COST, INSURANCE AND FREIGHT (C.I.F CONTRACT)

CONTENT

1.0       Introduction

2.0       Objective

• Main Body
• I.F Contract
• Duties of the Seller
• Duties of the Buyer
• Passing Property and Risk
• Breach and Remedies

4.0       Conclusion

5.0       Summary

6.0       Tutor Marked Assignment (TMA)

7.0       References/Further Reading

INTRODUCTION

A contract for the sale of goods often requires a shipment by sea of  the goods by the seller to the buyer. There are various types of contract of sale of goods where the subject-matter of the contract is being exported. The contract of C.I.F contracts is derived from  customs and usages of merchants rather than being a product of legislation.

This kind of contract is referred to as cost of the goods, insurance of the goods as well as the amount for the freight. All these are as C.I.F contract.

OBJECTIVE

The purpose of this unit is to enable the learner to be able to define, understand and explain the following phenomena; cost,  Insurance and Freight (C.I.F Contract).

MAIN BODY

C.I.F Contract

A C.I.F Contract is one in which the seller undertakes to ship the goods at a price which will include the cost, insurance and freight. It  is a kind of contract derived from customs and usages of merchants.  A sale of timber at N10,000 dollars per ton C.I.F Lagos means that   the amount includes the cost of the cotton, the transportation cost to Lagos and the cost of insurance premium.

The main feature of a C.I.F contract is that, unlike ordinary contracts, the delivery of the shipping documents (bill of lading, policy of insurance and invoice) transfers the property in and possession of the goods to the buyer.

The risk on the goods passes to the buyer once the goods have been put aboard the ship. Consequently, if they are lost or damaged, the loss will fall on the buyer, who will be able to take the benefit of the insurance policy.

The C.I.F contract, which is more commonly in use than any other contract used for purposes of contract of sale of goods by export  trade, has been described by McNair, J in Gardano and Giampieri v. Greek Petroleum Namidakis and Co., as a contract in which the seller discharges his obligations as regards delivery by tendering a bill of lading covering the goods.

Under the C.I.F contract, it is immaterial whether the goods arrive safely at the port of destination. If they are lost in transit, the marine insurance policy would cover the loss or damage.

Duties of the Seller

The following are the duties of the seller under the contract of C.I.F;

1. to ship   goods   of   the   contract   description,   at   the   port   of shipment, within the time named in the contract.
2. to arrange shipment or contract for the carriage of the goods.
3. to effect a proper policy or policies of insurance on the goods, upon the terms, upon the terms current in the goods
4. to obtain proper bills of lading for the trade.
5. to make out an invoice of the goods
6. to obtain export license, when necessary

Under the contract of C.I.F, the buyer has a right to reject the documents and also a right to reject the goods.

It is important to note the time when the property in the goods will pass as shown in the case of Smith and Co. Ltd v. Bailey, Son and   Co. (1891)2Q.B 403, where the court held that the general property remains in the seller until he transfers the bill of lading.

The resultant effect is that the buyer takes all the risks of transit, and on tender of shipping documents to him, he must pay the agreed price. It is irrelevant that the goods are already lost. Usually, the risk will already be covered by the insurance.

Duties of the Buyer

The following are the duties of the buyers a C.I.F contract

Acceptance of Document of Title

The most important of the C.I.F contract is for the buyer to accept all shipping documents representing the goods sold. The Bill of lading is the most important that must be accepted.

Payment of Price

On tender of the documents, the buyer becomes obliged to pay the price within a reasonable time after the tender of the documents. He cannot insist on waiting for the goods to be delivered before paying or refuse to pay merely because the goods are defective. Berger & Co Inc Duffus SA (1984) AC 382.

Payment of Import duty and Cost of Unloading

It is the duty of the buyer to pay all import duties and wharfage charges, if any. He is also expected to pay the cost of unloading, lighterage and landing at the port of destination, in accordance with the bill of lading.

