Topic 6 - Documents used in International Trade and the Incoterms 2010 Rules Flashcards
Describe a Bill of exchange
A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requring the person to whom it is addresses to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.
Also referred to as a “draft”
- Unconditional = means no conditions attached
- In writing = includes print
- Addressed by one person = refers to the “drawer” which is the originator of the draft, i.e. the seller seeking to collect money and the drawee being the buyer (or the bank)
- To another = refers to the drawee which is the buyer (or the bank). The drawee pays the amount of the draft, or adds wording “accepted”, becoming the acceptor, accepting the obligation to pay at a later date
- On demand or at a fixed or determinable future time = payment either on immediate presentation to the drawee or for payment at a determinable future date
- A sum certain in money = sum of legal tender
- A specified person or to bearer = either the named payee pr the person holding it if payable to bearer
What does NAFTA stand for?
NAFTA = the North American Free Trade Agreement
-trading bloc between USA, Cananda and Mexico
What are two forms of Bills of Exchange and explain?
Drafts (Bills of exchange) can either be:
1) Payable on demand - at sight draft payable on presentation
or
2) Term or Usance - payable at some future date
If a bank handles a draft on behalf of the seller, it will first obtain the drawee (buyer’s) acceptance and may then:
- hold until maturiy, present for payment and remit funds to the seller
- discount it by immediately paying the seller
at maturity, the draft is presented (bank presenting = the presenter) for payment to the drawee/acceptor or the bank nominated to pay on the acceptors behalf.
Explain the special legal status of Bills of Exchange (Drafts)
Drafts = negotiable instruments unless specifically stated otherwise
- a draft stands alone from any contract that caused it to be written
- commercially, a bank holding a draft can sue the acceptor (or anyone who signed) for non-payment, irrespective of any contractual disputes
What is a Promissory Note?
Promissory Note
An unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand at a fixed or determinable future date a sum certain in money to, or to the order of, a specified person or bearer.
- it is a negotiable instrument
- similar to a draft, although there are only two parties
What is an electronic draft called?
Truncated bills of exchange
What is the difference between a Draft and a Promissory Note?
Draft: the drawer (one who writes the draft) says - you owe me
Promissory Note: the drawe says - I owe you
What are the two main groups of Transport Documents?
1) Those that give title to the goods = quasi-negotiable
and
2) Those that do not = non-negotiable
Describe the Bill of Lading
Bill of Lading
- Evidence the terms of contract of carriage, act as a receipt for goods and provides entitlement to goods
- BOL’s have quasi-negotiable status (subject to defect of title)
- Usually issued in set’s of 3
- BOL’s can be made out to the banks order (“to the order of Challenger”) & endorsed by the shipper: this allows the bank/buyer/other named entity to take possession of the goods)
- Endorsing a BOL in blank = no specific recipient of the BOL
How many set’s is a BOL usually made out in?
Usually issued in set’s of 3
What status is given to BOLs?
BOL’s have quasi-negotiable status (subject to defect of title)
Describe:
1) Air waybill
2) Sea waybill
1) Air waybill
- issued by carrier or their agent for air freighted goods
- describes goods + contains contract of carriage
- does not evidence title to goods + not negotiable
- should evidence consignment to a named entity
2) Sea waybill
- maritime shipment
- contains contract of carriage + receipt for goods
- not a document of title
List the 11 Incoterms in order of least obligation to the seller, to highest obligation to seller
1) EXW - Ex works
2) FCA - Free carrier
3) FAS - Free alongside ship
4) FOB - Free on board
5) CFR - Cost and freight
6) CIF - Cost insurance freight
7) CPT - Carriage paid to
8) CIP - Carriage insurance paid
9) DAT - Delivered at terminal
10) DAP - Delivered at place
11) DDP - Delivery duty paid
EXW
1) EXW - Ex works
- ex works (named place of delivery)
- goods @ buyers risk from moment seller sends a notice of readiness to the buyer
- obtaining import/export licenses + customs admin = sellers responsibility
FCA
2) FCA - Free carrier
- free carrier (named place of delivery)
- seller arranges pre-carriage to named place (transport hub etc)
- buyer arranges main carriage
- risk transfers when vehicle arrives at named place (before unloading)
- seller still responsible for export clearance
