A C.I.

F contract is an agreement to sell goods at an inclusive price covering the cost of the goods, the freight and the insurance.1 The nature of a C.I.F contract is such that once a seller tenders to the buyer the proper shipping documents, if there is a loss of the goods, the buyer must pay the price regardless. The buyers remedies for the failure of the goods to arrive, if any, will be against the carrier or against the underwriter but not against the seller on the contract of sale. 2 The implication of this statement is that the seller of the goods is taken to have performed his own part of the bargain by tendering the documents to the buyer and is therefore, not obliged to actually see to it that the goods are delivered.3 In order words, where the seller has shipped proper goods and tendered proper documents, he is not normally concerned with what happens to the goods in transit. The duties of a seller of goods is to ship or procure a shipment of the goods in accordance with the contract and where necessary to appropriate the goods to the contract. Secondly, the seller is to procure or prepare the proper shipping documents and is to tender these documents to the buyer or as the buyer directs.4 Thus, in Tregelles and another v Sewell5, the plaintiffs bought from the defendants three hundred tons of old bridge rails at 5l 14s 6d per ton delivered at Harburgh, cost, freight and insurance. Payment was to be by net cash in London and less freight upon handing bill of lading and policy of insurance. A dock companys weight note or captains signature was to be taken by the buyers as a voucher for the quantity shipped. It was held that according to the true construction of the contract, the defendant did not undertake to deliver the goods at Harburgh but that when he put it on board a ship bound for that place, and handed to the plaintiffs the policy of insurance and other documents, his liability ceased and the risk was then at the risk of the buyers. Fred v Shelley: The contract between Fred and Shelley stated that quality and colour of the beans is to be final on loading which shows that the contract would be concluded when the goods are received but the goods would be as described in the official certificate. The official certificate stated that the bean content would be 5.10% but the initial agreement was for bean, which could include up to 5.5% pale or yellow beans. It could be implied that it was anticipated by both parties that there was no strict compliance required with regards the quantity of the beans. Shelley was aware of that fact but we do not know whether she accepted the tender or not. Fred was required to obtain and to ship the goods from Cardiff but the bill of lading indicated that the goods had been shipped from Newport and that the port of destination was Naples or Palermo as opposed to the agreement that the sale is on the terms CIF Naples. Whether stating in the bill of lading that the goods had been shipped from Newport instead of Cardiff and whether including the
1 2

Benjamin J P 2006, Benjamins sale of goods seventh edition, London sweet and Maxwell pg 1457 n 1 pg 1458 3 ibid 4 n 1 pg 1465 5 (1862) 75 Hurlstone and Norman 574

other option, Palermo would be a problem, would depend on whether it was reasonable and practicable for him to do so. However, we are not told the reason why he has added Palermo to the bill of lading and why he shipped from Newport instead of Cardiff but it says that it usual for sellers to do so in those areas and the courts expect that were goods are to be shipped, the seller is allowed to either ship from the ports that they have agreed on or from a place that it is usual for them to ship from in that type of trade. In the case SIAT di dal Ferro v Tradax overseas SA, 6 a bill of lading with destination CIF Ancona/Ravena where the contract of sale stated CIF destination Venice was held to be a bad tender. In the case Hindley & Co Ltd v East Indian produce Co. Ltd, 7 sellers of Siamese jute, grade A sold C&F tendered a bill of lading obtained from a third party whom they had bought the jute from which stated that grade A jute had been shipped. No jute of the contract description had actually been shipped and it was held that C&F contracts contain an implied term that material statements in the bill of lading should be true and accurate. The bill of lading was said to be improper, the buyers were entitled to have the money they paid returned to them, and it was immaterial that they could sue the carriers There is a loss of some of the goods because a rocket grenade hit the ship when the ship was sailing off the coat of Israel because it had taken a detour to Haifa to offload some of the crew going for a wedding. This is not the fault of Shelley as there was no agreement neither can it be implied that on the construction of the contract, there seemed to be an agreement which gave room for the ship to go elsewhere. Thus, in Bergerco USA v Vegoil Ltd, 8 peas were sold C & F Bombay and the contract required the ship to sail directly to Bombay, it was held that the buyer could reject on the ground that the ship was scheduled to call, and did call at a number of intermediate ports where the contract of sale required the ship to go directly to Bombay. The fact that the bill of lading did not correspond with the contract of sale was sufficient ground for the buyer to reject the goods and it was immaterial whether the ship did call at those ports or not. 9 However, where the bill of lading contains no objectionable deviation clause, the buyer is not entitled to reject it merely because the ship has in fact wrongfully deviated. In such a case, the buyer has a remedy against the carrier for breach of the contract of carriage and the seller is not responsible for this breach. So long as the seller tenders the proper and usual shipping documents, he is entitled to be paid and the buyer must seek his remedy only against the carrier.10 Hence, in the case, Shipton Anderson & co v John Weston & co,11 where the buyers who had bought barley, which was to be shipped from any Atlantic or Canadian port to Bristol or Avonmouth, brought a case forward. A condition of the contract was that the ship might call at one other port in the United Kingdom but in fact, the ship called at Glasgow and then Belfast. The buyers sought to refuse delivery of the barley and a return of their money. They were not entitled to reject because the buyers had accepted the bill of lading and
6 7

