Legal Definitions - set of exchange

A set of exchange refers to a specific practice in commercial shipping where a single document, typically a bill of lading, is issued in multiple identical copies. A bill of lading is a crucial document that serves as a contract between the shipper and the carrier, a receipt for the goods, and a document of title allowing the holder to claim the goods. When issued as a set of exchange, each copy is equally valid and can be used to claim the goods.

However, the critical rule is that once the goods are delivered against any one of these copies, all other copies in the set immediately become void and lose their legal effect. This system ensures that the goods are only delivered once, preventing fraudulent or mistaken multiple deliveries, and provides flexibility in handling important shipping documents.

• Example 1: Expedited Document Delivery

  An electronics manufacturer in South Korea ships a critical component order to an assembly plant in Mexico. The original bill of lading is sent via express courier. To ensure the plant can receive the components immediately upon arrival, even if the first courier is delayed, the shipper also sends a second original copy of the bill of lading via a different, equally fast courier service.

  This is a set of exchange because two identical, legally valid copies of the same bill of lading exist. If the first courier is delayed, the Mexican plant can present the second original copy to the shipping company to take delivery of the components. Once they do, the first original copy (if it eventually arrives) becomes void and cannot be used to claim the goods again, preventing a duplicate delivery.

• Example 2: Bank Financing and Security

  A commodity trading firm in Switzerland purchases a large quantity of coffee beans from a supplier in Vietnam, to be shipped to a warehouse in Germany. A bank provides a letter of credit to finance the purchase. The bank requires possession of an original bill of lading as security for the loan. To facilitate the transaction, the Vietnamese supplier issues the bill of lading as a set of exchange, typically in triplicate. One original is sent to the bank, another to the Swiss trading firm, and the third might be held by the shipper or carrier.

  Here, the set of exchange allows the bank to hold a valid document of title as security while simultaneously allowing the trading firm to receive another valid original. When the coffee beans arrive in Germany, the trading firm (or an agent) presents their original bill of lading to the carrier to take possession. Once the carrier releases the goods against that presented original, the bank's original copy (and any other copies) automatically becomes void, confirming that the goods have been delivered and the bank's security interest has been fulfilled (or the loan needs to be repaid).

• Example 3: Multiple Parties Needing Access

  A large construction company in Australia orders specialized machinery from a manufacturer in Japan. The machinery is shipped by sea. The construction company has a customs broker handling import procedures and a separate logistics team responsible for receiving the goods at the port. To streamline the process, the Japanese manufacturer issues the bill of lading as a set of exchange, providing two original copies. One original is sent directly to the customs broker for pre-clearance, and the other is sent to the construction company's logistics team.

  This illustrates a set of exchange because multiple original, valid copies of the bill of lading are distributed. The customs broker can use their copy to initiate customs procedures, and the logistics team can use their copy to present to the carrier at the port to take physical possession of the machinery. The moment either party successfully uses their original copy to claim the goods, the other original copy (and any other copies in the set) becomes void, ensuring that the valuable machinery is only delivered once.