CIF Contract

This article discusses CIF contract in international commercial law, its rights and duties for seller and purchaser, and the use of letter of credit for protection. It also explores the conflict regarding the nature of CIF contract and the obligations of the seller. The case of Kane and Erickson is used as an example to explain the rights and obligations of both parties under a CIF contract and the use of documentary credit arrangement.

Running head: INTERNATIONAL COMMERCIAL LAW
CIF Contract
Name of the Student
Name of the University
Author Note

1INTERNATIONAL COMMERCIAL LAW
The subject matter of the case is based on CIF contract. In general, contract is an
agreement that binds the parties under certain legal obligations. CIF contract provides certain
rights and duties specified for the seller and purchaser in a contract. The term CIF means cost,
insurance and freight. These types of contract are usually made during the transportation of
goods through ship. In case of such contract, the seller has to bear every kind of responsibilities
unless the proposed goods are not delivered at the contracted place. Therefore, if any damage has
been made during the delivery time, the seller should be responsible for the same. It has been
observed in the case of Ross T Smyth v TD Bailey, CIF contract is mainly deals with shipment
contract and such contract includes a large quantity of goods for transaction. According to the
sub-language of International Trade Law, the purpose of CIF contract is to supply the goods in
accordance with the terms of the contract that has been signed in between the parties1. Through
this contract, two things can be obtained such as contract for carriage and contract of insurance.
In this contract, certain rights and duties of the buyer and the seller has been encountered.
According to English common law, CIF contract includes cost, insurance and freight. Lord
Wright has added that seller has to perform all the special requirements regarding the contracted
goods. He has to collect the goods, serve a notice of appropriation, and obtain all the necessary
bills and policies of insurance regarding the goods. The word freight that has been included
under the abbreviated word CIF denotes the money paid by the person for the transportation of
goods. These types of words are generally used in the contract that has been made through
shipment. John Bouvier has defined the term as an agreed sum that should be paid entirely or
partly to the parties during the transportation of goods from one part to another.
1 Soyer, Baris, and Andrew Tettenborn. "What is a reasonable contract of carriage for CIF/CIP purposes?–section 32
(2) of the Sale of Goods Act 1979." International Trade and Carriage of Goods. Informa Law from Routledge,
2016. 43-54.

2INTERNATIONAL COMMERCIAL LAW
It has been observed in this case that a contract has been signed in between Kane and
Erickson regarding the delivery of dog foods and it has been contracted that Kane will deliver
1000 kilogram food to Erickson in the stipulated time period. According to the rules of CIF
contract, seller is responsible to deliver the contracted goods, obtain all the necessary documents
and bills for the buyer. It has been stated by Professor M G Bridge that under CIF contract, the
buyer will get all the profits in regards to the contracted objects. However, there is a conflict to
state the nature of the contract. According to some jurists, CIF contract is a sale of documents,
while some are of the view that CIF contract is sale of goods. It has been observed in Couturier v
Hastie2, CIF contract is sale of goods by the means of documents. The specialty regarding the
CIF contract is that the sellers are not obliged to deliver the goods to the buyer; rather they are
obliged to transfer the goods and all the related documents to the buyer so that the buyer can get
right against the insurer. However, the duties of the seller will be extended if additional duties
are mentioned in the contract. The term additional duties denote the liability of the seller
regarding the quality and fitness of the delivered goods and time of delivery details. After the
seller has transferred the goods and submitted all the documents to the buyer, he will serve a
notice of appropriation to the buyer, which will be returned to the seller on subsequent occasions.
It has been mentioned in Kwei Tek Chao v British Traders & Shippers Ltd 3that if any goods
arte rejected by the buyer, they should have no lien over them for the return of the price.
The House of Lords had observed the following in the case of E Qemens Horst Ltd v Biddell
Brothers4:
2 (1856) HLC 673
3 (1954) 2 QB 459
4 (1911) 1 KB 934

3INTERNATIONAL COMMERCIAL LAW
“The buyers of a CIF cargo of hops shipped in San Francisco declined to pay upon the
documentary tender, insisting that they first had the right to examine the goods to see that they
conformed to the contract. If the buyers' contention had been sound, the sellers would have had
the invidious choice of taking responsibility for the landing and warehousing of the goods, or of
surrendering the bill of lading so that the buyer could carry out the examination, in which case
they would lose the security that goes with retaining the bill of lading5. In both cases, the CIF
buyer's commercial risk would thereby be overturned, at least to the extent of any defects in the
hops coming into light in the course of the buyers' examination”.
Further, it was observed in Proctor Gamble Philippine Mfg Corps v Kurt A Becher
GmbH &Co6 that if all the contracted goods are delivered in time and the time of arrival of the
goods in the bill of lading has shown wrong time; seller will not be held responsible if the buyer
had accepted the goods at that time. Bill of lading is the documents of acknowledgement
regarding the delivered goods. It has further been stated under the rules that if the delivered
goods are not in accordance with the contract but the documents are, the buyer will have to pay
for the documents only. However, in Kwei Tek Chao v British Traders and Shippers Ltd, it has
been mentioned that the buyer can return or reject the non-conforming goods to the seller.
Insurance plays an important part here and the seller will obtain the value of the insurance.
Therefore, Kane is liable to deliver all the conformed goods and documents, papers for the
insurance and provide proper information in the Bill of Lading7. According to the law, these are
5 Ahmed, Bzhar Abdullah, and Hassan Hustafa Hussein. "Avoidance of Contract as a Remedy under CISG and
SGA: Comparative Analysis." JL Pol'y & Globalization 61 (2017): 126.
6 (1988) 2 Ll Rep 21
7 Isbell, Bradley, A. McKenzie, and B. Wade Brorsen. "The Cost of Forward Contracting in CIF NOLA Export Bid
Market." NCCC-134: Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk
Management, St. Louis, MO, April. 2017.

