..A CIF contract is a type of contract, which is more widely, and more frequently in use than any other contract used for purposes of sea-borne commerce. An enormous number of transactions, in value amounting to untold sums, are carried out under CIF contracts.
Duties of a seller in a CIF contract
1. The seller has an obligation to ship goods that correspond to the contract description at the port of shipment.
2. Terms relating to packaging or the date of shipment are generally regarded as part of the description of the goods.
3. Time of shipment is also the part of the description of the goods.
4. The seller must provide a notice of appropriation.
5. The seller has the duty to procure and prepare documents such as invoice, bill of lading and insurance policies.
6. The seller must tender the documents specified in the contract of sale.
Duties of a buyer in a CIF contract
1. Payment against documents.
2. Payment must be in the currency agreed.
3. Buyer must name the port of destination.
4. Buyer must take delivery at the port of destination.
5. The buyer is responsible for obtaining import license
A. Anemone can claim for damages because Margot (the seller) is in breach of warranty. Under a CIF, buyer does not have to undertake the task of finding shipping space or insurance but the buyer can appoint an agent in the country of export to undertake the task of obtaining shipping space and insurance cover but the risk remains with the seller.
The Sale of Goods Act 1979 is an Act of the United Kingdom which regulates contracts in which goods are sold and bought and the seller transfer the property in the goods to the Buyer for a consideration called price. The Sale of Goods Act performs several functions and has imposed more responsibilities on the seller, which will be able to protect all buyers.
In a sale of good act 1979, section 32 (1) Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer.
(2) Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages.
(3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their sea transit; and if the seller fails to do so, the goods are at his risk during such sea transit
Therefore, under the common law, Anemone can hold the seller responsible for damages because when he was making the contract for carriage of goods he did not consider the nature of the goods and the possibility of the goods getting damaged in the canal barge, which is not designed for sea journeys.
B. In CIF contract, a contract must contain the following terms,
‘ Payment made in exchange for the bill of lading
‘ Conditions of the goods was to be guaranteed on arrival
‘ Any deficiency in the weight of the arrived cargo below that stated in the bill of lading was to be paid for by the seller.
Harry can reject the goods on arrival based on the fact that the seller tendered an in accurate document because the goods do not correspond with the contract description given and he can claim for return of price or damages. He can sue for damages for the breach of condition on the basic that there has been failure of consideration, so harry will be entitled to the refund of the purchase price he paid.
According to the sale of goods act, under the delivery of wrong quantity,
1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at the contract rate.
(2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole.
A buyer may not
(a) Where the seller delivers a quantity of goods less than he contracted to sell, reject the goods under subsection (1) above, or
(b) Where the seller delivers a quantity of goods larger than he contracted to sell, reject the whole under subsection (2) above, if the shortfall or, as the case may be, excess is so slight that it would be unreasonable for him to do so.
(2B) It is for the seller to show that a shortfall or excess fell within subsection (2A) above.
2D) Where the seller delivers a quantity of goods
(a) Less than he contracted to sell, the buyer shall not be entitled to reject the goods under subsection (1) above,
(b) Larger than he contracted to sell, the buyer shall not be entitled to reject the whole under subsection (2) above, unless the shortfall or excess is material.
(3) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell and the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate.
Therefore under common law, harry can reject the bales of wool because it is less than he contracted Kara to sell and the shortfall cannot be said to be slight thus it will be unreasonable for him to accept it. If he decides to accept them then he has to pay for them at the contract rate.
C. The issue in this case is whether the buyer can rely on any right to reject the goods on the grounds that they were not satisfactory quality. In a CIF contract of sale of goods, Property can passes
‘ When goods are placed on board the ship
‘ Property can pass upon the transfer of documents to the buyer and payment of the price by the buyer to the seller.
‘ Property can pass on tender of Bill of Lading, even though the buyer has not paid for the goods, since the seller has agreed to give credit to the buyer.
‘ Where goods form part of a bulk, under S.16, the property can pass ONLY when the goods are ascertained.
Luca can bring a claim against harry in a CIF contract because the bales of cotton passed on shipment to harry upon the transfer of documents and payment of the price for the cotton even though harry did not accept the documents tendered by Luca. Under a CIF contract, harry (the buyer) whom the documents have been tendered to do not have the right to refuse to pay until the goods have been examined in other to determine whether the goods are of satisfactory quality.
Since in a CIF contract, the seller has remedies for action of price and Damages for non-acceptance. Luca can sue harry for the damages of non-acceptance because he refused to pay for the cottons when they arrived.
In a CIF contract, the buyer has two rights of rejection
‘ Right to reject the documents upon tender if the seller does not tender the right documents.
