The CIF contract CIF contact stands for cost, insurance and freight.

The seller is responsible for supplying goods that comply with the contract of sale and obtaining a bill of lading and contract of insurance. Price of goods in the CIF contracts is inclusive of freight and insurance costs to the dest. A CIF contract, as Scrutton J said in Arnhold Karberg v Blythe, Green, Jourdain and Co is not a contract that goods shall arrive but a contract to suppy goods that comply with the contract of sale, and to obtain a contract for carriage and contract of insurance. CIF contracts are generally attractive to both seller and buyer. As far as the seller is concerned, he can charge a higher price taking into account the extra services-obtaining shipping space and insurance. The seller usually gets paid for the goods before their arrival at destination since payment for goods in CIF contracts often takes place when the documents are tendered to the buyer or to the bank.The attractiveness of a CIF contracts as far as the buyer is concerned, is that he does not have to undertake the task of finding the shipping space or insurance. The buyer could appoint an agent in the country of export to undertake the tasks of obtaining shipping space and insurance cover. Contracts There are two subordinate contracts which are contract of carriage by sea which is known as the contract of affreigtment and contract of insurance. In Johnson v Taylor Bros1, the seller duties are to make out an invoice of goods sold, ship at the port of shipment goods of the description contained in the contract and to procure a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract. Insurance Seller Apart from that, seller is responsible to arrange for insurance upon the terms current in the trade which will be available for the benefit of the buyer and with all reasonable dispatch 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 symbolic delivery of the good purchased, placing the same at the buyers and entitling the seller to payment of their price. The parties who have construed on CIF terms may have varied some of the obligations undertaken by them. The general rule seems to be where a contract is expressed to be on CIF terms, it should be construed as a CIF contract and clauses that are repugnant to the central obligations of a CIF contract are to be disregarded. This held in the case of Law and Bonar Ltd v British American Tobacco Ltd(The Julia) 2 One of the main seller duties in the CIF contract is to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer.
1 2

[1920] AC 144 [1916] 2 K.B. 293

The marine insurance policy which the seller has to tender to the buyer should provide cover against the risks which is customary in the particular trade to cover with respect to the cargo and voyage in question. The seller will bear the risk if the cover not appropriate. If there is no express stipulation how much to cover, the seller must obtain the insurance on terms that are current in the trade. Other than that, the seller can look at the cargo or the nature of the goods or the route of the voyage or the usual trade practices for that particular cargo or at reasonable value of the goods. Retain risk Seller The parties who have contracted on CIF terms may have varied some of the obligations undertaken by them. There may be a clause in the contract stating that the seller is to retain the risk in the goods even after payment of the goods. Law and Bonar Ltd v British American Tobacco Ltd is an illustration of this approach. The contract of sale in this case was to remain with the sellers until actual delivery to the buyers. The clause was held to be inapplicable. Time of Shipment Part of the description of the goods. Since it is a condition, the buyer cannot only repudiate the contract, but also obtain damages. In Bowes v Shand the contract was for a shipment of rice from Madras, shipment to take place during March and/ or April 1874. Part of the cargo was shipped in February and the rest in March. The court held that the parties had contracted to buy rice shipped during March/ April and the buyers were not bound to take rice shipped during February since it was not the same article for which they had bargained. As Lord Blackburn said: When an article is decribed to say that it is anything but a warranty or a condition precedent that it should be an article of that kind and that another article might be substituted for it. As he sai, if you contract to sell peas, you cannot oblige a party to take beans. If the description of the article tendered is different in any respect it is not the article bargained for, and the other party not bound to take it. The reason for regarding time of shipment as a part of the description of the goods can be explained in the terms of the crucial role that time plays in mercantile contracts. It is also important in sorting out payment arrangements. It is also possible that time may be important for the buyer who may wish to fulfil his contractual obligations with other parties. s-32 of SOGA Per Description

Per Lord Atkinson in Johnson v Taylor Bros & Co Ltd3 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 is 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. Apart from that, according to Section 13(1) ) of the Sale of Goods (UK) Act 1979; where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description. In the case of Arcos Ronaasen4; the House of Lord allowed the buyer to reject the goods as the barrels not correspond to the description of the contract because the large of the barrels thicker in inch. Place of Shipment The seller also has an obligation to comply with any requirement as to the port of shipment. Generally the port of shipment is not specified in the contract due to the alternative allowed to the seller to buy goods afloat. However, when there is a clear indication as to where the goods are to be placed on the vessel, this is considered to be a requirement the breach of which would allow the buyer to repudiate the contract. The buyer is justified in refusing to pay not only because the seller is in breach but also because the breach is to cause an added risk to the buyer . Route Furthermore if the contract designates a particular route, this must be followed. This was pronounced by the English Court of Appeal in its decision on the arbitration L. Sutro & Co. v. Heilbut, Symons & Co. 20 The parties in this case contracted for the sale of 25 tons of plantation rubber c.i.f. to be shipped by vessel or vessels (steam or motor) from the East to New York direct and/or indirect, with liberty to call and/or transship at other ports. The goods were shipped from Singapore to New York via Seattle with the latter part of the voyage being made by rail. The buyer rejected on the grounds that the contract clearly stipulated that the goods had to be conveyed by sea. Held that once the contract provided for a sea carriage to New York, any contrary usage found by the arbitrators was not applicable since it was inconsistent with the terms of the contract. The tender was therefore not a good tender and the buyers were not bound to accept.
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[1920] AC 144 [1933] APP.L.R 02/02

Passing of Risk Under s 20 of the Sale of Goods Act, risk passes along with property. This however is not true of CIF contracts. The passing of risk and the passing of property are not simultaneous. In CIF contracts, risk passes on shipment, whereas property normally passes much later when the documents are tendered to the buyer. Since risk passes upon shipment, this places the buyer under an obligation to pay for the goods against a valid tender of documents. This would not be to the buyers detriment, since the buyer can always claim for the loss from the carrier or the insurer. In Mambre Saccharine Co Ltd v Corn Products Co Ltd, the purchaser in case of loss will get the documents 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 money. the contingency of loss is within and not outside the contemplation of the parties to a CIF contracts. However, where the loss or damage is due to events not covered by insurance, or is subject to exclusion clauses in the contract of carriage, the buyer will bear the loss. In C Groom Ltd v Barber, the goods were lost before appropriation to the contract due to war. There was no right of action against the carrier. The buyer, nonetheless, had to pay for the goods against the tender of documents. Passing of property In the CIF contract, passing of property depends on three important factors. First the goods must be ascertained. The first prior to be taken into account is that under section 15 of the SGA, property is unascertained goods shall not pass until they have been ascertained. Secondly is based on the intention of the parties. Property in the goods passes on tender of documents and payment of the price. Where the goods have been ascertained, the prope3rty passes as the parties intended. In Mitsui & Co Ltd v Flota Merchante 5 held that in a CIF contracts the property is to pass on tender of documents and payment of the price. Subject to the buyers right to reject the good. The buyer may retain to rejct the goods if the goods do not conform to the specification of the contract.

[1989] 1 All ER 951