The passing of property and risk under the international sale

Introduction

there are four types of contract will be considered, the central tow
kinds being contracts whose essential terms have become standardized
by commercial practice although there is considerable variation in
matter of detail, these four are ;
F O B (free on board).
F A S (free along side ship).
C F R (cost and freight).
C I F (cost insurance fright).
Many export and import transaction are made subject to incoterms
2000.

F O B
Free on board means that the seller delivers when the goods pass the
ships rail at the named port of shipment this means that the buyer has
to bear all costs and risk of loss or damage to the goods from that point.
The FOB term requires the seller to clear the goods for export.
The Fob contract is very flexible. In its pure form (some times called
strict FOB), the buyer acts as the shipper and as such nominates the
vessel concludes the contract of carriage, collects the bill of lading and
pays the freight and insurance premium. The seller need only put the
goods on board the ship nominated by the buyer at the port of
shipment, on the date or within the period agreed and in the manner
customary at that port. The seller must pay for such delivery over the
ships rail as well as export duties, the buyer for such delivery and
provide the buyer with the commercial invoice and such documents or
documents as will enable him to take possession of the goods at the port
of discharge or to obtain bill of lading. In incoterms 200, FOB para.A6
(the seller must pay for and obtain any export license or other official
authorization required) and para.A2 (while the buyer must pay import
duties and obtain any needed import license or other official
authorization required for import).
Frequently, however, the terms of the sale contract custom, a course of
dealing between the parties or other circumstances (such as the
convenience of the buyer) may impose additional responsibilities on the
seller in an FOB sale. In what is sometimes called an extended FOB sale it
is the seller rather than the buyer, who acts as the shipper. The seller
books space on the vessel, delivered the goods on board at his own
expense. And procure the bill of lading (usually as an agent of the buyer)
and at the latter's expense, which he must send to the buyer (or a bank)
promptly. The seller does not have to pay the freight, however or to
advance it on the buyers behalf, such responsibilitiy, as well as the cargo
insurance arrangements, resting with the buyer. Nor is the fright or
insurance premium include in the price of the goods. The FOB seller
must, however, provide the buyer, on request, with the necessary
information for procuring insurance. Neither according to section32 (3)
of the sale of goods Act 1979(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) those section requiring the seller to give notice to the
buyer as may enable him to insure the goods during their voyage , a
provision which has been applicable even in strict FOB sales.
In FOB sales, once the goods are aboard, the seller has no further
responsibility. Even where he has procured the bill of lading, he is not
necessarily treated as a party to the contract of carriage. He does not
undertake that the goods will arrive safely or at all. The buyer therefore
is left to sue the carrier for loss or damage to the goods attributable to
the letters fault or negligence in performing the carriage and- or the
cargo insurer if such loss or damage falls within the coverage provided
by the marine insurance policy.
1954, 2 QBD an air port In Pyrene Co Ltd Vs Scindia Navigation Co Ltd
fire tender, which had been sold on FOB terms by pyrene to the
government of India, was dropped and damaged while being loaded for
export on to a ship belonging to Scindia. It had not crossed the ships rail.
Contract for the carriage of goods by sea were at the material time
regulated by an international convention know as the Hague rules,
which limited the liability of the carrier for negligent damage to the
goods to 200 .but the contract of carriage here had been made
between Scindia and the buyer . This action was brought in tort by the
sellers (as consignors of the goods in question), claming 966 damages
against Scindia for negligently damaging the tender. The question was
weather the limitation of liability under The Hague rules could be
pleaded in defence. It was argued that the doctrine of privity prevented
Scindia from relying directly on the contract of carriage. Devlin J held,
however, that on the facts the sellers had participated on the contract of
carriage sufficiently for them to be bound by The Hague Rules, or that
(alternatively) there was a collateral contract between the parties, into
which the Hague rules could be incorporated on the basis of usage or
custom. In the course of his judgment, he explained some details
regarding the nature of FOB contracts and the incidence of their
performance.
Where the goods and the documents conform to the contract, the buyer
must of course, pay the price stipulated in the contract. The buyer may
reject the documents, however if they do not conform with the contract
of sale , but the seller may cure the defect by tendering new, conforming
documents if there is still time to do so under the contract. The buyer
may also reject the goods, if they are nonconforming to the contract,
even if he has already accepted the documents, provided that the non
conformity was not evident on the face of the documents. Alternatively
he may accept the goods and sue for damages for breach of warranty.
This term can only be used for sea inland waterway transport; if the
parties do not intend to deliver the goods across the ships rail the FCA
term should be used.
The seller's duties are as follows;
To supply the goods with evidence of conformity with contract.
