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CHAPTER 5
THE DOCUMENTARY SALE AND TERMS OF TRADE
CASES IN THIS CHAPTER
Banque de Depots v. Ferroligas
Lite-On Peripherals, Inc. v. Burlington Air Express, Inc.
Biddell Brothers v. E. Clemens Horst Co.
Basse and Selve v. Bank of Australasia
St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support, GmbH
Kumar Corp. v. Nopal Lines, Ltd.
TEACHING SUMMARY
International contracts must also address the exchange of goods for money, transportation of
these goods, title, and risk of loss. Documentary sales are a common method for transmitting
title to goods and, through a negotiable instrument, creating an obligation to pay. The essential
document for cross-border trade is the bill of lading. Described as the key that permits the
holder to unlock the door to where the goods are held, the bill of lading is a receipt for the goods
shipped, the contract of carriage, and title to the goods. Although these documents are also
used in domestic sales, their use is much less common, as domestic trading partners are in a
superior position to ascertain the credit standing, integrity, and reputation of one another.
Foreign trading partners must also contemplate responsibility for delivery and the passing of risk
of loss for goods. Often, abbreviations are used to describe the time and place of delivery,
financial responsibility for delivery, and the passing of risk. Although similar terms, such as FOB
and CIF, are used in the United States, INCOTERMS, an international convention, defines these
terms globally. Consequently, international and domestic shipping terms may look identical but
have different meanings.
Over the last decade, however, documentary sales have declined in popularity. B2B exchanges
via the Internet have remodeled international trade. Traditionally, international trade was burdened
by divergent country rules and the limited number of credit institutions able to intermediate these
dealings. Letters of credit are now being customized for the Internet, increasing the efficiency
and security of cross-border trade. Intermediary companies are providing on-line letters of credit
for B2B transactions. These permit buyers and sellers to apply for, negotiate, and obtain letters
of credit on-line in real time. A bank continues its traditional role as a financier/ collection agent.
CASES AND QUESTIONS
Banque de Depots v. Ferroligas
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Chapter 5: The Documentary Sale and Terms of Trade
1. Why did the court not permit Banque de Depots to seize the cargo Bozel shipped?
2. What are the policy reasons for not allowing a creditor, such as Banque de Depots, to
seize cargo that is being shipped to a buyer under a bill of lading?
3. What are the expectations of a good faith purchaser of a bill of lading?
Supplemental Internet Activity
The court, here, did not rely on the UCC but on Louisiana state law. Have students
peruse the UCC posted at the Legal Information Institute’s Web site at
http://www.law.cornell.edu/ucc/ucc.table.html. Ask them to find the particular potions of
the UCC that would address this issue, apply the UCC law, and compare and contrast
the UCC outcome with that under Louisiana law.
Lite-On Peripherals, Inc. v. Burlington Air Express, Inc.
1. Why did the court not permit Burlington to diverge from the terms of the bill of lading?
2. What are the policy reasons for not allowing a carrier, such as Burlington, to disregard
the terms of a bill of lading?
3. When combined with the opinion in Banque de Depots v. Ferroligas, what does this case tell
you about the legal nature and effect of the bill of lading to trade?
Biddell Brothers (Buyer) v. E. Clemens Horst Co. (Seller)
1. Why did the court rule that the buyer was not entitled to inspect the goods prior to paying
for them?
2. What assurance did the buyer have that conforming goods were actually shipped?
3. What terms could the buyer have negotiated in the contract to assure that the goods
shipped would be as ordered?
4. Assume that the documents arrive well ahead of the ocean cargo and that they were
purchased by the buyer. A day later, the ship and cargo go down at sea. Assuming that
the carrier was not at fault, what is the buyer’s recourse?
5. In a CIF contract, which party assumes the risk of changes in the cost of ocean freight
after the signing of the contract but before shipment?
Basse and Selve v. Bank of Australasia
1. Why do buyers in international transactions often use inspection firms?
2. If the seller fails to provide an inspection certificate as required in the contract, can the
buyer refuse to accept the documents?
3. Give examples of industries or products that would benefit from the following: health
certificates, ingredients certificate, fumigation certificate, inspection certificate, certificate
of chemical analysis, certificate of quantity of weight, social compliance audit certificate.