4INTERNATIONAL COMMERCIAL LAW
the basic obligation of the seller under the CIF contract and in case of any failure, the buyer can
take all the possible steps against him and may rescind the contract accordingly.
Erickson is the buyer who has been sold the contracts by Kane. Therefore, both Kane
and Erickson will have certain rights and obligations related to a CIF contract and the
documentary credit arrangement. As per the principles of a CIF contract, the problem that occurs
majorly is related to the rights of the buyers to reject the documents or the goods in a cost
insurance and freight (CIF) contract. Thus, when Erickson wanted to purchase the goods from
Kane, they had formed a CIF contract especially in the absence of a vender since the contract
was bound by the principles of it.
Therefore, when the CIF contract was formed between Erickson and Kane, the rights and
obligations, which Ericken could have used being the buyer are to make an issue an invoice of
the sold goods firstly. Secondly, the description of the goods in the contract should be provided
at the port of shipment8. The contract must be procured of affreightment based on which the
goods will be delivered at the location contemplated by the contract thirdly. Fourthly, insurance
should be organized on the terms and of the trade that will be available for the assistance of
Erickson. These are the available rights to Erickson that he can exercise when a CIF contract is
formed between the seller and the buyer. The purpose of letter of credit is to provide both the
buyer and seller a sense of security. Therefore, Erickson can also make use of the letter of credit
to protect and exercise its rights and obligations when needed. The documentary credit can be
put to use only when it is the agreed method of payment in the sale of contract between the two
contracting parties9. However, method of payment took place between Kane and Erickson.
8 Bridge, Michael G. The international sale of goods. Oxford University Press, 2017.
9 Isbell, Bradley, A. McKenzie, and B. Wade Brorsen. "The Cost of Forward Contracting in CIF NOLA Export Bid
Market." NCCC-134: Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk
Management, St. Louis, MO, April. 2017.

5INTERNATIONAL COMMERCIAL LAW
Documentary credit highlights the usage of a bank, which is an entity with proper reputable good
credit by being the seller and the buyer in order to effect payment. Letters of credit shows the
exceptional features of it being used in the transaction of sale. Generally, it is considered to be
flexible since the seller will have the right to decide and vote any bank by making it obligatory.
Therefore, the buyer, Erickson has the power of being flexible in such cases. As per the law, it is
linked to the documentary credits is uniform and transparent. Hence, the letter of credit usually
activated by the buyer, Erickson by approaching the bank with n application for presenting
shipping documents including bill of lading and certificates of insurance10. When it comes to
rights of the legal position of Erickson, he has the right and power to reject the documents if they
are not arranged in order. Secondly, being the buyer, Erickson should reject goods if they differ
from the contract of sale. As per the contract of CIF, it puts a number of obligations on the seller
as well regarding the goods and documents. The goods delivered must match with the
description of them provided in the contract. The buyer is under the obligation to check with the
goods delivered to that of the contract. However, there are mentioned obligations and benefits
under the documentary credit. The contracts that arise from the documentary credit agreement
are set in plenty of actions that seem to be automatic. Erickson is provided with the same
protection as Kane is. It is an outcome of the credit agreement formed between Kane and
Erickson11. The basic significant benefit for Erickson lies in the theory that the agreement of
credit and the sale of contract are both considered to be separate. In case the buyer is associated
with in a credit contract with the issuing of bank, it has to adhere with the instructions provided.
10 Muñoz, Edgardo. "PART II Remedies for Breach of a Buyers Obligation to Open a Letter of Credit in CISG
Contracts." (2017).
11 Singh, Lachmi. The United Nation Convention on Contracts for the International Sales of Goods 1980 (CISG) An
examination of the buyer’s remedy of avoidance under the CISG: How is the remedy interpreted, exercised and what
are the consequences of avoidance?. Diss. University of the West of England, 2015.