[1980] 1 Llyods Rep. 53 [1973] 2 Lloyds Rep. 515 8 [1984] 1 Lloyds rep. 440 9 n 1 pg 1483 10 n 1 pg 1180 11 (1922) 10 Ll.L.R 762

retained the document with the knowledge that the ship had stopped at those places. By accepting the bill without any objection, the property in the goods passed to them, their remedy ceased to be a remedy by refusal of the contract, and it became a remedy merely by way of damages. In order words, they waived their right to reject by accepting and retaining the bill of lading even though they knew of the matters, which would have entitled them to reject. In this case, Shelley will have a right against the carriers because they have taken a route and gone somewhere else, which they were not permitted to go and because it is not usual and customary12 for the carriers to drop off their crew mates to a wedding whilst performing their duty, they will be liable. It has been said that a bill of lading will be a bad tender if it stipulates a different destination than provided on the contract of sale hence, the bill of lading must provide for the carriage of the goods to the destination specified in the contract of sale. Also, in the case, Peter Cremer v Brinkers Groudstoffen NV13 it was said that the buyers could reject the goods because the ship had taken a detour which was taken to be interfering with the contract and in Gatoil international inc v Tradax petroleum ltd( the Rio sun)14,there was an action against a seller for delay in delivering goods. The delay was because of an unjustified lien over the cargo at Sarroch. The claim succeeded and it was stated in the case that in such situations, both seller and carrier would be in breach because a CIF contract contemplates that the buyer is to get physical possession of the goods through the contract of carriage that it is the sellers duty to arrange. An argument can be raised that the contract does not contain any objectionable deviation clause such that the ship could go anywhere but the courts are not willing to accept such arguments where the main object of the contract of carriage will be defeated.15 A bill of lading transfers the contractual rights in the contract of carriage. Its role as a support for international sales links with its operation as a transferable document enabling various rights to be transferred from the transferor to a transferee through delivery of the document accompanied by any necessary endorsement. The rights transferred may be either rights to make a claim based on the contract based on the contract of carriage or rights in the goods. This means that the seller transfers rights that could be termed as either proprietary rights or contractual rights. Shelley rejected the documents because she heard that the goods were of poor quality and that a quarter of them had been destroyed when a rocket grenade hit the ship. Although what she heard was true and she promptly tried to assert her right, she is not entitled to reject the documents because if a seller tenders documents good on their face, the buyer is bound to accept them. Shelley may be liable to pay for the goods because the rule in Gill & duffus SA v Berger & Co Inc [1984] A C 382 is that a buyer must accept documents, which on the face of it, conforms to the contract, and there is no right of examination before payment. It is normal for the documents to arrive before the goods, a CIF buyer is obliged to make payments against documents, and it is irrelevant that the buyer suspects that the goods will not conform to the contract. The only exceptions are in the case of fraud and where the goods differ
12 13

