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F.O.B. Contract


Law and Sea.
Sale Contracts - CIF Terms.

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.

C.I.F. Contract
Last updated: 28-Nov-2015

Per Scrutton J in Arnold Karberg & Co v Blythe, Green Jourdain & Co [1915] 2 K.B. 379 at 388:

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.

Manbre Saccharine Co, Ltd v Corn Products Co, Ltd [1918-19] All ER Rep 980 per McCardie J 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.

Per Lord Atkinson in Johnson v Taylor Bros & Co Ltd [1920] AC 144 at pp.155-156:

I think, that when a vendor and purchaser of goods situated as they were in this case enter into a c.i.f. contract, such as that entered into in the present case, the vendor in the absence of any special provision to the contrary is bound by his contract to do six 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.

… if no place be named in the c.i.f. contract for the tender of the shipping documents they must prima facie be tendered at the residence or place of business of the buyer.

In Ross T Smyth & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60 Lord Wright said at p.68 and p.70:

The essential characteristics of this contract have often been described. The seller has to ship or acquire after that shipment the contract goods, as to which, if unascertained, he is generally required to give a notice of appropriation. On or after shipment, he has to obtain proper bills of lading and proper policies of insurance. He fulfils his contract by transferring the bills of lading and the policies to the buyer. As a general rule, he does so only against payment of the price, less the freight, which the buyer has to pay. In the invoice which accompanies the tender of the documents on the "prompt" ­ that is, the date fixed for payment ­ the freight is deducted, for this reason. In this course of business, the general property in the goods remains in the seller until he transfers the bills of lading. These rules, which are simple enough to state in general terms, are of the utmost importance in commercial transactions. …The property which the seller retains while he or his agent, or the banker to whom he has pledged the documents, retains the bills of lading is the general property, and not a special property by way of security. In general, however, the importance of the retention of the property is not only to secure payment from the buyer but for purposes of finance. The general course of international commerce involves the practice of raising money on the documents so as to bridge the period between shipment and the time of obtaining payment against documents. These credit facilities, which are of the first importance, would be completely unsettled if the incidence of the property were made a matter of doubt. By mercantile law, the bills of lading are the symbols of the goods.

…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.

By Lord Porter in Comptoir d’Achat et de Vente du Boerenbond Belge S/A v Luis de Ridder Limitada (The Julia) [1949] A.C. 293 at pp.309, 312:

…the obligations imposed upon a seller under a c.i.f. contract are well known, and in the ordinary case include the tender of a bill of lading covering the goods contracted to be sold and no others, coupled with an insurance policy in the normal form and accompanied by an invoice which shows the price and, as in this case, usually contains a deduction of the freight which the buyer pays before delivery at the port of discharge. Against tender of these documents the purchaser must pay the price. In such a case the property may pass either on shipment or on tender, the risk generally passes on shipment or as from shipment, but possession does not pass until the documents which represent the goods are handed over in exchange for the price. In the result the buyer after receipt of the documents can claim against the ship for breach of the contract of carriage and against the underwriter for any loss covered by the policy. The strict form of c.i.f. contract may, however, be modified: a provision that a delivery order may be substituted for a bill of lading or a certificate of insurance for a policy would not, I think, make the contract concluded upon something other than c.i.f. terms, but in deciding whether it comes within that category or not all the permutations and combinations of provision and circumstance must be taken into consideration. Not every contract which is expressed to be a c.i.f. contract is such. Sometimes, as in The Parchim [1918] A. C. 157, terms are introduced into contracts so described which conflict with c.i.f. provisions.

…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

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