Business and law Assignment Sample

 TOPIC: A CIF Sale Is Not a Sale of Goods but a Sale of Documents Relating To Goods

Introduction:

The case of Arnold Karlberg & Co v Blythe Green Jourdain & Co (1915)[1], concerned about the contracts related to the sale of beans, and the payment was to be made within or before three months implemented from the date of bills of lading. After three months when the sellers offered the buyers, the shipping documents, which in one case had an English policy of insurance with a German bill of lading and in the other case, German insurance as well as German bill of lading. The buyers did not accept any of the bills and an issue arises concerning, whether or not the buyers could refuse the shipping documents which were offered by the sellers. The court supported the decision because the course of action took place after the outbreak of war and the offer from the seller’s end became void. Thus, the concern remains whether CIF is a sale of document related to goods or a sale of goods.

A CIF Contract refers to a form of contract where the buyer makes sures that during the sales of good, he covers the cost price of goods along with the insurance and freight. Under the agreement, a seller has to bear the responsibility of supplying and insuring, and shipping the goods. That means he has to look after the ‘cost, insurance, and freight’ involving himself in sales contracts as well as contracts of carriage and insurance. The seller can fix the price so that he can cover all his costs, however in case of fluctuations or risks; he has to bear all the extra costs. This type of contract is frequently used in sea-borne commerce and has been popular in trade since the middle of the nineteenth century. Even the information provided by respective authorities and legislative bodies is not enough to come to a solid conclusion. During the shipment, the buyer has the consent to pay only against the tender of shipping document rather than goods delivery. Similarly, a seller is not required to make sure about the arrival of goods and is eligible to demand for a payment on the tender of payment. This is one of the crucial contradictory points that have led to the huge debate. By analyzing various aspects, the paper will conclude whether CIF contracts are for sales of goods or rather they are for the sales of documents.

Documents: Importance

In the CIF Contracts, documents play the most crucial role as it is the reason that contracts become the sale of documents or rather gains its special characteristics.[2] By tendering the insurance policy, the bill of landing, certificate of quality, invoice as well as other related documents, the seller performs the contracts. By providing these documents, the seller represents their goods. If documents conform to the contract the buyer must accept them and cannot reject them as it will be considered as a breach of contract. In a similar instance, if represented goods are lost or damaged, sellers can still tender the document. However, the buyers may reject the defective products even after the document has been accepted.

To explain everything in simpler terms, buyers can only call for customary documents which are within their rights. This also shows the extent of duty a seller has towards the buyer. Neither seller can hold the documents and tender the goods they represent, nor can buyers ask for the actual good and refuse the document. The CIF contract as the sale of documents, but Bradgate argued on this statement stating that the importance of documents is misleading.[3]  As per his statement, the contract still acts for the sale of goods as the Sale of Goods Act is applied to it. However, Bradgate’s explanation was not entirely accurate as the few aspects of the Act are not related to the CIF contract. For instance, the matters related to the passing of risk.

Features of a CIF Contract:

All the duties of the seller have been highlighted in the contract. Seller under the CIF contract has to perform some duties. First duty is to ship the product that has mentioned in the contract. These products are directly sent to port. The second duty is to deliver the goods to a particular destination (mentioned in the contract) under the contract of affreightment. The third duty is to make arrangements of insurance upon the terms of contract.  The fourth step is to send the document to buyer along with the invoice. These documents would let buyer know about the shipment which he has to pay and obtain the delivery of the goods once the goods arrive, or if they have suffered a loss in the voyage then has to recover for their loss.[4] Following against the tender of these documents, invoice, the bill of lading, and policy of insurance; the documents make sure the buyer will pay the price for the goods. Only when the tender goods are floating a seller can fulfill a CIF contract. During the floating of tender, the goods must be shipped by the seller himself, or has brought from some other person. The seller should appropriate to the goods which agree with the terms mentioned in the contract, to the goods which have been shipped, and to the goods which are covered by a contract of carriage to the destination port and by an insurance policy. Under the contract, the tender of the documents is the prime duty of a seller. The contract also provides a specific time for the tender and if in any circumstances buyer pays a late tender, the seller has the complete liberty to cancel the contract.

Right to Reject:

Buyers have the right to reject in cases where the documents do not comply with the contract. In cases such as claused bills of lading, conditions where the goods were dated outside the shipment period, as well as conditions with a deficiency in quantities. During the loading process if goods are not in good condition, even in those instances buyers have the right to reject. However, the buyers lose the right to reject the document when they accept the inaccurate document. They can lose the right if they pay without any objections. The case of Panchaud Freres SA was one such instance.[5] In July 1965, the case of CIF Antwerp, Shipment occurred where the Brazilian maize was used as the contract of sale. The seller falsely tendered the bill of 31st July when he loaded the maize during August. The seller falsely tendered the bill of 31st July when he loaded the maize during August. From loading supervisors, the seller has also issued a certificate of quality stating the 10 and 12 August as the date of drawing samples. The certificate was included in the shipping document and the buyer paid for the lot. This act makes the late shipment apparent so the buyer had to accept the document. He is no longer allowed to complain about the late shipment.

If buyers find a defect on the document and accept it regardless, they cannot reject the goods anymore; in simpler terms they lose their rights to reject. So they need to check the document carefully and make sure the contract states the right and favorable terms. If a buyer finds that the price in the contract is incorrect; he can object and raise the question before completion during the exchange of contracts. If the document corresponds to the contract, the grounds of defects will be not a valid reason for the buyer to reject the document. It will be a breach of contract if buyer does so. The Berger & Co. Inc v Gill & Dufus SA[6] case is one such example. It showed how the buyer rejected the tender of documents by stating that the goods did not match up the description of the contract during delivery. However, it was considered a breach of contract by the House of Lords.

