Deck 5: The Documentary Sale and Terms of Trade

Question 1

When a party takes a negotiable document as a good faith purchaser,it generally acquires even greater rights in the document than the one from whom it had been negotiated.

Answer 1

True

Question 2

Both negotiable instruments and negotiable documents serve as substitutes for money.

Answer 2

False

Question 3

Bills of lading are negotiable instruments but cannot be used as collateral for an outstanding debt.

Answer 3

False

Question 4

Another term for a negotiable bill of lading is a documentary draft.

Question 5

The St.Paul Guardian Ins.v.Neuromed Systems case held that shipping terms must be defined according to the Uniform Commercial Code.

Question 6

In a documentary sales transaction,financial responsibility for lost or damaged goods is always negotiated once the loss or damage occurs and not before.

Question 7

Air waybills are governed by the Uniform Commercial Code.

Question 8

Inspection certificates are often used to assure that a shipment will conform to the specifications required by the buyer.

Question 9

The seller issues the bill of lading.

Question 10

The law governing the negotiability of bills of lading is more fully developed than law governing the negotiability of commercial paper.

Question 11

The bill of lading serves as a contract of carriage between the buyer and seller.

Question 12

Bills of lading are a twentieth-century convention of trade practice.

Question 13

A seller who quotes on open account terms in a foreign currency bears the currency risk during the open credit period.

Question 14

Most buyers in an international sale are now willing to pay cash in advance in order to reduce credit risk.

Question 15

The documentary sale is a modern commercial practice devised by the United Nations Commission on International Trade Law.

Question 16

The documentary sales transaction serves to protect not only the seller,but also the buyer.

Question 17

A clean bill of lading does not protect the buyer from receiving damaged goods.

Question 18

In an international transaction,the seller risk is called "credit risk" and the buyer's risk is called "delivery risk."

Question 19

Trade terms are used in all international contracts for the sale of goods.

Question 20

Negotiable documents of title allow for the transfer of the title to the goods without requiring the owner to take possession of the goods.

Question 21

The Incoterms definitions will automatically become a part of a contract for the sale of goods,governed by the UN Convention for the International Sale of Goods.

Question 22

A sale made with terms "CIF Tokyo" includes in the price quoted for the goods which of the following:

A) Cash, in-transit expenses, foreign exchange expenses.
B) Cash, insurance, freight.
C) Cost, insurance, freight.
D) Currency exchange expenses, insurance, freight.

Question 23

Under an FOB contract,the bill of lading need not be market "Freight Prepaid."

Question 24

According to Incoterms,the trade term that represents the maximum responsibility of the seller is:

A) Carriage and Insurance Paid To.
B) Delivered Duty Paid.
C) Ex Works.
D) Delivered at Frontier.
E) None of the above.

Question 25

The difference between terms "CFR" and "CIF" is that under "CIF" term of sale,the buyer must procure his own marine insurance coverage on the goods.

Question 26

According to Incoterms,the risk of loss or damage to goods under a CIF contract passes from seller to buyer when:

A) The goods cross the ship's rail at the port of shipment.
B) The goods are unloaded at the port of destination.
C) Title to the goods passes to the seller.
D) The goods leave the seller's place of business.

Question 27

A carrier is entitled to release a shipment covered by a negotiable bill of lading to a holder in possession of a clean copy of the bill of lading only if the holder also presents a written guarantee of ownership.

Question 28

Because negotiable bearer documents are transferred by delivery,they are not used in foreign trade.

Question 29

Under contract terms "DES Stockholm," the seller must pay the ocean freight to Stockholm,but the buyer pays the unloading charges at the Stockholm terminal.

Question 30

Under the Uniform Commercial Code,the risk of loss in a destination contract passes to the buyer when the goods are tendered to the buyer at that place.

Question 31

Under Incoterms,a sale on terms "DDP" represents the minimum responsibility of the seller and the maximum responsibility of the buyer.

