Scope of C.I.F Contracts

C.I.F. Contracts an "indispensible instrument of sea-borne commerce."

The great majority of international shipping contracts come under either as c.i.f contracts or f.o.b. contracts. The initials c.i.f. stand for cost, insurance and freight. but the distinction is that this contract is in addition to a cost contract in the sale of goods. that is, to say this contract is in additional to a main contract for sale. the cost for carriage of goods is contemplated in addition to the cost of goods and the remarkable thing is that this contract is not executed severally from the main contract. here, the seller makes two subordinate contracts being contract for affreightment and contract of insurance. according to David M. Sassoon and H. Oren Mermen, “C.I.F. and F.O.B. Contracts”, Stevens &Sons Ltd. of London, third Edition 1984 “it is known as c.i.f. contract, for the price which the buyer has to pay is the cost of the goods, together with the insurance of the goods during transit and the freight to the port of destination”.

It is not just the buyers and sellers in the picture but sometimes a variety of persons like forwarding agents, banks acting for either the buyers or seller or even the intermediaries. One of the earliest judicial definitions to C.I.F. contracts were given in 1872 by Lord Blackburn in the case of Ireland v. Livingston(L.R. 5 H.L.395). The essence of this contract lies in the delivery of the goods. Interestingly, the delivery unlike in sale of goods, here is determined by actual delivery of documents. Documents means the right to have the goods delivered or the possible right, if they are lost or damaged by, of recovering the goods valve from the ship-owners or underwriters. Then, the question arises is CIF contract only a sale of documents and not a sale of goods? The answer is in the negative. This is because these documents are the measure of buyer’s rights and seller’s duty that the buyer can in no way refuse the documents and ask for the actual goods. The salient characteristic of a c.i.f. contract is that “the property in the goods not only may but must pass by delivery of the documents against which payment is made”.

In Sanders v. Maclean[(1883) 11 Q.B.D. 327 at p. 341.]. Bowen L.J. stated that the delivery in a C.I.F. contract is constructive i.e. it gives the buyer “the key to the warehouse”. The Learned Judge meant that the transfer of bill of lading along with the insurance policy, places the goods at the disposal of the owner.

Evolutions in Modern Day

The concept of "Open or Floating Policy of Insurance" helps the seller to declare that the goods on board are at a risk at any particular time thereby reducing his risk liability.

Advantages of C.I.F. Contract

The seller has the advantage of receiving the transacting money well in before the goods actually reach the buyer. the advantage of the buyer is that he 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. The risk which he takes is that the loss or damage of goods may not be covered by the bill of lading or insurance policy.

Question of point of time in passing of property.

According to the general rule the property and the risk passes at the same time but this is not the usual case in a c.i.f. contract. Under a c.i.f. contract, the buyer is in effect the insurer, as of the time of shipment. The transfer to him of the bill of lading and the policy of insurance giving him the right of action in respect of loss or damage to the goods has the effect of placing the goods at his risk on and after shipment[ Tregelles v. Sewell(1862) 7 H&N. 574] . But the property in the goods may not, and generally does not, pass on shipment. It very often will not pass until tender and payment. The moment at which the property passes is entirely a matter of intention which can be gathered from the terms of the contract, the parties’ conduct and according to the circumstances of the case.

In Preeti Tex v. The Income Tax Officer, 2008 304 ITR 266 Chennai it was held that if in the meantime the buyer obtains the documents, the goods are lost neither the buyer nor the seller is put to loss but the owner at that time whoever he is can recover it from the insurer.

Conclusion

What is the need of the hour is not the conflict of laws with respect to the laws in c.i.f. and f.o.b. especially in international trade. Conflicting laws can create situations of confusion and anxiety in the minds of traders. The International Chamber of Commerce (the ICC) and its definitions in INCOTERMS and its chart of responsibility can resolve disputes by making the internationally accepted terms clear. Moreover, the governments of the states all over the world should achieve uniformity in international sales law by negotiating international conventions.