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C.I.F. Contract



Law and Sea.
Sale Contracts -FOB Terms

The term fob stands for "free on board" and represents a type of sale contracts under which the buyer generally takes all the risks and expenses from the moment the goods crossed ship’s rail.

F.O.B. Contract
Last updated: 28-Nov-2015

Relationships between the parties to contract on fob term were described in details by Lord Hewart CJ in J. & J. Cunningham, Ltd. v Robert A. Munro & Co., Ltd. (1922) 13 Ll. L. Rep. 216 at pp.216-217:

The contract under consideration was for 200 tons of Dutch bran for shipment during October, 1920, price £13 per ton f.o.b. Rotterdam, buyers finding freight room. Under such an agreement it was the duty of the purchasers to provide a vessel at the appointed place, Rotterdam, at such a time as would enable the vendors to bring the goods alongside the ship and put them over the ship’s rail, so as to enable the purchasers to receive them within the appointed time – in this case October. It would not, for example, be sufficient for the vendors to bring them to a warehouse in Rotterdam or bring them alongside the vessel at five minutes before midnight on Oct. 31. The usual practice under such a contract is for the buyer to nominate the vessel and to send notice of her arrival to the vendor in order that the vendor may be in a position to fulfil his part of the contract.

When the vendors tender the goods in question to the purchasers theoretically by placing them on the ship’s rail, it is open to the purchasers to reject if the goods are not in accordance with the contract. This being the relationship between the parties the liability on either side may be varied

(1) by express contract altering the place or date of loading

(2) by the conduct of the parties.

For example, there may be circumstances which disentitle the purchaser to reject the goods when they are being placed on the ship’s rail, as for instance where he has by his conduct already accepted them before their arrival there; there may also be circumstances where, although the purchaser may be entitled to reject when the goods are being placed over the ship’s rail, yet the vendor may be entitled to recover damages in respect of the deterioration of the goods. Assuming the sale of a perishable cargo, say of fresh vegetables for October shipment, suppose the purchasers nominate their vessel and write to the vendors saying "she will be at the quayside in three days time." The vendors gather their vegetables and send them to the quayside; but the nominated ship does not arrive for a fortnight, during which time the vegetables go bad. It may be that the purchasers are entitled to reject the vegetables which have so deteriorated, but the vendors are then entitled to rely upon and bring into play another legal principle. It is not exactly an estoppel which prevents the purchasers from rejecting, but it is the doctrine that where one person makes a statement to another meaning that statement to be relied upon and acted upon by that other, if the other suffers damage by so relying and acting upon it he is entitled to recover such damage from the person making the statement. In the case put forward the damage would be the loss of price which the vendors would otherwise have obtained from the purchasers. This legal doctrine might be put in ordinary language as it is put in the case stated by the arbitrator, viz., that under such circumstances after the vendor has brought the goods to the quay at the invitation of the purchaser the goods remained at the purchaser’s risk.

Pyrene Company Ltd v Scindia Steam Navigation Company Ltd [1954] 1 Lloyd’s Rep. 321. Comprehensive definition done by Devlin J for many years remains the leading authority on the matter:

In what … called the classic type, as described, for example, in Wimble, Sons & Co. v. Rosenberg & Sons, [1913] 3 K.B. 743, the buyer’s duty is to nominate the ship and the seller’s to put the goods on board for account of the buyer and procure a bill of lading in terms usual in the trade. In such a case the seller is directly a party to the contract of carriage at least until he takes out the bill of lading in the buyer’s name. Probably the classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to the berth or at least of which she is notified. Under present conditions, when space often has to be booked well in advance, the contract of carriage comes into existence at an earlier point of time. Sometimes the seller is asked to make the necessary arrangements; and the contract may then provide for his taking the bill of lading in his own name and obtaining payment against the transfer, as in a c.i.f. contract. Sometimes the buyer engages his own forwarding agent at the port of loading to book space and to procure the bill of lading; if freight has to be paid in advance this method may be the most convenient. In such a case the seller discharges his duty by putting the goods on board, getting the mate’s receipt and handing it to the forwarding agent to enable him to obtain the bill of lading. The present case belongs to this third type; and it is only in this type, I think, that any doubt can arise about the seller being a party to the contract.

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