Sale Contracts. CIF Terms. Last updated 08-Jan-2015

The contract called for Chinese rabbits, c.i.f. Their obligation was, therefore, to tender documents, not to ship the rabbits themselves. If there were any Chinese rabbits afloat, they could have bought them.

Per Donaldson J in P. J. van der Zijden Wildhandel NV v Tucker & Cross Ltd [1975] 2 Lloyd’s Rep. 240 at 242.

Contract on CIF (cost, insurance, freight) terms, when compared with FOB contract, shifts burden of responsibilities in international sale transaction onto the seller’s side, who is to do the following things:

First, to make out an invoice of the goods sold. Second, to ship at the port of shipment goods of the description contained in the contract. Third to procure a contract of affreightment under which the goods will be delivered at the port contemplated by the contract. Fourth, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer. Fifthly, with all reasonable despatch to send forward and tender to the buyer these shipping documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the buyer is symbolical of delivery of the goods purchased, placing the same at the buyer’s risk and entitling the seller to payment of the price.
Per Lord Atkinson in Johnson v Taylor Bros & Co Ltd [1920] AC 144 at pp.155-156

Thus, in a cif contract, the seller makes all of the shipping arrangements.

The buyer’s duty is to pay the price on the tender of documents covering those goods , to take delivery and to pay import duty. Physical delivery of the goods is not a condition of cif contract.

…the object and the result of a c.i.f. contract is to enable sellers and buyers to deal with cargoes or parcels afloat and to transfer them freely from hand to hand by giving constructive possession of the goods which are being dealt with.
By Lord Porter in Comptoir d’Achat et de Vente du Boerenbond Belge S/A Appellants; v Luis de Ridder Limitada Respondents (The Julia) [1949] A.C. 293 at p. 312

In other words, cif terms allows international traders to sell and resell commodities several times while they are afloat under so-called chain contracts. Accordingly, physical delivery is an indispensable requisite of a final sale contract only, while all intermediate transactions done by passing the property from the seller to the buyer with shipping documents and not with goods. Philosophy of cif contract was defined by Scrutton J. in Arnold Karberg & Co v. Blythe, Green Jourdain & Co [1915] 2 K.B. 379 at 388 in the following words:

It is not a contract that goods shall arrive, but a contract to ship goods complying with the contract of sale, to obtain, unless the contract otherwise provides, the ordinary contract of carriage to the place of destination and the ordinary contract of insurance of the goods on that voyage, and to tender these documents against payment of the contract price.

So far as physical arrival of the goods to the buyer is not a condition of cif contract, it does not mean that the goods may never have been shipped, on the contrary, only provided they are shipped and available for trade there is no requirement that they actually arrive for the buyer to pay price.

Once the goods shipped, the sale contract can be nevertheless concluded even if they have been lost in transit.

… one peculiarity of the cif contract, which is that the sale can be completed after the loss of the goods by the transfer of the shipping documents. That does not mean that a cif contract is a sale of documents, and not of goods. It contemplates the transfer of actual goods in the normal course, but, if the goods are lost, the insurance policy and bill of lading contract - that is, the rights under them - are taken to be, in a business sense, the equivalent of the goods.
Per Lord Wright in Ross T Smyth & Co Ltd v T D Bailey Son & Co - [1940] 3 All ER 60 at p. 70.

Set of shipping documents generally consist of a clean bill of lading, a marine insurance policy or certificate covering the usual marine risks and any agreed additional risks plus an invoice. Thus, the bill of lading and the insurance policy provide continuous cover from the port of shipment to the port of dis-charge, so that the c.i.f. buyer, whatever happens to the goods, will have either a cause of action for loss or damage to the goods under bill of lading contract against:

i) the carrier under the contract of carriage, and
ii) the insurer under the policy of insurance.

Accordingly, the seller, who has shipped the goods under a proper contract of carriage and obtained the proper documents, can effectively tender those documents to the purchaser notwithstanding that he knows at the time of such tender of the loss of the goods. In Manbre Saccharine Co, Ltd v Corn Products Co, Ltd [1918-19] All ER Rep 980 McCardie J stated at p.984:

If the vendor fulfils his contract by shipping the appropriate goods in the appropriate manner under a proper contract of carriage, and if he also obtains the proper documents for tender to the purchaser, I am unable to see how the rights or duties of either party are affected by the loss of ship or goods, or by knowledge of such loss by the vendor prior to actual tender of the documents. If the ship be lost prior to tender, but without the knowledge of the seller, it was, I assume, always clear that he could make an effective proffer of the documents to the buyers. In my opinion, it is also clear that he can make an effective tender even though he possessed at the time of tender actual knowledge of the loss of the ship or goods. For the purchaser in case of loss will get the document he bargained for, and if the policy be that required by the contract and if the loss be covered thereby, he will secure the insurance moneys. The contingency of loss is within and not outside the contemplation of the parties to a cif contract.

The cif contract specifies the port of arrival, for example, cif Hamburg, unlike the fob contract which names the port of departure.

Sometimes c.i.f. contracts on examination appear to be not trully c.i.f though they may be so described by the parties, therefore the terminology employed by the sides to contract is not always a safe guide to their real intentions. Cif contract is not a true cif contract when:

1) physical delivery is a condition of contract or an alternative to the tender of the documents.

2) parties agrees on payment not on tender of documents but on delivery of the goods themselves.

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