documentary sale
TRANSCRIPT
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Documentary Sale and INCOTERMS
Documentary Sale and INCOTERMS
© 2002 West Educational Publishing Company
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Contracts as a way to manage risk
Contracts as a way to manage risk
• Negotiate terms
• Allocate risk: moving goods and money
• Fix performance obligation and responsibilities
• Fix price
• Make sure understanding is reflected in contract
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Where is the the risk in an international transaction?Where is the the risk in an international transaction?
• Similar in domestic transaction
• Payment risk
• Delivery risk
• Quality risk
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DefinitionDefinition
• Documentary Sale:– Buyer is required to pay upon presentation of
NEGOTIABLE DOCUMENT OF TITLE by seller
– Document of title= evidences ownership e.g. dock receipts, warehouse receipts and bills of lading
– Ownership of goods passes with the documents, goods may stay with bailee
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DefinitionDefinition
• Negotiability= legally transferred from one to another in return for value
• In the U.S. bills of lading governed by The Federal Bills of Lading Act and the Uniform Commercial Code.
• In India, it is governed by India carriage of Goods by Sea Act, 1925
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Bill of LadingBill 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 international transactions)
• Order instruments must be delivered and indorsed
• Carrier must deliver goods only to the holder of the bill of lading (otherwise liable for misdelivery)
Role of B/L
• B/L evolved from a receipt issued by a carrier upon shipment to a key document in international trade.
• Receipt = evidence of shipment• Contract = tersms of contract with
carrier• Doct. Of title = key to the warehouse,
constructive possession of goods
– Enables delivery of goods by tender of the doct.– Provides security
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Documentary Collection:Payment against documents
Documentary Collection:Payment against documents
• Separation of goods and documents facilitates trade
• Controlling documents means you control the goods
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Stages in Documentary TransactionStages in Documentary Transaction
• Seller gives goods to carrier and gets bill of lading
• seller endorses bill of lading and gives to bank with other documents (insurance, certificate of origin, documentary draft)
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Documentary draftDocumentary 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
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The Documentary SaleThe 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
Rights of PurchasersRights of Purchasers
• Special protection for purchasers who take by negotiation. They take free of any adverse claims. These are also called “good-faith purchasers.”
• “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
• Banque de Depots v. Ferroligas
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Types of Contracts:Shipment and Destination
Types of Contracts:Shipment and Destination
• Shipment contract: CIF= cost, ins. and freight included in price; risk of loss passes when goods cross ship’s rail at port of shipment
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Measurement of damages in CIF contract
Measurement of damages in CIF contract
• damages measured by the market price of the goods at the port of shipment on that date
• Basse v. Bank of Australia
Types of Ocean Bills of LadingTypes of Ocean Bills of Lading
• Clean bills of lading
• Onboard bills of Lading
• Received for shipment bills of lading
• Straight bills of lading
Other Types of Transport DocumentsOther Types of Transport Documents
• Air Waybills
• Forwarder’s Bill of Lading
• Multimodal Transport Documents
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Risk of lossRisk of loss
• 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
Risk of Loss under CISGRisk of Loss under CISG
• Articles 66-70
• If the contract calls for the goods to be handed to a carrier at a particular place, then the risk passes to a buyer at that place.
• However, if seller just has to ship, then risk passes to buyer when goods are handed to the first carrier.
Trade Terms (INCOTERMS)Trade Terms (INCOTERMS)
• 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
• A universally recognized set of definitions of international trade terms developed by the International Chamber of Commerce (ICC) in Paris, France
• First edition 1936
Trade Terms (INCOTERMS) cont.,
• They determine– The place/point of delivery of goods– When the risk of loss/damage in transit is transferred– The distribution of costs – The responsibility regarding carriage , insurance,
documentation
• INCOTERMS do not determine the transfer of property which depends on the agreement of the parties and on national law applicable to the contract . – property is not intended to
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Basic conceptsBasic 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. They are becoming more common.
• Be explicit, reference clear set of terms
• St. Paul Guardian Ins. Co v Neuromed, GmbH• Pestana v. Karinol
Web Sites
• http://www.forwarderlaw.com
• http://www.cisg.law.pace.edu
• http://www.iccwbo.org
• http://www-jime.open.ac.uk/2004/16/demo/Incoterms/index.htm