‘ Right to right to reject goods on arrival, if the goods do not correspond to the contract description or are not of satisfactory quality.
Under the CIF contract, harry has the right to reject the cotton on arrival because they were not of satisfactory quality as specified in the contract and can make a claim of breach of warranty against Luca. However, since we are not told that the documents were faulty, harry should have collected them and paid for the cottons on arrival.
The issue as to who has property in goods in the event of a breach in passing of property is also relevant here. The following reason has to be considered:
‘ Insolvency: where property remains with the seller, the goods will not become part of the pool to be distributed to the buyer’s creditor where the buyer becomes insolvent. Seller can repossess the goods.
‘ Loss or damage to the goods: risk passes with the property so the risk of loss or damage will be borne by the person who has property in the goods.
‘ Claim for payment of price: if property has passed to the buyer, who refuses to take delivery of goods, the seller will be able to sue for the price (S.49 (1)).
Luca can sue harry for the price of the goods resulting from his refusal to take delivery of cottons upon arrival and can claim for payment of the price of the cotton because the risk of loss lies on harry who has the cotton.
When looking at this case from the view of common law, we have to consider from sale of goods act 1979 buyers rights of examining goods, which states that:
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound on request to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.
Harry has the right to under the authority of Luca (the seller) to examine the goods on arrival in other to make sure the cottons are in compliance with the terms of the contract.
Under the sale of goods act 1979, the Buyer’s liability for not taking delivery of goods.
(1) When the seller is ready and willing to deliver the goods, and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods.
(2) Nothing in this section affects the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.
Harry will be held liable for any loss Luca will suffer as a result of his refusal to accept the cottons on arrival.
Section 38 of the sale of goods act 1979 defines an unpaid seller as
(1) The seller of goods is an unpaid seller within the meaning of this Act
(a) When the whole of the price has not been paid or tendered;
(b) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.
(2) In this Part of this Act ‘seller’ includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid (or is directly responsible for) the price.
Luca can be said to be an unpaid seller because harry rejected the document tendered to him on the grounds that he found a cheaper supplier and as a result of this he didn’t pay for the cottons when they arrived.
Under the sale of goods act 1979 an unpaid sellers has certain rights.
(1) Subject to this and any other Act, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law
(a) A lien on the goods or right to retain them for the price while he is in possession of them;
(b) In case of the insolvency of the buyer, a right of stopping the goods in transit after he has parted with the possession of them;
(c) A right of re-sale as limited by this Act.
(2) Where the property in goods has not passed to the buyer, the unpaid seller has (in addition to his other remedies) a right of withholding delivery similar to and co-extensive with his rights of lien or retention and stoppage in transit where the property has passed to the buyer.
If the goods were in transit at the time when harry rejected the documents, Luca has the right to retain them until harry pays for them. He can also stop the goods in transit even after he has parted possession of them.
Under the sale of goods act 1979, the Seller has a lien over the goods until the goods have been paid for.
(1) Subject to this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases:
(a) Where the goods have been sold without any stipulation as to credit
(b) Where the goods have been sold on credit but the term of credit has expired;
(c) Where the buyer becomes insolvent.
(2) The seller may exercise his lien or right of retention notwithstanding that he is in possession of the goods as an agent for the buyer.
Luca is entitled to retain possession of the cottons until the documents tendered to harry is accepted because Harry’s refusal to accept the documents has made him an insolvent buyer to the contract and as a result caused a breach of warranty to the contract. In a situation where the cottons have not been shipped, Luca will have the right to withhold the property until the documents have been accepted. In a situation where it has been shipped and harry is in possession of the cottons, Luca will have a lien over the cottons and can retain them for the price of the goods until the documents tendered are accepted by harry and the cottons are paid for.
Under the sale of goods act 1979, a seller has remedies for action for price,
(1) Where, under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.
(2) Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed and the goods have not been appropriated to the contract.
Therefore Luca can bring a claim against harry for the price of the goods because he refused to accept the cotton when they arrived
Under the sale of goods act 1979 the seller has remedies for damages for non-acceptance will arise in situations:
(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.
(3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept.
Under common law, Lucas can also bring a claim of damages for non-acceptance against harry as a result of his refusal to accept the documents tendered to him.
Under the sale of goods act 1979, the buyer has remedies for a contract of sale only when there is,
Damages for non-delivery.
(1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.
(3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver.
Therefore, under common law since a buyer can bring a claim against a seller only when the goods have not been delivered, Harry will be unable to make any claims against Luca because the cottons were delivered even though it is not of satisfactory quality.
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