Question 32

The trade terms "FOB" and CIF" are defined by which of the following:

A) Incoterms.
B) Uniform Commercial Code
C) The Revised American Foreign Trade Definitions
D) All of the above.

Question 33

Under the terms "Ex Factory," the seller is responsible for transporting the goods to the buyer's factory.

Question 34

The Bolero project is an international treaty requiring trading nations to implement uniform Electronic Data Interchange for the electronic transfer of documents.

Question 35

The Bolero project is a cross-industry system for worldwide electronic transfer of commercial trade information.

Question 36

Shipment contracts are more common in international trade than destination contracts.

Question 37

A sale made "CIF foreign port" implies that the terms of the sale are:

A) Credit in foreign currency.
B) Cash against documents.
C) Credit against documents.
D) Settlement pending approval of goods.

Question 38

All Incoterms are intended for use with ocean cargo.

Question 39

According to Incoterms,the risk of loss under contract terms "FAS Name of Vessel" passes to the buyer when the goods are delivered alongside the named vessel.

Question 40

A straight bill of lading assures that the goods have actually been loaded on board the ship for shipment.

Question 41

The documentary collection is the process by which:

A) Buyers collect their goods at the port of entry.
B) Carriers consolidate cargo for shipment on a vessel.
C) Banks collect payment from the buyer.
D) Sellers must place their account into the hands of a debt collection agency in order to obtain payment from the buyer.

Question 42

The risk of loss in a ____ contract passes to the buyer when the goods are tendered to the buyer at that place; and the risk of loss in a(n)____ contract passes to the buyer when the goods are delivered to the carrier at the port or place of origin.

A) Shipment; destination.
B) Point of import; point of export.
C) Destination; origination.
D) Destination; shipment.

Question 43

In Basse and Selve v.Bank of Autralasia,the seller submitted a phony sample of ore to an inspection company to obtain a Certificate of Analysis showing high- grade ore.On the basis of the certificate,the seller paid for the documents and took delivery of the ore.The ore turned out to be worthless.The court ruled that:

A) The bank had an obligation to inspect the ore before paying for the documents on behalf of the buyer.
B) The buyer had a cause of action against the chemist for fraud.
C) The bank had acted properly in paying the seller even though the ore did not conform to the contract because the certificate was regular on its face.
D) The bank had acted properly in paying the seller because the bill of lading was negotiable.

Question 44

The purpose of the bill of lading is to:

A) Transfer title of the goods to the freight forwarder.
B) Prevent shipping delays.
C) Enable the seller to transfer title of the goods to the buyer and receive payment.
D) None of the above.

Question 45

The two types of contracts named for the point at which responsibility for loss is transferred from seller to buyer is:

A) Point of import, point of export.
B) Origination, destination.
C) Destination, shipment.
D) None of the above; the seller always assumes the risk of shipment.

Question 46

B is known in the trade as a trader and merchant of soybeans.A entrusts a load of soybeans to B for storage in B's warehouse.Secretly,B delivers the goods to an ocean carrier in return for a bill of lading.B then sells the document covering a shipment of soybeans to C,who has purchased soybeans from B in the past.C pays for the document through its bank.B absconds with the money.In this case:

A) B is guilty of a crime under the Uniform Commercial Code.
B) C is probably not a good faith purchaser.
C) C takes paramount title.
D) B and the carrier are liable for a conspiracy to commit fraud.

Question 47

In the U.S.,the use of bills of lading is governed by:

A) Federal Bills of Lading Act.
B) The Convention on Contracts for the International Sale of Goods.
C) Incoterms.
D) None of the above.

Question 48

As decided in the case presented in the text,Biddel Brothers v.E.Clemens Horst Co.,under a C.I.F.sales contract:

A) The buyer has no right to inspect the goods before payment but is obligated to pay upon the presentation of the proper documents.
B) The buyer has the right to inspect the goods prior to paying for them upon the presentation of the proper documents.
C) The buyer has no right to inspect the goods and no obligation to pay upon the presentation of the proper documents.
D) The buyer has the right to inspect the goods and no obligation to pay upon the presentation of the proper documents.

