Monday, 1 November 2010

The CIF Contract

CIF contracts are standard for contracts used in international trade. According to Lord Wright in Ross T Smyth & Co Ltd v T D Bailey, Son and Co Ltd, the initials CIF stipulates that the price paid for the goods includes; their cost, insurance and freight cost. These costs are borne by the seller who must also appropriate goods that conform to the contract, secure a bill of lading covering the goods and a policy of marine insurance. The sellers duty is complete when he delivers these documents to the buyer.

The CIF is often compared to its counterpart Free on Board (FOB), however CIF is noted as being more advantageous to users.
Some of these advantages will be looked at. A very brief look will also be taken of the disadvantages.

The Advantages

1. The buyer is assured of the final cost of the goods.
2. He is able to raise money on the documents, for example, he may use the bill of lading which represents      title to the goods as security at the bank
3.The buyer also need not worry about lost or damage to the goods while in transit because they are insured
4. Because CIf is a standard form contract the buyer saves money because he does not have to employ a lawyer to negotiate and draft each new contract.

1. CIF contract requires strict compliance, for example, if the contract states a date for tendering, failure to observe this date will allow the buyer to refuse accepting the documents even though he suffers no lost
2. The seller bears no responsibility to ensure that the documents arrive before the vessel. this results is delay and has accordingly results in a search for faster ways of transferring these documents.

The CIF will continue to facilitate seaborne commerce for a very long time however it will be interesting to see how the Internet age affects its operation.

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