CIF Contract (Work Shop-6)

The basic definition of the CIF contract is provided by Lord Atkinson in Johnson v Trylor Bros. The said annotation defined a CIF contract by indicating five specific stipulations that the seller must satisfy in order to tender the completion of the contract. Even though the decision on the said case does not imply that the contract is completed by tendering the documents of the shipments to the buyer, it provides the basic implication that the seller must accomplish acts that covers the costs, insurance, and the cost of freight the goods.

Advantages of the CIF contract:

1. The buyer has the advantage of knowing from the date of the contract the exact price he must pay to obtain the goods: the contract price includes freight and insurance.
2. More importantly, the use of the documents to perform the contract and represent the goods allows the parties to deal with the goods afloat. Thus the buyer can resell the goods before they arrive.
3. In the occasion of loss of or damage to the goods during the transit it is initially essential to recognize the party entitled to take legal action to the carrier for breach of the contract of carriage. This subject is addressed in the provisions of the Carriage of Goods by Sea Act 1992 which replaced the Bills of Lading Act 1855.
4. Ultimately, the buyer has a substantial right once he gets the documents of sale and he may still reject the goods on their actual delivery if they turn out to be not in conformity with the standards he had prescribed.
5. The person who bought the goods via the document is assured of the payment even if the goods are damaged or never arrive at all for he is entitled to be paid on presentation of the documents. The buyer is generally protected against such losses by the bill of lading, giving a contractual right against the carrier, and the policy of insurance, covering most accidental losses.
6. CIF contract are an exception to the general rule in s20 of the Sale of Goods Act which links the passing of risk to the passing of property. Whereas property under a CIF contract passes at the time the buyer pays and takes up the documents, the goods are deemed to be at the buyer’s risk from the time of shipment.  

Disadvantages:

 The buyer will have nothing in his hands except documents, which makes his condition more insecure as, he still has to deal with the insurer and the carrier and he may not be able to recover from them, i.e. by reason of an exclusion clause (the carrier may limit his liability in accordance with the Hague-Visby Rules) or if the carrier becomes insolvent. Furthermore, he may not be able to recover against the insurer if the specific risk was not covered by the insurance policy.

On the other hand if the goods have merely deteriorated or are damaged it seems more just to permit on a subsequent appropriation since the buyer will still have in his hands the goods, which may still be of some commercial value. Although these disadvantages may create difficulties, it is suggested that the main problem with this approach, at least as regards English law, is the absence of an appropriate legal technique for making the seller's knowledge relevant.

 If the goods are lost or deteriorate after the goods have been appropriated to the contract, the seller may still tender the documents; once goods have been appropriated to the contract the seller is not entitled to tender any others. Goods are lost after the contract is made but before shipment. Here the position is clear; the seller cannot ship any goods and so cannot fulfil his contract using the “lost” goods