Chapter 5: The Documentary Sale and Terms of Trade
St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support, GmbH
1. If the contract stated that it was governed by the laws of Germany, why did the court
apply the law of the CISG?
Kumar Corp. v. Nopal Lines, Ltd.
1. In what way did the wording of the contract contradict the CIF term?
2. If the court said that the parties may vary the terms of their contract to meet their own
requirements, why did the court not recognize the contradictory wording?
3. Assume that a seller fails to procure insurance on a shipment as required by contract
and that the shipment is lost at sea. As between buyer and seller, which party will bear
the loss?
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. Answer: In Barclay's Bank, Ltd. v. Commissioners of Customs and Excise, the
court ruled for the bank. The bill of lading effectively transferred title in the property to the bank,
thus putting the property beyond the reach of Bruitrix's creditors. Lord Justice Diplock stated, "In
Chapter 5: The Documentary Sale and Terms of Trade
doing so. In those circumstances it seems to me beyond argument that the bills of lading were at
2. Answer: This focuses on the responsibilities of buyer and seller under a CIF sales
contract. The court held that Colorado's responsibility was to properly ship, not necessarily to
deliver, and, therefore, that the risks of the voyage rest with the buyer in India. The court also
3. Answer: The court determined that this was a shipping contract, consistent with
4. Answer: A force majeure clause in a sales contract does not operate to relieve the
buyer from paying on the documents under a C & F or CIF contract. The court stated that "We
5. Answer: Under INCOTERMS, F.O.B means that the risk of loss passes when the
Chapter 5: The Documentary Sale and Terms of Trade
6. Answer: The court held this was a shipment contract. The plaintiff-buyer Pestana,
a resident of Mexico, entered into a contract with defendant-seller Karinol, a Florida export
"Please send the merchandise in cardboard boxes duly strapped with metal bands via
air parcel post to Chetumal. Documents to Banco de Commercio De Quintano Roo S.A."
The goods were lost in shipment before they reached the buyer. Florida UCC allows for either a
shipment or a destination contract. A shipment contract is the normal contract when a seller
7. Answer: The appellate court affirmed the district court’s judgment in favor of the
8. Answer: In a CFR contact, the risk of loss passes once the goods pass over the
MANAGERIAL IMPLICATIONS
This chapter shows the importance of documents in the international sale of goods. International
business managers should be familiar with essential trade terms and how they are used as they
will be found in all significant contracts and associated documents. Differences with the UCC
should be noted by students wrongly assuming the UCC terms will apply internationally.
In preparing an invoice, students may need ocean freight and insurance costs, ground
transportation costs, port charges, customs fees, forwarder's fees, and communications
expenses. These are available from local sources, such as freight forwarders, inter-modal terminal
operators, steamship representatives, bankers, and export management consultants, as well as
on-line.
ETHICAL CONSIDERATIONS______________________________________________
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom
use.
Chapter 5: The Documentary Sale and Terms of Trade
The answer to this question calls for an opinion by students. In formulating their opinions and
contemplating options, students should review the materials relating to delivery risk, specifically,
the risk to the buyer that the seller will fail to ship the goods as called for in the contract. The
TEACHING SUGGESTION / COOPERATIVE LEARNING ACTIVITY
Like Chapter 4 (contracts), this chapter provides an excellent opportunity for experiential
education. Students, working alone or in groups, can draft the documents necessary for a
documentary sale, such as a bill of lading, and write contracts (or rewrite contracts they had
negotiated under Chapter 4) to include shipping terms. Ideally, groups can negotiate with one
another in drafting contracts that include shipping, delivery, and loss terms.
Supplemental Case: Miller v. Race , England, Court of King’s Bench (1758), English Reports,
vo. 97, p. 398 (stolen bearer paper, i.e., bill of exchange or promissory note). Finney purchased
a note, payable to bearer and drawn on the bank of England. He attempted to mail it to
Odenharty, but it was stolen. The next day, Miller, not implicated in the theft, came in possession
of the note. Finney then applied to the Bank of England to stop payment on the note (due to the
robbery) and the bank agreed. Consequently, when Miller presented the note for payment,
Race (a ban clerk) refused payment. Miller brought this action to compel payment by the bank
and was successful.
1. What is bearer paper?
2. When would a bill of exchange be bearer paper?
3. Why, then, was the bank obligated to pay?
