CIF and FOB Contract Terms: Buyer and Seller Obligations
This paper advises parties to a sale of goods contract under two alternative contract types: CIF (Cost, Insurance, Freight) and FOB (Free on Board). It examines the obligations of buyers and sellers under each contract type, focusing on the transfer of risk and property, documentary tender requirements, insurance obligations, and notice requirements. The paper draws on the Sale of Goods Act 1979, the Carriage of Goods by Sea Act 1992, the Hague-Visby Rules, and INCOTERMS to assess liability for lost or damaged goods at sea, including scenarios involving war risk and carrier deviation.
- CIF Contract: Overview and Seller Obligations: Defines CIF terms and lists seller duties
- Transfer of Risk and Property Under CIF: Risk passes on shipment, property on document tender
- Insurance Obligations and War Risk Under CIF: Minimum ICC cover excludes war risk by default
- FOB Contract: Overview and Party Obligations: FOB duties of seller and buyer at ship's rail
- Notice Requirements and War Risk Under FOB: Seller's duty to notify buyer of war risk
- Destruction of Goods and Carrier Deviation: Cargo loss and deviation under Hague-Visby Rules
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What makes this paper effective
- It applies a clear "background law then conclusion" structure throughout, making the legal analysis transparent and easy to follow.
- It uses real case law (C. Groom Ltd. v Barber; Manbre Saccharine v Corn Products) to anchor abstract doctrinal points in concrete judicial authority.
- It systematically compares CIF and FOB frameworks, helping the reader understand how contract type determines the allocation of risk, property, and insurance duties.
Key academic technique demonstrated
The paper demonstrates legal issue-spotting and structured statutory analysis. Each question is broken into a legal issue, the applicable rule (statute, case, or commercial term), and a conclusion applied to the facts. This IRAC-style approach is characteristic of strong commercial law writing at the undergraduate level.
Structure breakdown
The paper is divided into four main questions. Part (a) addresses CIF contracts: seller obligations, risk and property transfer, and insurance duties. Part (b) addresses FOB contracts, covering party obligations and risk allocation. Part (c) considers whether the seller's awareness of an imminent war changes liability, focusing on notice obligations under the Sale of Goods Act. Part (d) addresses two specific factual variations — total destruction of the cargo and the ship seeking refuge — examining them under the Hague-Visby Rules and carrier immunity doctrines. A bibliography lists statutes, cases, and secondary sources.
CIF Contract: Overview and Seller Obligations
CIF (Cost, Insurance, Freight) is a contract term used in contracts involving sea carriage. The price of goods in a CIF contract is inclusive of freight and insurance costs to the destination specified in the contract. The seller charges a higher price to cover these additional services.
Technically, a CIF contract is not a contract that goods shall arrive, but a contract to supply goods that comply with the contract of sale and to obtain both a contract of carriage and a contract of insurance.
The seller is usually paid for the goods before their arrival at the destination, since payment in CIF contracts typically takes place when the shipping documents — invoice, insurance policy, and bill of lading — are tendered to the buyer. However, the parties may agree to deferred payment credit, for example 30 days from the date of the bill of lading. Goods do not have to be paid for until the relevant documents are tendered. The buyer also acquires the right to sue the carrier upon transfer of the bill of lading.
A CIF contract is a contract under which the vendor, in the absence of any special provision to the contrary, is bound to:
1. Make out an invoice of the goods sold.
2. Ship the goods from the port of shipment in conformity with the description of goods contained in the contract.
3. Procure a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract.
4. Arrange for insurance upon terms current in the trade that will be available for the benefit of the buyer.
5. With all reasonable dispatch, send forward and tender to the buyer the shipping documents — namely, the invoice, bill of lading, and policy of assurance. Delivery of these documents to the buyer is symbolic delivery of the goods purchased, placing the goods at the buyer's risk and entitling the seller to payment of the price. If no place is named in the CIF contract for the tender of the shipping documents, they must prima facie be tendered at the buyer's residence or place of business.
Under the Sale of Goods Act 1979, the seller may sue the buyer for damages for non-acceptance where the buyer wrongfully neglects or refuses to pay for the goods. Here, the seller may sue the buyer for non-payment after tendering the shipping documents, which are symbolic of the goods. Under a CIF contract, the buyer is obligated to render payment upon receipt of the shipping documents.
Bibliography
Carr, I., & Stone, P.A. (2010). International Trade Law. London: Routledge-Cavendish.
Carriage of Goods by Sea Act 1992.
International Chamber of Commerce. (2010). Incoterms 2010: ICC Rules for the Use of Domestic and International Trade Terms. Paris: ICC.
Sale of Goods Act 1979.
Hague-Visby Rules.
Institute of Cargo Clauses.
Johnson v Taylor Bros (1920) 122 LT 130.
C. Groom Ltd. v Barber [1915] 1 K.B. 316.
Manbre Saccharine v Corn Products [1919] 1 K.B. 198.
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