CIF contracts include cost, insurance and freight. A CIF contract is a type of contract which is more widely and more frequently in use than any other contract used for the purposes of seaborne commerce. An enormous number of transactions, in value amounting to untold sums, are carried out every year under CIF contracts. Hence, due to the importance of the CIF contract with regard to international sales contracts by sea, I will try to briefly summarize the nature of CIF contracts.
Under CIF contracts, the seller charges an inclusive price covering the cost of the goods, freight and insurance. Therefore, the obligations of the vendor under CIF contracts can be summarized as follows: Firstly to ship from the port of shipment the contracted goods; secondly to procure a contract of affreightment, under which the goods will be delivered at the agreed destination; thirdly to arrange for insurance which will be available for the benefit of the buyer; fourthly to make out commercial invoices; and finally to tender these documents to the buyer. It follows that against tender of these documents the buyer should be ready and willing to pay the price. Moreover, if goods that are shipped in order are lost or damaged in transit, the buyer's remedy might also be against the carrier and insurer, by virtue of the contracts of carriage and insurance taken out by the seller for the benefit of the buyer.
One could state that the seller under a CIF contract is obliged to prepare for the carriage of goods; and that insurance in transit should be included in the contract price. Hence, the seller obtains a bill of lading, an insurance policy and commercial invoice and then transfers such documents to the buyer, who is obliged to pay against them.
It has been argued however; that the CIF contract is not a sale of goods but a sale of documents relating to goods. This argument states that the performance of the contract is fulfilled by delivery of the documents and not by the actual delivery of goods by the vendor. If the ship and the goods have been lost after shipment there is no reason for refusing to accept and pay for the documents. Moreover, it has been argued that non- existence of an insurance policy is a ground for rejection of the documents notwithstanding the goods arrived safely at the port of destination.
These arguments of course, can be rebutted, by saying that a CIF contract is a sale of goods contract since the Sale of Goods Act applies to it. Furthermore, even if the buyer under a CIF accepted the documents before the actual arrival of the goods, it can reject the goods when they arrive if the buyer finds that the goods are not conforming to the requirements of the contract.
In conclusion, although documents are a crucial part of CIF contracts, this does not constitute CIF contracts as money against documents contracts rather than money against goods contracts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
