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DOCUMENTARY SALE AND
TERMS OF TRADE
© 2002 West/Thomson Learning www.StudsPlanet.com
CONTRACTS AS A WAY TO
MANAGE RISK
• Negotiate terms to fit specific transaction
• Allocate risk - moving goods and money
•...
WHERE IS THE THE RISK IN AN
INTERNATIONAL TRANSACTION?
• Payment risk
• Delivery risk
• Quality risk
• Differences from do...
DEFINITIONS
• Documentary Sale:
• Buyer is required to pay upon presentation of
NEGOTIABLE DOCUMENT OF TITLE by seller
• D...
BILL OF LADING
• A document of title issued by a carrier to a
shipper upon receiving goods for transport;
also serves as r...
DOCUMENTARY COLLECTION:
PAYMENT AGAINST DOCUMENTS
• Separation of goods and documents facilitates
trade and payment
• Cont...
STAGES IN DOCUMENTARY
TRANSACTION
• Seller gives goods to
Carrier and gets bill of
lading
• Seller endorses bill of
lading...
DOCUMENTARY DRAFT
• Facilitates payment
• Negotiable order to pay made out by seller
• Drawn on buyer, payable to the sell...
THE DOCUMENTARY SALE
Japanese
Importer
American
Exporter
Collecting
Bank
Exporter’s U.S.
Bank
(Remitting Bank)
Sales Contr...
STAGES
• Seller’s bank forwards documents to collecting
bank in buyer’s country
• Documents released to buyer when buyer p...
PURCHASERS OF BILLS OF LADING
• Special protection for purchasers who take
bills of lading by negotiation -- they take
pos...
TYPES OF CONTRACTS:
SHIPMENT AND DESTINATION
• Shipment Contract: Contract calls for seller
to ship goods by carrier, but ...
RISK OF LOSS UNDER CONTRACTS
• Shipment
contract: risk
passes when
goods are given to
the first carrier
• Presumption of
s...
TRADE TERMS
• Responsibilities of buyer and seller need to be
negotiated.
• Trade terms used as a short hand for assigned
...
TRADE TERMS: E TERMS
• EXW – Ex works: The seller's only
responsibility is to make the goods
available at the seller's pre...
TRADE TERMS: F TERMS
• FCA – Free carrier: The seller delivers the goods, cleared
for export, to the carrier selected by t...
TRADE TERMS: C TERMS
• CFR – Cost & freight: The seller clears the goods for export
and pays the costs of moving the goods...
TRADE TERMS: D TERMS (#1)
• DAF – Delivered at frontier: Seller transports goods to
“frontier” point in destination countr...
TRADE TERMS: D TERMS (#2)
• DDU – Delivered duty unpaid: Seller delivers goods -
not cleared for import - to buyer at dest...
MEASUREMENT OF DAMAGES IN CIF
CONTRACT
• Seaver v. Lindsay : U.S. rule: damages measured
by the market price of the goods ...
ELECTRONIC DATA
INTERCHANGE (EDI)
• Trade documents filed electronically
• Faster transmission; parties can track goods
an...
BASIC CONCEPTS
• Negotiate explicit terms: price and clear
responsibilities of parties
• Reference clear set of trade term...
BANQUE DE DEPOTS V. FERROLIGAS
• Facts: Bank gets court order to seize Bozel’s calcium
silicon in La. to settle debt owed ...
BIDDELL BROTHERS V. CLEMENS
HORST
• Facts: CIF contract for sale of hops to be shipped to
London
• Buyer insisted on right...
BASSE & SELVE V. BANK OF
AUSTRALASIA
• Facts: B&S purchased ore from O
• Bank negotiated documents on B&S behalf
• Contrac...
ST. PAUL GUARDIAN INS. V.
NEUROMED MEDICAL SYSTEMS
(S.D.N.Y. 2002)
• Facts: CIF contract for sale of MRI, shipped from Ger...
KUMAR CORP. V. NOPAL LINES, LTD. (FLA
DST. CT. APP. 1985)
• Facts: K sold tv sets to N in Venezuela
• CIF contract for del...
WEB SITES
• http://www.forwarderlaw.com
• http://www.cisg.law.pace.edu
• http://www.iccwbo.org
• http://www.jus.uio.no/lm/...