Burstall v Grimsdale (1906) 11 Com.Cas 280 [1980] 2 Lloyds Rep. 605 14 [1985] 1 Lloyds rep. 350 15 Glynn v Margetson [1893] A.C 351

fundamentally from those that were actually shipped. It can be argued that the goods do defer from that which was shipped because it states in this scenario that the beans was contaminated with motor oil and this contamination occurred before the goods were loaded and as a result of the contamination, the beans can no longer be used be used for any of their usual purposes. Section 13 of the sale of goods Act 1979 requires goods to correspond with the description and section 14 of the sale of goods Act 1979 requires goods to be fit for their purpose, which includes the common and/or ordinary purposes. There is therefore, arguably, a breach in this regard as the goods if it can be said to be so contaminated that it can no longer be said to be what was agreed to be bought, Shelley can reject. It has been argued that there is a distinction between the documents and the goods and there is the requirement that a CIF buyer must pay against the documents so that even if she is entitled to reject the goods, she will still be liable to Fred to pay for the documents and may only be able to claim damages. In terms of fraud, Shelley can argue that Fred knew about the contamination and had concealed the information from her or that he had misrepresented facts to her by stating that the beans was 5.5% yellow or pale beans meanwhile it was only 5.10% bean content and was contaminated. She can argue that had she known about the contamination, she would not have entered into the contract. She may be able to rely on section 2 of the misrepresentation Act which provides that: (1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true. (2) Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party. (3) Damages may be awarded against a person under subsection (2) of this section whether or not he is liable to damages under subsection (1) thereof, but where he is so liable, any award under the said subsection (2) shall be taken into account in assessing his liability under the said subsection (1). However, she was not aware of the fact that the beans was contaminated before she rejected the documents as she had only heard about the contamination and had no grounds to assume that it was true so that she was wrong to reject and hence, the property in the goods passed to her and when property passes, risk

passes as well but in the case of the goods getting destroyed as a result of the detour, she will be able to claim damages because it was not her fault that they took that detour and they really were not supposed to. The quantity of the beans is less that was agreed and unless it can be said that the construction of the contract gave room for the seller to provide less than was agreed, because the contract states that the goods supplied could include which is therefore not a strict requirement, Fred could be liable. Section 30(2A) Sale of goods act 1979 provides that a buyer who does not deal as a consumer may not reject goods where the quantity delivered is less or more than that contracted for if the discrepancy is so slight that it would be unreasonable for the buyer to reject. Shelley is a consumer therefore, this does not apply to her and part 5A of the Sale of goods Act 1979 provides amongst other rights, the right to rescind the contract in such a case. He may not be liable because the contract states that the quality and colour of the beans is to be final on loading which could mean that the contract was finalised in the official document and both parties agreed to it. In Groom v Barber,16 one of the contentions was that the seller was under a duty to insure the goods against war risks were there was a contract of sale on CIF terms, which contained the condition war risks for buyers account. The contract contained in it a clause which stated that should the goods or any portion thereof not arrive from loss of vessel or other unavoidable cause, the tender to the buyer of the insurance policy with the bill of lading or other document or documents which, with the policy will enable the buyer to recover the amount of the insurance from the underwriters shall be deemed a good tender of the goods so not arriving 17 . In response to the contention, the committee handling the case found that: the insurance policy referred to in clause 4 of the conditions was by the custom of the trade a policy which contained the free from capture and seizure clause, that the tender of such a policy was a sufficient tender within the meaning of the contract, and that there was no custom of the trade and it had never been the practice for a seller to effect any war risk insurance for buyer's account, and that the tender of a war risk policy had never in practice been made by merchants or others doing business in jute goods 18 . The committee further decided that the legal interpretation of the contract was that the war risk was upon the buyers and that the buyers had no right to claim from the seller the delivery of a policy covering war risk19 Following the Grant v Barber case, if it found that the property in the goods have passed to Shelley, Fred will be required to provide to Shelley a policy that would cover war risks only if it is usual for merchants or others doing business in beans goods to provide insurance to cover such occurrences in that type of trade. The fact that if the ship had not gone farther than their destination, there