It can be stated that the document rejection rights carries great weight than the goods rejection rights in a CIF.[7] It can also be stated that when it comes to the rejection rights in a CIF, it is not a rejection of good but the rejection of documents. The good can only be rejected by the buyer when it does not comply with the contract during the arrival and only on the condition that found defect is not stated in the documents. So in case, the goods were damaged during loading, they cannot be rejected anymore. It can only be dealt with before the arrival of the goods; however, by doing so he loses the rejection rights in case of defects.

In the actual scenario, once the document has been accepted the buyers do not reject the good as he has already paid the price and it leaves him in the position to recover the money from the seller; which is itself a tedious job.[8] The damage is measured by differencing the value of delivered goods with the value mentioned in the contract. When the contracted good’s market value falls between the date of delivery and tender of documents; buyers will be worse off if they claim the damage and reject the document.

Passage of Property:

It is stated that in the CIF contract, when the buyer pays the price and receives the bill, then only the property passes and the buyer gets the disposal rights; although it’s only a presumption. If the contracts for specific goods are considered, it is only possible to pass the property when during shipment the goods are ascertained or in case the contract is made. All the risk of loss and damage is passed when the goods get ahead of the ship’s rail.[9] Even though the seller pays the price of insurance and freight, the goods travel at the risk of the purchaser or the buyer. According to the act namely the Sale of Goods Act 1979 s32[10], a seller has to bear all the risk in the case of CIF contracts unless he shows a reasonable contract of carriage. Once the buyer accepts the document and pays the price, the seller is no longer the risk bearer; the risk falls on the shoulder of the buyer from the time of shipment. The risk is passed on to the buyers as the CIF contract works on the property pass principle following the one of the rule namely the s20 rule of the act named the Sale of Goods Act which states the passing of property with the passing of risk.

Conclusion:

The report discusses that the facts and reasons behind contracts to be considered as the sale of documents and not sale of goods. The buyer must check the documents properly and make sure that he or she checks the terms and then obey the contract before accepting them. In a CIF contract, the documents hold an utmost value. Given the importance of the documents and analyzing how it is the key to all factors, it draws the statement that CIF contracts are indeed the sale of documents which are related to goods.

Bibliography

Website

Agarwal S, ‘(Cost, Insurance And Freight) CIF Contracts’ (Lawtimesjournal.in, 2021) <https://lawtimesjournal.in/cif-contracts/> accessed 4 December 2021

Asanwana U, and Efombruh O, ‘Understanding FOB And CIF Contracts: And When Property And Risk Pass In These Transactions’ (SSRN, 2021) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3278642> accessed 4 December 2021

Bridge M, ‘Documents And Cif Contracts – SAS-Space’ (Sas-space.sas.ac.uk, 2021) <https://sas-space.sas.ac.uk/3805/> accessed 4 December 2021

Giles O, ‘Suez Crisis Frustrates C.I.F. Contract’ (Modern Law Review, 2021) <https://doi.org/10.1111/j.1468-2230.1959.tb00518.x> accessed 4 December 2021

Court Case

Arnhold Karberg & Company v Blythe, Green, Jourdain & Company [1915] Court of Appeal (Court of Appeal)

Berger & Company Incorporated (Appellants) Gill & Duffus SA [1983] House of Lords, No. 2 (House of Lords)

PANCHAUD FRERES SA v ETABLISSEMENTS GENERAL GRAIN COMPANY [1970] COURT OF APPEAL, 1 Lloyd’s Rep. 53 (COURT OF APPEAL)

BooksBradgate R, Commercial Law (Oxford Univ Press 2005)Soyer B, and Tettenborn A, International Trade And Carriage Of Goods (1st edn, 2016)

JournalThayer P, ‘C. I. F. Contracts In International Commerce’ (1940) 53 Harvard Law Review <https://doi.org/10.2307/1333838> accessed 4 December 2021

 [1] Arnhold Karberg & Company v Blythe, Green, Jourdain & Company [1915] Court of Appeal (Court of Appeal).

[2] Sakshi Agarwal, ‘(Cost, Insurance And Freight) CIF Contracts’ (Lawtimesjournal.in, 2021) <https://lawtimesjournal.in/cif-contracts/> accessed 4 December 2021.

[3] Robert Bradgate, Commercial Law (Oxford Univ Press 2005).

[4] Ufuo Asanwana and Okor Efombruh, ‘Understanding FOB And CIF Contracts: And When Property And Risk Pass In These Transactions’ (SSRN, 2021) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3278642> accessed 4 December 2021.

[5] PANCHAUD FRERES SA v ETABLISSEMENTS GENERAL GRAIN COMPANY [1970] COURT OF APPEAL, 1 Lloyd’s Rep. 53 (COURT OF APPEAL).

[6] Berger & Company Incorporated (Appellants) Gill & Duffus SA [1983] House of Lords, No. 2 (House of Lords).

[7] M. G. Bridge, ‘Documents And Cif Contracts – SAS-Space’ (Sas-space.sas.ac.uk, 2021) <https://sas-space.sas.ac.uk/3805/> accessed 4 December 2021.

[8] O. C. Giles, ‘Suez Crisis Frustrates C.I.F. Contract’ (Modern Law Review, 2021) <https://doi.org/10.1111/j.1468-2230.1959.tb00518.x> accessed 4 December 2021.

[9] Philip W. Thayer, ‘C. I. F. Contracts In International Commerce’ (1940) 53 Harvard Law Review <https://doi.org/10.2307/1333838> accessed 4 December 2021.

[10] Bariş Soyer and A. M Tettenborn, International Trade And Carriage Of Goods (1st edn, 2016).

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