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Transcript of "Documentary sale and terms of trade"

  1. 1. DOCUMENTARY SALE AND TERMS OF TRADE © 2002 West/Thomson Learning www.StudsPlanet.com
  2. 2. CONTRACTS AS A WAY TO MANAGE RISK • Negotiate terms to fit specific transaction • Allocate risk - moving goods and money • Fix performance obligation and responsibilities • Fix price and quality • Make sure understanding is reflected in contract www.StudsPlanet.com
  3. 3. WHERE IS THE THE RISK IN AN INTERNATIONAL TRANSACTION? • Payment risk • Delivery risk • Quality risk • Differences from domestic transaction? www.StudsPlanet.com
  4. 4. DEFINITIONS • Documentary Sale: • Buyer is required to pay upon presentation of NEGOTIABLE DOCUMENT OF TITLE by seller • Document of title: evidences ownership of goods: dock receipts, warehouse receipts and bills of lading • Documents transfer ownership of goods, while goods may stay with bailee • Negotiability: ability of document to be transferred legally from one party to another in return for value www.StudsPlanet.com
  5. 5. BILL OF LADING • A document of title issued by a carrier to a shipper upon receiving goods for transport; also serves as receipt for goods delivered and contract of carriage • Negotiable bills must be either to order or to bearer (but bearer instruments not used in international transactions) • Order instruments must be delivered and endorsed www.StudsPlanet.com
  6. 6. DOCUMENTARY COLLECTION: PAYMENT AGAINST DOCUMENTS • Separation of goods and documents facilitates trade and payment • Control of documents gives control of goods www.StudsPlanet.com
  7. 7. STAGES IN DOCUMENTARY TRANSACTION • Seller gives goods to Carrier and gets bill of lading • Seller endorses bill of lading and gives it to bank with other required documents (insurance,certificate of origin or inspection, documentary draft) www.StudsPlanet.com
  8. 8. 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 www.StudsPlanet.com
  9. 9. THE DOCUMENTARY SALE Japanese Importer American Exporter Collecting Bank Exporter’s U.S. Bank (Remitting Bank) Sales Contract CIF 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 F C. Negotiable bill of lading, insurance policy, certificates of origin, invoice with draft 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 www.StudsPlanet.com
  10. 10. STAGES • Seller’s bank forwards documents to collecting bank in buyer’s country • Documents released to buyer when buyer pays www.StudsPlanet.com
  11. 11. PURCHASERS OF BILLS OF LADING • Special protection for purchasers who take bills of lading by negotiation -- they take possession free from any adverse claims • “Good faith purchaser” is one who purchases • for value (not to settle debt) • in good faith and without notice of antecedent claim • in the ordinary course of business • Purchaser not in good faith only takes rights of transferee • Protects rightful owner www.StudsPlanet.com
  12. 12. TYPES OF CONTRACTS: SHIPMENT AND DESTINATION • Shipment Contract: Contract calls for seller to ship goods by carrier, but not to deliver goods to named location • Most common in international trade • Presumption in favor of shipment • Risk of loss passes when goods handed to carrier • Destination Contract: Contract calls for seller to deliver goods to particular destination • Greater responsibility on seller • Risk passes when goods tendered to buyer at destination www.StudsPlanet.com
  13. 13. RISK OF LOSS UNDER CONTRACTS • Shipment contract: risk passes when goods are given to the first carrier • Presumption of shipment contract if not specified • Destination contract: risk passes when goods are given to buyer at destination point www.StudsPlanet.com
  14. 14. TRADE TERMS • Responsibilities of buyer and seller need to be negotiated. • Trade terms used as a short hand for assigned responsibilities and allocating when the risk passes from one party to another. www.StudsPlanet.com
  15. 15. TRADE TERMS: E TERMS • EXW – Ex works: The seller's only responsibility is to make the goods available at the seller's premises. The buyer bears full costs of moving the goods from there to destination. Risk shifts to buyer when goods made available by seller at named location.   www.StudsPlanet.com
  16. 16. TRADE TERMS: F TERMS • FCA – Free carrier: The seller delivers the goods, cleared for export, to the carrier selected by the buyer. The seller loads the goods if the carrier pickup is at seller's premises. Buyer then bears costs of moving the goods to destination. Risk shifts to buyer when goods delivered to carrier. • FAS – Free alongside ship: The seller delivers the goods to the ship in origin port. Buyer then bears all transport costs. Risk shifts to buyer when goods delivered alongside ship. • FOB – Free on board: The seller delivers the goods on board the ship and clears the goods for export. Buyer then bears all transport costs. Risk shifts to buyer when goods cross ship’s rail.  www.StudsPlanet.com
  17. 17. TRADE TERMS: C TERMS • CFR – Cost & freight: The seller clears the goods for export and pays the costs of moving the goods to destination. Risk shifts to buyer when goods cross ship’s rail. • CIF – Cost, insurance & freight: The seller clears the goods for export and pays the costs of moving the goods to the port of destination. Risk shifts to buyer when goods cross ship’s rail. Seller must purchase cargo insurance; buyer can claim on policy. • CPT – Carriage paid to: The seller pays for moving the goods to destination. Risk shifts to buyer when goods are transferred to the first carrier. Buyer must procure own insurance. • CIP – Carriage & insurance paid to: The seller pays for moving the goods to destination. Risk shifts to buyer when goods are transferred to the first carrier. Seller must purchase cargo insurance; buyer can claim on policy. www.StudsPlanet.com
