and the collecting bank.To reform this legal definition from theoretical perspective,legislative perspective and judicial perspective,we must clearly affirm the recognition of the principal’s right of action against the collecting bank.In the future,when the court deal with such disputes,it must be combine with the specific characteristics of the case to define the relation between the parties,and fully consider the principal’s claims.Only in this way can make sure the judicial balance between the principal’s business risks and the protecting of its interest,in order to promote international trade.To sum up, this paper analyzes the legal relation between principal and collecting bank comprehensively from three dimensions:theoretical perspective, legislative perspective, and judicial perspective. Based on this analysis, an appropriate interpretation of the legal relation will be developed.