6INTERNATIONAL COMMERCIAL LAW
This is applicable while dealing with the documents required and he is allowed to decline the
goods when they are not complied with remaining statutes. This is possible only after Erickson
has received the documents and the payment has been made. The buyer, Erickson has the right
and power to sue the seller, Kane under the sale of contract for recovering the loss12. Erickson
can give proper and particular information and instruction to the bank for the purpose of
requiring the documents that are significant. However, he can also reject the documents if they
fail to comply with the requirements of the documents. The name and the documentary credit
number that generally results to the non-compliance13. However, Erickson will have his certain
rights and obligations with the help of which he can sue Kane, the seller. Such rights can be
applied and exercised when there is mismatch of goods that are being delivered by the seller.
There have been rapid advancing trade practices of such contemporary businesses. If the bank
refuses to take up the documents then Ericksen can take actions against Kane. As per the CIF
contract, the buyer, Erickson needs to pay against the tender of documents that are listed in the
sale of contract. Therefore, Erickson cannot think of rejecting the payment of the price of the
contract that is dependent on the original delivery of the goods. Erickson’s right is to enjoy two
different and independent rights of rejecting the goods and documents14. Even if the buyer has
accepted the documents, it will not affect his right to reject the goods on arrival.
If there are defects in the documents that are obvious and the buyer has paid against them
then he will have the right to decline or eliminate the goods that will be lost. If the date on the
bill of lading is not correct and the seller is incapable to do anything about it then he will be
12 Loschi, Riccardo. "Opportunistic Exercise of Termination Rights: The Commodity Trade Case-An Analysis of
English Contract Law and the CISG." Bocconi Legal Papers 9 (2017): 39.
13 Soyer, Baris, and Andrew Tettenborn. "Laytime and demurrage in CIF and FOB contracts." International Trade
and Carriage of Goods. Informa Law from Routledge, 2016. 75-92.
14 Ahmed, Bzhar Abdullah, and Hassan Hustafa Hussein. "Avoidance of Contract as a Remedy under CISG and
SGA: Comparative Analysis." JL Pol'y & Globalization 61 (2017): 126.

7INTERNATIONAL COMMERCIAL LAW
liable for such an act15. Thus, the seller will permit the buyer to claim for the actual damages
stemming from the tender of the documents that are defective and sold. However, Erickson can
avoid such disputes and claim for the damages in the contractual quality by drafting the sale
contract.
15 Pejovic, Caslav. "Clean Bill of Lading in Contract of Carriage and Documentary Credit: When Clean May not be
Clean." Penn St. JL & Int'l Aff. 4 (2015): 127.

8INTERNATIONAL COMMERCIAL LAW
Bibliography:
Ahmed, Bzhar Abdullah, and Hassan Hustafa Hussein. "Avoidance of Contract as a Remedy
under CISG and SGA: Comparative Analysis." JL Pol'y & Globalization 61 (2017): 126.
Ahmed, Bzhar Abdullah, and Hassan Hustafa Hussein. "Avoidance of Contract as a Remedy
under CISG and SGA: Comparative Analysis." JL Pol'y & Globalization 61 (2017): 126.
Bridge, Michael G. The international sale of goods. Oxford University Press, 2017.
Isbell, Bradley, A. McKenzie, and B. Wade Brorsen. "The Cost of Forward Contracting in CIF
NOLA Export Bid Market." NCCC-134: Conference on Applied Commodity Price Analysis,
Forecasting, and Market Risk Management, St. Louis, MO, April. 2017.
Isbell, Bradley, A. McKenzie, and B. Wade Brorsen. "The Cost of Forward Contracting in CIF
NOLA Export Bid Market." NCCC-134: Conference on Applied Commodity Price Analysis,
Forecasting, and Market Risk Management, St. Louis, MO, April. 2017.
Loschi, Riccardo. "Opportunistic Exercise of Termination Rights: The Commodity Trade Case-
An Analysis of English Contract Law and the CISG." Bocconi Legal Papers 9 (2017): 39.
Muñoz, Edgardo. "PART II Remedies for Breach of a Buyers Obligation to Open a Letter of
Credit in CISG Contracts." (2017).
Pejovic, Caslav. "Clean Bill of Lading in Contract of Carriage and Documentary Credit: When
Clean May not be Clean." Penn St. JL & Int'l Aff. 4 (2015): 127.
Singh, Lachmi. The United Nation Convention on Contracts for the International Sales of Goods
1980 (CISG) An examination of the buyer’s remedy of avoidance under the CISG: How is the

9INTERNATIONAL COMMERCIAL LAW
remedy interpreted, exercised and what are the consequences of avoidance?. Diss. University of
the West of England, 2015.
Soyer, Baris, and Andrew Tettenborn. "Laytime and demurrage in CIF and FOB
contracts." International Trade and Carriage of Goods. Informa Law from Routledge, 2016. 75-
92.
Soyer, Baris, and Andrew Tettenborn. "What is a reasonable contract of carriage for CIF/CIP
purposes?–section 32 (2) of the Sale of Goods Act 1979." International Trade and Carriage of
Goods. Informa Law from Routledge, 2016. 43-54.