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Buy Sell Agreements Outline

Law Outlines > International Business Transactions Outlines

This is an extract of our Buy Sell Agreements document, which we sell as part of our International Business Transactions Outlines collection written by the top tier of Thomas Jefferson School Of Law students.

The following is a more accessble plain text extract of the PDF sample above, taken from our International Business Transactions Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:

**Explain D.S. First on Test!** (EXACT WORDS)


How a documentary sale works & what documents are required for the sale: o This is a flow chart of two separate and independent sales contracts o One between the buyer's bank and the seller's bank known as the letter of credit, and the underlying transaction between the buyer and seller. o The main documents are the letter of credit, the offer and acceptance of the sales contract, the bill of lading stamped properly "clean on board", the insurance documents, the dock receipt, export license, and the draft. o The buyer has to provide an import license number. o The buyer is the account party who takes out a L/C from his authorizing (or confirming) bank on behalf of the seller. o The seller provides most of the documents required for this transaction and selects the ships if it is a CIF, FOB, or FAS transaction. o The seller picks up the goods, engages a freight forwarder to truck them to the port (i.e. New York) from the originating (i.e. New Hampshire) state. o If this is a CIF or FOB transaction the trucker will put the goods over the ship's rail. o If it is an FAS transaction, the risk shifts to the buyer. o The trucker then asks to see the ship's captain who inspects the goods (10%), signs the B/L, and stamps it "Clean on Board." o The freight forwarder then presents all the documents to the seller who presents them to his confirming bank for inspection. (If it's an advising bank, they don't inspect the docs.) o The seller' endorses the B/L to itself as collateral. Seller's bank takes 3-7 days to investigate all the documents.

o If the documents "strictly conform", the seller's bank will pay the seller and forward the documents and endorse the B/L over to the buyer's bank. o The buyer's bank inspects for "strict compliance", endorses the B/L over to itself, and pays back the seller's bank. Meanwhile, the buyer's bank requests payment from the buyer.


o The buyer pays their bank, takes the B/L, endorses it over to itself, and claims the goods at the port of destination. 3 Levels of the Transaction o Letter of Credit o Goods o Carrier


General Info o Trucking company is called a freight forwarder o Truck takes the goods to the port o Then they must comply with the Incoterms of the deal (i.e. how the items are left, how truck gives the goods to the ship, on board, alongside, etc.) o Trucker then gets a Bill of Lading form from the captain of the ship
? B/L proves who the goods belong too o Captain of the ship must inspect at least 10% of the goods o At this point, buyer & seller are not totally sure that all of the goods are properly on the ship (that's what insurance is for) o Captain then stamps the B/L with "Clean on Board" - magic words that must be present for a documentary sale to occur o Seller goes to their bank ? shows the bank all of the documents o Bank has 3-7 days to inspect the documents o If approved, seller gets their $$
o Freight containers get loaded onto the ship o Ship travels to destination port
? Seller must get carrier insurance (value of the goods + 10%) o Some at port to receive & inspect the goods (buyer's side) o Then another freight forwarder takes the goods from the port to the final destination in the country o Bank is not liable for transmission errors


Goods o Often seller gets paid before the buyer sees the goods o Buyer should get inspected on both sides


**12 Required Forms in the Documentary Sale**
1) Letter from Buyer Requesting Price Quotation from Seller

2) Proforma Invoice 3) Purchase Order 4) Letter of Credit 5) Shipper's Letter of Instructions 6) Commercial Invoice
? (has all the #'s - quantity, price, etc) 7) Shipper's Export Declaration
? Must state exactly what is being exported (some goods are banned, embargo, etc.) 8) Certificate of Origin 9) Dock Receipt 10) Bill of Lading 11) Insurance Certificate 12) Sight Draft o K Forms
? Form #2 = Offer

* Usually states payment method is L/C

* Seller's bank must confirm L/C

* Buyer is locked in
? Form #3 = Acceptance

* K is a combo of forms 2 & 3

* Quantities are clearly listed

* Prices are clearly listed

* Shipping methods/Incoterms are given

* Insurance terms are stated

* Import license # must be supplied by the buyer o Get # from their gov't b/c they're importing
? Form # 6 - Commercial Invoice

* Receipt for what you're getting

* Wraps up the whole K


What protection does the seller have if the buyer's bank refuses to pay?
o The seller will probably already have been paid by their bank o If the buyer's bank refuses to pay back the seller's bank, the seller will be sued by its own bank to return the money o Buyer's bank would have a right not to pay in only 2 circumstances:
? If the docs do not strictly comply



Fraud in the underlying transaction

* If fraud, seller would lose and have no claim to his payment by their bank

Document Functions o L/C = finances the sale o B/L = Document of title of the goods





Issuing Bank = Buyer's Bank o Sends L/C to Beneficiary = Seller Governance o UCP??Uniform Customs & Practices Now law - standards of practice Differs from UCC law but highly respected In practice:

* Strict compliance is not always required

* Substantial compliance is ok Governs bank transactions

? Also governs letters of credit law in the United States
? Allows seller to be excused from transactions o Convention of the Int'l Sale of Goods


Fraud o Fraud in the transaction is the only excuse a bank can use for nonpayment on a L/C o Normally the underlying transaction and the L/C transactions are independent, and if the docs are in strict compliance, the bank must pay
? Unless: there is fraud in the underlying transaction


Standby L/C o L/C taken out by the seller to guarantee performance by a 3rd world country buyer o Like a performance bond o Opposite in form of the traditional L/C which is taken out by the buyer on behalf of the seller o U.S. doesn't have these


Relationship & Roles Btwn: 1) Standby L/C, Fraud in Transaction, UCP

o Bank must pay on a letter of credit if there is strict compliance of the documents
? Does not matter whether standby, revolving, or simple L/C
? Only justification for bank's nonpayment is fraud in the underlying independent transaction btwn buyer and seller o If a dispute arises regarding payment or nonpayment of L/C, UCP governs o L/C makes transaction less risky for the seller and for buyer o Bank takes a big risk, but can get out of the transaction if there is fraud o If a suit develops the court will look to the UCP for guidance


3 Important Doctrines of L/C - ** PUT IN D.S. ESSAY ANALYSIS **
o ** Independence Doctrine
? L/C & the transaction of the goods are two separate and independent transactions o ** Estoppel Doctrine
? Bank (in L/C) does not have to pay if:

* Fraud or forgery in the underlying transaction OR

* Documents are not in strict complianceFraud =

* Material misrepresentation of the facts w/intent to induce the buyer, the buyer relies on those facts which causes injury

* Must have intent - must be able to proveForgery =

* False signature

* Intent is presumed

o ** Strict Compliance Doctrine
? Documents must be in strict compliance


Types of L/C o Irrevocable
? Buyer (account party) cannot revoke the letter
? Seller wants this
? Account party works w/their own issuing bank to put together all docs - makes L/C out to the beneficiary (seller) o Revocable
? Buyer can back out
? Beneficiary gets no payment
? **always want this kind**

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