16 17

[1915] 1 K.B. 316 Ibid at 317 18 Ibid at 319 19 Ibid at 320

would have been no grenade hitting them gives Shelley a right to sue the carriers because they wrongfully deviated. Fred may be liable to Shelley in damages because he has not shipped the proper goods as the goods he has shipped are contaminated, which breaches his duty to supply goods of the right quality. He has also breached his duty to supply the right quantity as it states that he has shipped 5.10% which is less that what he stated to Shelley but this can be argued based on the fact that his statements to Shelley may be seem as representations and not contractual promises, as such he would not be treated as being in breach of the contract on the ground that the information he gave to Shelley is different from what is stated on the bill of lading thus making the bill of lading inaccurate. However, misrepresentation can be invoked if the information is viewed as a statement of fact. 20 The question is whether she has accepted that there could be discrepancies from the fact that the contract did state that the colour and quality will be final on loading. She would have a right to sue the carriers because if property has passed to her, it is not her fault that they interfered with the shipment by taking a detour but she would not be able to sue the seller on this. It therefore seems that Shelley has valid grounds to sue both Fred and the shippers but she may have to make payments to Fred save only where Fred has been fraudulent or where it is found that the goods are different from what was contracted for. Fred v Rita: Where the time is stated for when the goods will be shipped, the seller is required to ship the goods within the time stated. The whole quantity of the goods contracted to be sold must be shipped at the time, or within the period, if any, specified on the contract of sale. In Suzuki & Co v Burgett and Newsam,21 A bill of lading was issued in the form "shipped or delivered for shipment in apparent good order." The document was dated Jan. 31, 1920, and referred to the Shanghai shipment by the Polyphemus . It turned out, however, that the goods were not shipped on the Polyphemus until early in February. The buyers argued that they were entitled to reject and recover the money they had paid because they had done so under a mistake of fact. The buyers succeeded in their claim. It thus seems that Rita may be able to hold Fred to be in breach. However, she accepted the delivery of the goods with the knowledge that the goods were not shipped on the dates specified therefore she may be taken to have waived her right of rejection and is only trying to get out of a bad bargain because the price has now dropped. Generally, you can reject a tender if the bill of lading is incorrect. The right to reject a tender because of a wrong bill of lading is not absolute as the seller is entitled to make right his wrong. Therefore, Fred can offer to make a good tender by providing the correct bill of lading with the right dates and unless the original bad tender is treated as a repudiation of the contract, the
20 21

Compaa Naviera Vascongada v. Churchill. [1906] 1 KB 237 (1922) 10 L.l .L.R 223

buyer is not at liberty to reject the offer and where the buyer rejects the offer without lawful excuse, he is liable in damages even if the subsequent good tender is never made. Evidently, in Kwei tek chao v British traders,22 sellers under a CIF contract presented to the buyers bills of lading purporting to show that the goods had been shipped on the contract date and the buyers made due payments. In fact, a third party had forged the bill of lading, without the knowledge of the sellers. The buyers were aware that the dates on the bill of lading were wrong but took the delivery regardless and retained them. They did not know that the bill of lading was forged and when they found out, they sought to sue the sellers for the return of the price and alternatively, for damages for a breach of contract. They succeeded on their claim for damages but not on the claim for the return of the price and although the bill of lading was forged, it was said that though the bill was not genuine, it was not an utter nullity. However, it seems that the courts will grant a buyer who has made payments to a seller under a mistake of fact, the right to sue the buyer if it is found that the mistake went to the whole or to the essence of the contract. In such a case, the buyer will be able to recover damages from both the seller and the carrier, his rights are not affected.23 Based on the above facts, Rita will not be able to back down from the contract because she appears to have waived her right to reject and even if she has not, Fred is entitled to try to make good the tender.

22 23

[1954] 3 WLR 496 Egyptian International Foreign Trade Co. v Soplex Wholesale Supplies Ltd., and P. S. Refson & Co. Ltd. (The "Raffaella") [1985] 2 Lloyd's Rep. 36