Question 49

A entrusts a shipment of eel skins to an ocean carrier and obtains a bill of lading.The carrier delivers the goods to B without asking B to produce the document.Without knowledge of what has occurred,A sells the bill of lading to C,who is a good faith purchaser.In this case:

A) C may not reclaim the goods because they have already been delivered by the carrier.
B) C has a cause of action against the carrier for misdelivery.
C) C has a cause of action against A for fraud.
D) The carrier is liable for a crime committed against A.
E) All of the above.

Question 50

There are many different types of bills of lading.The one that the book advises that most buyers insist the seller provide is:

A) A straight bill of lading.
B) An on-board bill of lading.
C) A received-for-shipment bill of lading.
D) A clean, on-board bill of lading.

Question 51

A good faith purchaser is one who purchases a document of title:

A) For value, in good faith, in the ordinary course of business.
B) For value, in good faith, directly from the seller.
C) In good faith and by endorsement from the seller's bank.
D) With understanding that the seller had acted in good faith in selling the goods.

Question 52

Bills of lading are meant to be:

A) Substitutes for money.
B) A means of transferring goods to buyers.
C) Sight drafts.
D) Guarantees for payment of the goods.

Question 53

If the seller wishes to make his goods available to the buyer at his place of business with the buyer arranging all transportation and bearing all risks from the time the goods leave the seller's door,the seller should quote his prices:

A) Ex carriage.
B) CIF seller's factory.
C) Ex factory.
D) FAS seller's dock.
E) None of the above.

Question 54

Seller in Georgia and buyer in the Netherlands enter into a contract for the sale of goods,CIF port of Amsterdam.The seller refused to ship.The buyer brings an action for damages.In the United States,a court would probably rule that:

A) The seller was correct in not shipping until payment was received.
B) The damages should be measured by the difference between the contract price and the market price of the goods at the port of shipment.
C) The damages should be measured by the difference between the contract price and the market price of the goods in Amsterdam at the time the documents would have been presented to the buyer for payment.
D) None of the above.

Question 55

The title of the goods sold in a documentary sale is transferred through:

A) Negotiation of the document only.
B) Delivery of the goods only.
C) Negotiation of the document and delivery of the goods.
D) Title to the goods is not transferred in a documentary sale.

Question 56

Which of the following documents are always required in a documentary collection for the sale of goods:

A) The draft, invoice, and bill of lading.
B) The invoice, bill of lading, and delivery order.
C) The certificate of origin, insurance policy, and invoice.
D) The draft, insurance policy, and invoice.

Question 57

The type of bill of lading not recommended for the shipment of perishable goods is:

A) A received-for-shipment bill of lading.
B) An on-board bill of lading.
C) A negotiable bill of lading.
D) A straight bill of lading.

Question 58

B is known in the trade as a trader and merchant of soybeans.A entrusts a load of soybeans to B for storage in B's warehouse.Secretly,B delivers the goods to an ocean carrier in return for a bill of lading.B then sells the document covering a shipment of soybeans to C,who has purchased soybeans from B in the past.C pays for the document through its bank.B absconds with the money.In this case:

A) A may demand return of the soybeans from C.
B) C has greater rights in the soybeans than A.
C) A's only remedy is against the ocean carrier.
D) C's bank is liable for committing a conspiracy against A.

Question 59

In addition to the bill of lading,other documents that may be required for shipment include all but which of the following:

A) Inspection certificate.
B) Consular invoice.
C) Commercial invoice.
D) All of the above.

Question 60

Because importers and exporters assume different risks,the most preferred way to conduct business and minimize these risks is:

A) Cash in advance.
B) Open account.
C) Documentary sale.
D) All of the above.

Question 61

Compare and contrast the instances in which an individual holding a bill of lading will and will not be protected from the adverse claims of third parties.

Question 62

When would and would not a bill of exchange constitute bearer paper?