To deliver the goods on board the ship at the place and the time
stipulated by the contract or nominated by the buyer.
To obtain the export license.
To bear all costs up to and including loading (a cross the ships rail).
To provide documents evidencing delivery to the ship certificate of
origin.
To co operate with the buyer in procuring the bill of lading and other
documentation.
To give notice to the buyer to enable him to insure the goods during
their sea transit.
The buyer's duties are as follows;
To procure a suitable ship or shipping space and give the seller due
notice of the ship and place and time of loading.
To pay the price
To bear all costs subsequent to the goods passing the ships rail.
To bear the costs of procuring all documentation including the bill of
lading and certificate of origin.
The passing of property and risk in FOB contract
The combination of the two presumptive rules concerning the passing of
property and the transfer of risk means that in the case of an FOB
contract risk will pass when the goods are put on board. And property
presumptively passes when the goods are delivered to the carrier even if
The seller reserves the right of disposal. Delivery considered complete
once seller places the goods on board the named vessel at the named
port and at stipulated time. This means that the seller bear all cost and
risk of loss or damage to the goods until they have passed the ships rail
at the named port of the shipment and the buyer bear all cost and the
risk of loss or damage to the goods from the time they have passed the
ships rail at the named port of shipment.
C I F contract
Cost insurance and freight means that the seller delivers, when the
goods pass the ships rail in the port of shipment.
The seller must pay the cost and freight necessary to bring the goods to
the named port of destination but the risk of loss or damage to the
goods, as well as any additional cost due to events occurring after the
time of delivery, are transferred from t5he seller to the buyer. However
in CIF the seller also has to procure marine insurance against the buyer's
risk of loss or damage to the goods during the carriage.
Consequently, the seller contracts for insurance and pays the insurance
premium. According to the rule under the incoterms 200, para.A3 (b)
requires the seller to obtain cargo insurance such that the buyer or any
other person having an insurable interest in the goods may claim directly
from the insurer. The insurance must be contracted with underwriters or
an insurance company of goods repute and failing express agreement to
the contrary, is in accordance with minimum cover of the insurance
cargo clauses .the duration of the insurance must be from the time the
goods pass the ships rail in the port of shipment. The buyer should note
that under the CIF term the seller is required to obtain insurance only on
minimum cover. Should the buyer wish to have the protection of greater
cover, he would either need to agree as much expressly with the seller
or to make his own extra insurance arrangements.
The CIF term requires the seller to clear the goods for export this term
can be used only for sea and inland water way transport. If the parties
do not intend to deliver the goods across the ships rail the CIP (carriage
and insurance paid to) term should be used.
The CIF seller is the shipper, who contracts for carriage of goods, not as
agent of the buyer, but rather as a principal in his own name. The seller
nominates his vessel and notifies the buyer accordingly. The seller also
insures the goods in the name of the buyer and pays the freight, which
charges are then normally included in the price of the goods. The
shipper at his expense must deliver the goods on board the ship at the
port of shipment on the date or within the period agreed and notify the
buyer of this delivery. He then sends the usual shipping documents
promptly to the buyer (or to a bank, in a document credit transaction).
The CIF seller may also himself buy the goods when they are already
afloat. In such a case, he must transfer his right under the contract of
carriage and insurance to the buyer, together with the usual shipping
documents. The CIF sale has sometimes been described (some what
misleadingly) as a sale of documents relating to goods rather than as a
sale of goods.
The CIF seller does not undertake that the goods will arrive safely or at
all. The buyer is there fore left to his recourse agents the carrier and or
the cargo insurer in respect of loss or damage to the goods in transit.
The buyer must accept the documents if they are in conformity with the
contract, he must also pay for the goods if they are similarly conforming.
If the documents do not sue conform, and if the buyer is unable to
tender conforming documents in the time specified by the contract the
buyer may reject them as being other than the usual shipping
documents to which he is entitled and refuse payment. The goods
shipped must also conform to their description in the sale contract,
otherwise the buyer may reject them even if he has already accepted
the documents or, alternatively, sue for damages for breach of warranty
or abatement of price.
The main features of c I f contract were summarized by Lord Wright in
SMYTH & CO LTD V BAILEY SON & CO L T D the contract in question here
is of a type familiar in commerce, and is described as a c I f contract. The
initials indicate that. The price is to include cost, insurance and freight, it
is a type of contract which is more widely and more frequently in use
than May show that the property was not intended to pass on shipment
but upon tender and payment the seller by the form in which he took
the bill of lading intending to reserve his right of disposal until he was
paid against the shipping document.
This term can only be used for sea inland waterway transport