  18. 18. TRADE TERMS: D TERMS (#1) • DAF – Delivered at frontier: Seller transports goods to “frontier” point in destination country. Buyer pays freight from frontier point. Risk shifts when goods handed to buyer at frontier point. • DES – Delivered ex ship: Seller transports goods to destination port. Buyer pays costs of unloading ship. Risk shifts to buyer when goods ready for unloading by buyer. • DEQ – Delivered ex quay: Seller delivers the goods - not cleared for import - to the buyer at the port of destination. Seller bears costs and risks of moving the goods to port. Buyer clears goods for import and pays customs clearance costs and duties. Risk shifts to buyer when goods placed on dock. www.StudsPlanet.com
  19. 19. TRADE TERMS: D TERMS (#2) • DDU – Delivered duty unpaid: Seller delivers goods - not cleared for import - to buyer at destination. Seller bears costs and risks of moving goods to destination. Risk shifts to buyer when goods delivered at specified location. • DDP – Delivered duty paid: Seller delivers goods - cleared for import - to buyer at destination. Seller bears costs and risks of moving goods to destination, including customs duties and taxes. Risk shifts to buyer when goods delivered at specified location www.StudsPlanet.com
  20. 20. MEASUREMENT OF DAMAGES IN CIF CONTRACT • Seaver v. Lindsay : U.S. rule: damages measured by the market price of the goods at the port of shipment on that date • Sharpe & Co. v. Nosawa & Co.: English rule: damages measured at date and location of delivery www.StudsPlanet.com
  21. 21. ELECTRONIC DATA INTERCHANGE (EDI) • Trade documents filed electronically • Faster transmission; parties can track goods and adjust documents as necessary; reduce preparation of multiple copies • Security issues: • Digital signature laws should help • Unauthorized access problem • Liability issues • Lack of standardization for electronic documents www.StudsPlanet.com
  22. 22. BASIC CONCEPTS • Negotiate explicit terms: price and clear responsibilities of parties • Reference clear set of trade terms; avoid attempts to “customize” terms • General presumption that contract is a shipment contract • Parties may create destination contract • more expensive • parties may feel extra expense worthwhile www.StudsPlanet.com
  23. 23. BANQUE DE DEPOTS V. FERROLIGAS • Facts: Bank gets court order to seize Bozel’s calcium silicon in La. to settle debt owed by Bozel • Documents for the calcium silicon were held by other banks. • Issue: Is bank that seized the goods without the documents of title entitled to them for payment of money owed? • Decision: No. • Reasons: • The party that controls the documents controls the goods. • Legal “capture” of documents prerequisite to seizure of goods www.StudsPlanet.com
  24. 24. BIDDELL BROTHERS V. CLEMENS HORST • Facts: CIF contract for sale of hops to be shipped to London • Buyer insisted on right to inspect goods before payment • Seller insisted on payment upon presentation of documents • Seller refuses to ship; buyer sues • Issue: Has buyer right to inspect the goods before payment? • Decision: Not under standard CIF contract • Reasons: Buyer obligated to pay upon presentation of the documents www.StudsPlanet.com
  25. 25. BASSE & SELVE V. BANK OF AUSTRALASIA • Facts: B&S purchased ore from O • Bank negotiated documents on B&S behalf • Contract required certificate of analysis from H • O submitted phony samples • B&S sued Bank to recover payment on bill of lading • Issue: Is Bank responsible for inspection of ore? • Decision: No; Bank has no duty to inspect • Reasons: Bank not obligated to look beyond apparently- regular documents. • Certificate here appeared to be in order and the bank properly paid on documents. www.StudsPlanet.com
  26. 26. ST. PAUL GUARDIAN INS. V. NEUROMED MEDICAL SYSTEMS (S.D.N.Y. 2002) • Facts: CIF contract for sale of MRI, shipped from Germany to NY, then buyer to arrange transport to Ill., contract governed by German law • MRI loaded on ship in good condition • MRI was damaged when arrived in Ill. • Buyer claims on insurance, insurer sues seller • Issue: Should CIF term be interpreted under Incoterms? • Decision: Apply Incoterms – CIF means risk of loss passes when delivered to carrier at port of shipment • Reasons: CISG applies, Art. 9(2) says contract incorporates usage known or should be known to parties and regularly observed in international trade • CIF interpreted under Incoterms without specifc reference • CISG, Art. 67(1) – passage of risk and transfer of title needn’t occur at same time • Terms here don’t modify CIF term of contract www.StudsPlanet.com
  27. 27. KUMAR CORP. V. NOPAL LINES, LTD. (FLA DST. CT. APP. 1985) • Facts: K sold tv sets to N in Venezuela • CIF contract for delivery to Maracaibo • K agreed to let N pay after goods sold • K delivers goods to freight forwarder; K didn’t take out insurance policy as required • Goods stolen; K sues freight forwarder and carrier • Issue: Does K have interest in goods to allow it to sue? • Decision: Yes, despite CIF contract • Reasons: Agreement here as to payment here means not true CIF contract • Even if CIF contract, failure to get insurance means K self- insures; so K has interest sufficient to sue www.StudsPlanet.com
  28. 28. WEB SITES • http://www.forwarderlaw.com • http://www.cisg.law.pace.edu • http://www.iccwbo.org • http://www.jus.uio.no/lm/icc.incoterms.1990/index.html • http://www.silkweb.bc.ca/portview/ www.StudsPlanet.com
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