sales

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1CHAPTER 6

DOCUMENTARY SALE AND TERMS OF TRADE

CONTRACTS AS A WAY TO MANAGE RISK

• Negotiate terms• Allocate risk• Fix performance obligation

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WHERE IS THE RISK IN AN INTERNATIONAL TRANSACTION?

• Similar in domestic transaction• Payment risk• Delivery risk


DEFINITION

• Documentary Sale:• Buyer is required to pay upon presentation of

NEGOTIABLE DOCUMENT OF TITLE by seller

•Document of title= evidences ownership dock receipts, warehouse receipts and bills of lading


DEFINITION

• Negotiability= legally transferred from one to another in return for value


BILL OF LADING

• A document of title issued by a carrier to a shipper upon receiving goods for transport• Negotiable bills must be to order or to bearer

( but bearer instruments not used in Int. transactions)• Order instruments must be delivered and

indorsed


DOCUMENTARY COLLECTION:PAYMENT AGAINST DOCUMENTS

• Separation of goods and documents facilitates trade• Controlling documents means you control the

goods


STAGES IN DOCUMENTARY TRANSACTION

• Seller gives goods to Carrier and gets bill of lading• Seller indorses bill of

lading and gives to bank with other documents (ins.,cert. or origin, documentary draft)

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DOCUMENTARY DRAFT

• Facilitates payment• Negotiable order to pay made out by seller• Drawn on buyer, payable to the seller• May be used with letters of credit which we

will discuss later


THE DOCUMENTARY SALE


JapaneseImporter

American Exporter

CollectingBank

Exporter’s U.S. Bank

(Remitting Bank)

Sales ContractCIF Japanese Port

Documents Against Payment

A

A. Sales contract calls for documentary sale

B

B. Documents prepared - export license obtained - goods delivered to carrier

C

C

C. Negotiable bill of lading, insurance policy, certificates of origin, invoice withdraft attached presented to remitting bank

D

D. Documents forwarded for collection through International banking system

E

E. Documents presented for negotiation on payment

F

F. Payment remitted and exporter’s account credited

G

G. Importer claims goods and makes entry

STAGES

• Seller’s bank forwards to collecting bank in buyer’s country• Documents released when buyer pays


SPECIAL PROTECTION FOR PURCHASERS OF BILLS OF

LADING• Special protection for purchasers who take by

negotiation- they take free of any adverse claims• “Good faith purchaser” is one who purchases• for value( not to settle debt)• in good faith and without notice of ant claim• in the ordinary course of business


IF YOU ARE NOT A GOOD FAITH PURCHASER, THEN

YOU ONLY TAKE THE RIGHTS OF A TRANSFEREE

• Who does this protect?


KANEMATSU V. EURASIA EXPRESS

• Eurasia Express released the goods to Billiongold without the bill of lading and is therefore liable to the holder of the bill of lading.


TRADE TERMS

• Responsibilities of buyer and seller need to be negotiated. Trade terms can be used as a short hand for assigned responsibilities and allocating when the risk passes from one party to another.


TYPES OF CONTRACTS:SHIPMENT AND DESTINATION

• CIF= cost, ins. and freight included in price• Risk of loss passes when goods cross ship’s rail

at port of shipment


BIDDELL BROTHERS V. CLEMENS HORST, P. 194

• Under CIF contract buyer has no right to inspect the goods before payment• Obligation to pay upon presentation of the

documents• Buyer wanted to inspect prior to payment even

though it was a CIF contract• Held for seller, the buyer is obligated to pay upon

presentation of the documents


DOCUMENTARY SALE PROTECTS BUYER AND SELLER

• Risks for both?


CERTIFICATES OF INSPECTION TO PROTECT BUYER AND BANK’S

RESPONSIBILITY

• Basse v. Bank of Australia: Plaintiff specified that bill of lading must include a certificate of analysis by Dr.. Helms. The seller submitted phony samples of ore and the Dr. submitted a certificate. The plaintiff sued the bank for paying on the bill of lading.• Issue: Did the bank breach its duty by not

discovering the fraud in transaction?


BASSE V. BANK OF AUSTRALIA

• No, the bank is only obligated to look at the face of the documents. The certificate was in order and the bank properly paid.• What recourse does the buyer have?


MEASUREMENT OF DAMAGES IN CIF CONTRACT

• Damages measured by the market price of the goods at the port of shipment on that date• Seaver v. Lindsay


RISK OF LOSS

• Shipment contract- risk passes when goods are given to the first carrier

• Destination contract- risk passes when goods are given to buyer at destination point


AM. KNITWEAR V. ALL AMERICA EXPORT-IMPORT

• All America (buyer) ordered from Knitwear (seller) yarn. Buyer used form which stated “pick up from your plant..for shipment to Santos, Brazil.” Buyer also typed FOB plant per lb. $1.35 but the blank for FOB terms was blank. Seller made the goods available to a driver who turned out to be a thief.


AM. KNITWEAR V. ALL AMERICA EXPORT-IMPORT

• Held: The seller is liable. FOB plant means delivery to the carrier. Risk of loss does not pass to the buyer until the goods are delivered to the carrier.


BASIC CONCEPTS

• Presumption is a shipment contract• Negotiate and price responsibilities accordingly• You can have a destination contract but it will be

expensive, but maybe worth it• Be explicit, reference clear set of terms


BASIC CONCEPTS

• Attempts to customize trade terms only adds to confusion• Should reference standard trade terms


sales

Education

documents buyer

bill of lading seller

cif contract buyer

documents separation

america buyer

documentary transaction

bank exporters

bank of australia