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1CHAPTER 6
DOCUMENTARY SALE AND
TERMS OF TRADE

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