Sales

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Sales

  1. 1. www.StudsPlanet.com 1CHAPTER 6 DOCUMENTARY SALE AND TERMS OF TRADE
  2. 2. CONTRACTS AS A WAY TO MANAGE RISK • Negotiate terms • Allocate risk • Fix performance obligation www.StudsPlanet.com 2
  3. 3. WHERE IS THE RISK IN AN INTERNATIONAL TRANSACTION? • Similar in domestic transaction • Payment risk • Delivery risk www.StudsPlanet.com 3
  4. 4. 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 www.StudsPlanet.com 4
  5. 5. DEFINITION • Negotiability= legally transferred from one to another in return for value www.StudsPlanet.com 5
  6. 6. 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 www.StudsPlanet.com 6
  7. 7. DOCUMENTARY COLLECTION: PAYMENT AGAINST DOCUMENTS • Separation of goods and documents facilitates trade • Controlling documents means you control the goods www.StudsPlanet.com 7
  8. 8. 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) www.StudsPlanet.com 8
  9. 9. 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 www.StudsPlanet.com 9
  10. 10. THE DOCUMENTARY SALE www.StudsPlanet.com 10 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 C 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
  11. 11. STAGES • Seller’s bank forwards to collecting bank in buyer’s country • Documents released when buyer pays www.StudsPlanet.com 11
  12. 12. 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 www.StudsPlanet.com 12
  13. 13. IF YOU ARE NOT A GOOD FAITH PURCHASER, THEN YOU ONLY TAKE THE RIGHTS OF A TRANSFEREE • Who does this protect? www.StudsPlanet.com 13
  14. 14. 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. www.StudsPlanet.com 14
  15. 15. 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. www.StudsPlanet.com 15
  16. 16. 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 www.StudsPlanet.com 16
  17. 17. 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 www.StudsPlanet.com 17
  18. 18. DOCUMENTARY SALE PROTECTS BUYER AND SELLER • Risks for both? www.StudsPlanet.com 18
  19. 19. 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? www.StudsPlanet.com 19
  20. 20. 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? www.StudsPlanet.com 20
  21. 21. 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 www.StudsPlanet.com 21
  22. 22. 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 www.StudsPlanet.com 22
  23. 23. 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. www.StudsPlanet.com 23
  24. 24. 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. www.StudsPlanet.com 24
  25. 25. 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 www.StudsPlanet.com 25
  26. 26. BASIC CONCEPTS • Attempts to customize trade terms only adds to confusion • Should reference standard trade terms www.StudsPlanet.com 26

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