Passing Property and Risk

Property in the goods under a C.I.F does not usually pass on shipment, although it might be an indication of the intention to pass property on shipment if the bill of lading is made out in the buyer’s name.

Usually, the fact that the buyer has gained possession of both the documents and the goods does not mean property has passed.

Where goods are lost, the normal rule that risk passes with property, does not apply to most C.I.F contracts. Where the goods are lost after the buyer has accepted the documents, the buyer bears the loss. Where the buyer bears the loss, his remedy is against the carrier under the contract of carriage, or the insurer under the insurance policy.

Breach of Contract by the Buyer

Mostly in C.I.F contract the buyer is the one always in breach of the contract and this comes in different heads;

1. Non-Payment of the Price,; if the buyer fails to pay or neglects to pay after the property in the goods has passed, the seller has a right of action. This does not apply to C.I.F Contract because the price is payable expressly against delivery.
2. Non-Acceptance of Document of Title, if the buyer wrongfully fails to accept the documents and the property has passed to the buyer, the seller has a right of action and cannot maintain an action for the price. In a C.I.F contract, the damages will be the difference between the contract price and the value of the documents at the date of the buyers refusal.
3. There are certain rights enjoyed in relation to the In a C.I.F Contract, the seller has the usual rights enjoyed by the unpaid seller e.g:
4. The right of withholding delivery
5. The right of stoppage in transit
6. The right of resale.
7. Right of lien, the seller has a right of lien in the goods. It exists where the seller has taken the bill of lading to his own order.

Remedies for Breach in C.I.F Contracts

1. Action for Damages

If the seller wrongfully fails or refuses to ship the goods or tender the documents, the buyer’s remedy is an action for damages as provided for in section 51of the Sales of Goods Act.

2. Specific Performance

The court may order specific performance of the contract under  section 52 of Sale of Goods Act. This order is a discretionary remedy and therefore would only be granted on equitable grounds. Where the court is satisfied that monetary compensation would be wholly inadequate in the circumstances, then the court will refuse to grant specific performance.

3. Rejection of Goods

The buyer has a right to reject the goods. If the shipped goods are not in accordance with specifications under the contract, then the buyer may reject the document.

He also has a right of examination of the goods and goods are not deemed to be accepted by the buyer by mere delivery except they have been previously examined. The buyer may also lose his right of rejection as in Perkins v. Bell (1893) 1 Q.B.193, where the buyer bought some barley which were dispatched to him for a delivery at a railway station. The defendant without examining them dispatched them to a sub-buyer, who rejected them. The court held that the  buyer had lost his right to reject the goods.

In the contract of C.I.F, the only place where the goods can be examined is the place of destination of the goods.

CONCLUSION

It is pertinent to note that contact of C.I.F is a contract of passing of goods and the risk pass immediately the goods are shipped. Either  lost in transit or not the buyer has no right of suit under the Bill of Lading Act. The most significant aspect of this kind of contract is that the contract is insured against all risks.

SUMMARY

In a typical C.I.F contract, the goods that the seller sells to the buyer would have either been shipped by the seller or acquired while in transit. The seller transfers to the buyer the contract for the carriage  of the goods and the policy of insurance covering the goods during transit.

Normally, risk passes on shipment of the goods, but property will only pass on delivery of the documents and payment by the buyer. The buyer is under separate obligation to accept conforming documents and also conforming goods.

TUTOR MARKED ASSIGNMENT

1. Bimco & Co, contracts to buy from Asia & Co 1,000 tons of Barley, which is on board MV Gurara. The ship sinks before delivery. Who bears the
2. What are the remedies available to a buyer under C.I.F

REFERENCES/FURTHER READING

1. Sofowora, General Principles of Business and Coop Law, Soft Associates,
2. Sale of Goods Act,
3. Rawlings, Commercial Law, University of London Press,
4. Okany Nigeria    Commercial    Law,     Africana-Fep    Publisher, Limited,