The seller's duties are as follows;
To ship at the agreed port of shipment goods of the contract description
or (procure goods afloat which have been so shipped).
To procure a contract of sea carriage by which the goods will be
delivered to the contract destination.
To insure the goods under an insurance contract which the goods will be
available for the benefit of the buyer.
To procure a commercial invoice in conformity with the contract.
To tender these documents to the buyer or his agent or bank
This means that the seller bear all risk of loss or damage to the goods
until they have passed the ships rail at the named port of shipment.
The buyer's duties are as follows;
To accept the documents, if they are in conformity with the contract and
pay the price.
To take delivery of the goods at the agreed destination and pay all
unloading costs.
To pay customs and other duties at the port of arrival.
To procure any necessary import license.
It is quit clear that the buyer bear all risk of loss or damage to the goods
from the time they have passed the ships rail at the named port of
shipment.
The passing of property and risk in CIF contract
The rule is that upon shipment the risk is transferred to the buyers he
assumes all risk of loss or damage from the time the goods have passed
over ships rail at the port of shipment.
Shipment means the actual loading of the goods on board, it does not
mean delivering the goods at the docks to an agent of the ship for future
shipment and the property only passes when the documents are
transferred and paid for. Also the delivery considered complete once
product has been loaded at port of shipment.
In a CIF contract the property in the goods and the right of possession
normally pass to the buyer when the documents are handed over. In
this case conforms that the & shipper ltd Kweitek Chao Vs British traders
buyer has two rights to reject, he may refuse to take up the documents
if they are in conformity with the contract and he may reject the goods
even after having accepted the documents if he later discovers a breach
on the seller part.
The document tender under a CIF contract must be valid an effective at
the time of tender; it is not sufficient that they were valid when issued in
in this case Blyth & Arnold Karberg & Co Vs Blythe, Green, Jourdian& Co
co had contracted to buy Chinese horse beans CIF Naples, beans were
duly shipped in July 1914 aboard German ship, the genres; but before
the document s were due to tender war was declared against Germany,
with the consequence that the contract of carriage contained in the bill
of lading became void for illegality the court of appeal held that ;the
buyers were entitled to reject this bill. It doesn't as such deny that the
parties to a CIF contract may transfer to the buyer the risk of having in
effectual rights agents an enemy alien carrier or insurance.
The documents relating to the sale and carriage of goods have been
elevated to apposition of special importance to the point where from
many purpose they are treated in law as representing the goods
themselves. For instance delivery of the goods can be affected by
handing over these documents. The principal documents for this
purpose are;
The bill of lading
The commercial invoice
The policy of marine insurance
But there have been a few unusual cases in which property has been
held to pass in CIF contract at some other time than the transfer of
document;
1-for instances where the relationship between the parties was such
that the seller was not concerned over the immediate payment of the
price; then the property was held to pass on ship shipment or at latest
on the transfer of the bill of lading even though the price was then paid.
hich were seller and buyer were both companies w the zero Alba In
member of one corporate group and the sale was not a genuine arms
length transaction. It held that; property passed on the posting of the bill
of lading, conversely where a seller sold goods in his warehouse and
make deliveries as required, payment being made only after the goods
left the warehouse, it held that; property had not passed prior to
delivery of bill of lading.
2-another case is that of the sale of an undivided share of goods carried
in bulk. Because of section (16) of the sale of goods Act 1979 to be
ascertained before property can pass. (Where there is a contract for the
sale of unascertained goods no property bin the goods is transferred to
the buyer unless and until the goods are ascertained)
Variant on c I f contract is c&f
The c I f in which the buyer arranges his own insurance but in other
respects the shipping arrangements are made by the seller and once
again property usually passes when the documents are transferred in
exchange for payment of the price.
F A S contract
Free along side ship means that the seller delivers when the goods are
placed along side the vessel at the named port of shipment, and delivery
is considered complete when seller places goods alongside vessel at the
named place and at stipulated time. This means that the buyer has to
bear all costs and risk of loss or damage to the goods from that moment
however, if the parties wish the buyer to clear the goods for export. This
should be made clear by adding explicit wording to this effect in the
contract of sale. This term can be used only for sea or inland water way
transport.
With the exception of the place of loading (alongside rather than on
board), FAS sales generally follow the same rules as FOB sales.
C F R contract
Cost and freight means that the seller delivers when the goods pass the
ships rail in the port of shipment.
The seller's duties are as follows;
The seller must pay the costs and freight necessary to bring the goods to
the named port of destination but the risk of loss or damage to the
goods as well as any additional costs due to events occurring after the
time of delivery, until full payment has been made, are transferred
from the seller to the buyer.
2-The C F R requires the seller to clear the goods from export this term
can use only for sea and include waterway transport. If the parties do
not intend to deliver the goods across the ships rail the c p t term should
be used (carriage paid to).except for the fact that the CFR seller does not
have the obligation of insuring the cargo, the rules on CFR sales
(formerly termed C & F cost and freight) sales generally follow those of
CIF sales.
The buyer's duties are as follows;
-accept delivery of the goods at the named port of destination after
receipt of the transport documents.
-bear all risk of loss or damage to the goods from the time they have
passed the ships rail at the named port of shipment.

The passing of property and risk in CFR
Risk is with the seller before the delivery of goods at the ships rail and
with the buyer after the time of delivery.
Where those terms of sale can be used in land, waterwaytransport.




















Conclusion
Understanding that CIF & CFR are not arrival contract s, and this means
that the point of transfer of risk with these (C) terms is the same as
with(F) terms in the country of departure.
Understanding that FOB (free on board) is only a appropriate where the
seller fulfills his obligation to deliver when the goods have passed over
the ships rail at the named port of shipment. The FOB terms require the
seller to clear the goods for export. This term can be used only for sea or
in land water way transport. Where goods are handed over to the carrier
for subsequent entry into the ship for example when the goods are
contained or loaded on Lorries or wagon .the term FCA should be
considered.









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