Question 63

What term from Incoterms 2000 would you recommend under each of these scenarios?
A transaction wherein an American seller is to transport the goods by sea from the port of Oakland,California to Vancouver,Canada and the Canadian buyer's sole obligations are to arrange for import clearance and purchase insurance against loss from the moment the goods cross the ship's rail.
A transaction wherein a Greek buyer seeks to impose all obligations on the French seller,including export clearance,the cost of insurance,transportation of the goods by sea from Marseille,France,and import clearance at Piraeus,Greece,the port of destination.
A transaction wherein a Dutch seller wishes to limit its obligations to notification of the American buyer that the goods are available for pickup at the seller's warehouse in Antwerp,Netherlands.
A transaction wherein an American seller is to deliver the goods on board a ship in New York and arrange for export clearance for ultimate shipment to Rio de Janiero with the Brazilian buyer responsible for contracting with the carrier,the cost of obtaining insurance and obtaining import clearance.
A transaction wherein a Canadian seller is to transport the goods by sea from Halifax,arrange for export clearance,unload the goods at their final destination in Oslo,Norway and make them available on the wharf while the buyer arranges for import clearance in Norway.
A transaction wherein a Belgian seller is to deliver the goods to the wharf at the port of Antwerp,provide a receipt evidencing such delivery and facilitate export clearance with the Swedish buyer responsible for contracting with a carrier for their transport to Stockholm and bearing all risk of loss from the moment the goods are placed alongside the ship.
A transaction wherein a Mexican seller is to contract for motor carriage of the goods,deliver the goods to another motor carrier for transport across the U.S.border,pay unloading and loading costs,arrange for export clearance and obtain insurance on the U.S.buyer's behalf for final delivery to Phoenix,Arizona.

Question 64

If the seller in Omaha wishes to place the goods in the hands of a trucking company named by the foreign buyer and have the risk of loss pass to the buyer at that time,the seller should quote his prices:

A) FAS Omaha.
B) CIF seller's plant.
C) FOB port of shipment.
D) FCA Omaha.
E) None of the above.

Question 65

Compare and contrast the risk of loss and expenses associated with "C" and "F" terms.

Question 66

An importer in Germany requests a price quotation from a cotton broker in Memphis.The broker wishes to place the cotton in the hands of a multimodal terminal operator in Memphis for shipment through the port of New Orleans.He will pay the freight charges through to the German seaport,but he wishes the risk of loss to the cotton to pass to the German importer as soon as he places the cotton in the hands of the multimodal terminal operator in Memphis.The broker should quote his prices for the cotton:

A) CIF Germany.
B) FOB New Orleans.
C) CPT New Orleans.
D) Ex Factory.
E) None of the above.

Question 67

Draft a contract that includes shipping terms.

Question 68

Prepare an invoice that contemplates any number of the following:
ocean freight and insurance costs,ground transportation costs,port charges,customs fees,forwarder's fees,and communications expenses.

Question 69

In an effort to satisfy an important customer in Portugal,the seller is willing to pay all ocean freight charges and bear all risks of the journey to the port of Lisbon.The buyer,however,has agreed to pay all unloading charges.The exporter should quote his prices:

A) DES Lisbon.
B) FAS Lisbon.
C) CIF Lisbon.
D) DEQ Lisbon.
E) None of the above.

Question 70

Consider when a shipping term as opposed to contradictory contract language will be most persuasive in identifying the type of contract.Vice versa?

Question 71

The government of Venezuela is purchasing a large quantity of American beans to be loaded on its own ship at the port of New Orleans.The buyer will arrange to have its vessel loaded and will obtain its own export licenses.The seller may be asked to quote its prices:

A) FOB New Orleans.
B) CIF Venezuela.
C) FAS Venezuelan vessel.
D) DEQ Venezuelan port.
E) None of the above.

Question 72

Draft a bill of lading.

Question 73

Compare and contrast the circumstances under which a buyer would and would not accept "E"-term contracts.

Question 74

What are the benefits and possible detriments of using an inspection firm?