The coffee remains
the property of the sellers until it has been paid for in full. No
third party can lay claim to any coffee that has not been paid for. This is
important when documents are sent in trust. (See Conditions of payment earlier
in topic 04.02.08.) If a buyer is declared insolvent after the documents are
received but before they have been paid, then the judicial authorities (or
liquidators) have no claim to the goods, although in some countries national
insolvency law takes precedence over individual contract stipulations. How far
sellers can enforce this clause in European Union and other importing countries
therefore depends on local law.
In the United States there are no doubts in this
respect. When invoked, bankruptcy law (11 USC365 (e)1) overrides all GCA terms
and conditions. Most coffee is sold on payment terms in the United States and
Canada and the risks are great. Selling net 30 days from delivery means the
seller is granting the buyer possession 30 days before payment. If the buyer
goes bankrupt, the seller may lose the value of the coffee.
There can even be problems
with payments that are made within the 90 days prior to a bankruptcy. This is
called the preference period and if the liquidator or trustee can show that the
payments were not normal (i.e. extraordinarily late or extraordinarily early),
then a supplier might even be forced to return the payments to the bankruptcy
pool.
ECF and GCA
contracts both state that letters of credit
must conform exactly to the contract, must be available for use from day one of
the agreed shipping period, and must remain valid for negotiation for 21
calendar days after the last date shipment can be made. This allows time for the
seller to obtain all the required documents and possible consular
visas.