A. The Mechanics of Documents of Title

1. Delivering Goods to a Carrier
2. Recovering Goods from a Carrier

(a) Nonnegotiable Documents

Figure 28.1 - Negotiable Bill of Lading

(b) Negotiable Documents

B. Transactions with Documentary Drafts

1. The Role of Documentary Draft Transactions

Figure 28.2 - Documentary Collection: Parties/Document Flow

2. Steps in the Transaction

(a) Preliminaries - Sale Contract, Shipment, and Issuance of the Draft

(b) Processing by the Remitting Bank

Figure 28.3 - Sight Draft for Documentary Collection

(c) Processing by the Presenting Bank

Figure 28.4 - Form Collection Document

C. Credit Transactions and Banker's Acceptances

Figure 28.5 - Banker's Acceptance Transaction

Problem Set 28

Figure 28.2
Documentary Collection: Parties/Document Flow
EPS | GIF | WMF

Figure 28.3
Sight Draft for Documentary Collection
EPS | GIF | WMF

Figure 28.5
Banker's Acceptance Transaction
EPS | GIF | WMF

Try the suggestions page on how best to use these figures.

Problem Set 28

28.1. This week you have a new client, Bob Puget from Puget Shipping Company. His first question relates to Puget’s form bill of lading, which is identical to the form set out in Figure 28.1. Puget tells you that a recent audit of Puget’s files indicated that several recent shipments were made in which the bill was completed by an inexperienced clerk. Contrary to Puget’s customary practices, the clerk typed the name and address of the consignee into blank 2 (designating that party as the consignee). If the bills were completed in that manner, do they constitute documents of title? Are they negotiable? UCC §§ 1-201(6) & (16), 7-102(e), 7-104(1)(a).

28.2. Puget’s second question involves a shipment of two containers of air movers (a type of industrial machinery used to cool factory workers) from Seattle to a Brasileira Lumber, in Rio de Janeiro. The seller was Guterson Pneumatic Tools. At the time of the shipment, Puget issued a negotiable bill of lading stating that the goods were consigned to the “order of shipper” (that is, to the order of Guterson, the seller). The vessel on which the goods are being shipped currently is located in Los Angeles. This morning Puget received an urgent telephone call from the captain of the vessel. The captain says that an attorney for Olympia National Bank has just served papers on him claiming that it has a lien on all of Guterson’s assets. The attorney wants Puget to hand the goods over to Olympia.

When Puget called Brasileira Lumber and advised it of the situation, Brasileira told Puget that it intended to pay for the goods as contracted and that Brasileira (to put it mildly) would be displeased if Puget did not deliver the goods as agreed. It appears that the original bill of lading currently is in an overnight mail package on the way to Banco de Janeiro (Brasileira’s bank). What should Puget do? UCC §§ 7-104(1)(a), 7-403, 7-602.

28.3. Later in the day, Puget calls you back with one final question about the Guterson shipment from Problem 28.2. He is frustrated because he has just discovered that the check Guterson gave him for the shipping charges has bounced. When Puget tried to telephone Guterson about paying for the charges, Puget listened to a recording stating that Guterson’s number had been disconnected. When he went to Guterson’s business, he saw that the warehouse was completely boarded up. When you question Puget about his charges, he explains that he always notes the charges on the bill, but ordinarily does not insist on payment until he delivers the goods. In this case, his understanding was that the seller Guterson would pay him before the goods arrived. Do you have any suggestions for how Puget can obtain payment? UCC § 7-307, UCC § 7-403(2).

28.4. You get a call this morning from a new client, Giles Winterborne, who runs a gourmet apple company with customers worldwide. He came by this afternoon to consult about a shipment of apples that he sent to one Grace Melbury (in Paris), using a standard documentary draft transaction to protect his right to payment. When the draft arrived in Paris, Melbury called up Winterborne, told Winterborne that she had changed her mind and no longer wanted the apples, and advised Winterborne that she would not pay for the apples. Later that afternoon, Safety Pacific (Winterborne’s bank) called to advise Winterborne that it had been notified by telex that Melbury had dishonored the draft. Winterborne comes to you confused. Can’t he force Melbury to pay the draft? If he can’t, he wants to know what the point of all of the documents and drafts is? UCC §§ 3-401, 3-408. How would his position differ if he had shipped the apples with a nonnegotiable document of title consigning the apples to Melbury? {In this problem and the rest of the problems in this assignment, you should assume that rights on the drafts in question are determined either under Article 3 or under rules that are substantively identical to Article 3.}

28.5. Satisfied by the frank advice that you rendered in Problem 28.4, Winterborne returns to you the next day with a new problem. His question involves another documentary draft shipment, this time to Edred Fitzpiers in Hintock, England. The collection document was in the customary form, calling for delivery of the documents “against payment.” For reasons that are unclear to you and Winterborne, Hintock Bank and Trust (Fitzpiers’s bank) released the documents to Fitzpiers without obtaining payment from Fitzpiers. Accordingly, Fitzpiers now has the apples and Winterborne has not been paid. What can Winterborne do to obtain payment? Convention on Contracts for the International Sale of Goods 62.

28.6. A week later, Winterborne comes to you with another problem. This one involves a banker’s acceptance transaction, in which he sold some apples several months ago to Marty South, drawing a draft on the same Hintock Bank and Trust. Hintock accepted the draft and sold it to Barclays Bank on the open market. Unfortunately (for reasons that should be obvious from Hintock’s conduct in Problem 28.5), British regulatory authorities recently closed Hintock. Thus, Hintock did not pay the banker’s acceptance when it came due. Barclays has now approached Winterborne seeking payment from him as “drawer” of the draft. Winterborne can’t understand what possible claim Barclays has against him. “I shipped apples to Marty South. She got the apples. I got paid. What’s the problem?” Does he have anything to fear? UCC §§ 3-414, 3-415.

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