Chapter 5

Documentary Sale and Terms of Trade

 

I. Payment and Delivery Risk

          Buyers and sellers don’t trust each other

          Answer: trusted intermediaries

 

II. Documentary Sale

          A. Document of Title

          B. Bill of Lading

                   1. Order and bearer documents

                   2. Importance of negotiability to trade

 

          C. Documentary Collections

          D. Rights of Purchasers of Bills of Lading

                   1. Good faith purchaser

                   2. Carrier’s misdelivery

                   3. Shipside bonds

                   4. Carrier’s lien

Banque de Depots v. Ferroligas (La. App 1990)

Bank sought to seize cargo in Louisiana to satisfy claim against seller.  Seller had already negotiated BLs to its bank, which had not released them.

          Held: Bank cannot seize cargo, because seller no longer owns it.  Must have original BLs to make claim.

 

          E. Responsibilities of buyers and sellers in doc sale

Biddell Brothers v. E. Clemens Horst Co. (England 1911)

Seller sold hops to buyer on CIF terms.  Seller delivered all documents to bank as required.  Buyer insisted on right to inspect.  Seller refused.

          Held: Seller’s responsibility fulfilled on delivery of docs.  Buyer’s bank must pay based on the documents.

          NOTE:  The documents are more important than the reality under these kinds of deals.  

 

          F. Seller’s duty to tender docs

          G. Seller’s additional risk of nonpayment

          H. Certificates of inspection or analysis

          I. Measuring damages for breach of documentary sale

          J. Types of ocean b/l

                   1. Clean

Basse and Selve v. Bank of Australasia (England 1904)

Seller sold ore to buyer on docs.  One required document was an inspection.  Seller forged the inspection document, but it was not readily apparent.  Bank paid based on presentation of apparently valid, but false, document.  Buyer sued bank, saying they should have done more to inspect documents.

Held: Bank wins, as docs were apparently in order.  No duty to investigate further.

          NOTE: “Apparent” is very important.  If reason to suspect problem, then bank must investigate.

 

                   2. Onboard

                   3. Received for shipping

                   4. Straight

          K. Other types of carriage documents

                   1. Air waybills

                   2. Forwarder’s b/l

                   3. Multimodal transport docs

          I. Electronic data interchange

          J. Shipping Terms and Risk of Loss

                   1. Allocation of risk of loss

                             a. Destination contracts

                             b. Shipment contracts

                   2. Risk of loss in international sales under CISG

                   3. Trade terms

                             a. CIF

St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support, GmbH (SDNY 2002)

Buyer bought MRI machine from German company.  Clean BL issued, but arrived damaged.  Cargo insurer paid importer, then sought recovery from German seller (which is weird).  Seller argued that under German law, CIF meant that its ownership and risk of loss ended at loading.  St. Paul argued that contract called for seller to own cargo until delivery, which goes against CIF terms.

Held: CIF term passed risk of loss to buyer at dock, but not ownership.  They need not pass at the same time, and therefore St. Paul’s insured controlled the risk.

 

                             b. C&F

                             c. FOB

 

Kumar Corp. v. Nopal Lines, Ltd (Fla.App. 1985)

Seller sold cargo on CIF terms.  Seller failed to buy cargo insurance.  Cargo of 700 tv sets stolen at dock.  Seller sued freight forwarder and carrier.  They argued lack of standing.

Held: Because Kumar did not obtain insurance, Kumar was the insurer.  Therefore, it bore the loss, and therefore had standing to sue.