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FOB And CIF Contracts Add in library

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Question:

A FOB contract can be a very flexible contract. It is not as constant as a CIF contract Discuss?
 
 

Answer:

FOB (Free on Board) and CIF (Cost, Insurance and Freight) contracts are related to international exports. These terms promotes uniformity and certainty in international commercial agreements. FOB is a far more flexible contract than of CIF. Under the British Law, in FOB the buyer has the freedom of nominating the ship, in which he wants his goods to be carried, the seller than has to put the goods on the board of that ship or vessel chosen by the buyer. The buyer has to procure a bill when the goods lands in the place of destination. In CIF contracts the seller delivers the goods to the buyer by delivering the documents of the contract to him. This confirms the seller’s delivery of the goods and not by physical delivery.

FOB contracts are flexible than CIF as explained below:

A. Rights and Duties of Seller:

1. The seller under FOB contract has to load the goods on the board of the vessel from the port which has been chosen by the buyer beforehand  and also within the period that has been mentioned in the contract. If the seller sends the goods from any other port else than the already mentioned port then he commits a breach of contract. The place of the loading is mentioned in the FOB contract condition. But under the CIF the seller is required to deliver the goods at a port which was earlier decided.

2. The seller under a FOB contract is not liable to pay for the freight as the carriage contract and freight bill are contracts made between the carrier and the buyer. But in CIF contract the price of freight has to be made by the seller only. It says that under the CIF contract all costs related to the goods are to be made by the seller until it is delivered to its place of destination.

3. Under the CIF contract, the seller is responsible to provide the export license and not the buyer.

4. In FOB contract, the seller has to provide the buyer with the necessary documents like bill of landing, related to the goods to the buyer in return of payment, that will confirm the delivery. But in the CIF, the seller has to provide with a commercial invoice which will contain all the details of the goods.

5. Under the FOB contract the seller has to provide the buyer with a notice which will make the buyer responsible of the goods at the time of transit. But in case of delay any damages caused will be the liability of the seller. But in CIF along with the notice of insurance the seller has to also give a notice that the goods are properly delivered in the vessel.

 

B. Buyers Rights and Duties

1. The buyer has the right in FOB to choose the place or port of delivery, and if the seller does not deliver the goods on the chosen port, the buyer can refuse to accept the goods.

In CIF the buyer is not obliged to such matters as such; he might or might not choose.

1. In the FOB contract the buyer payment of the goods is determined according to the terms of the contract. But in CIF contracts the buyer has to pay the price in the time of the delivery of the contract. The buyer has to make a payment at the time of acceptance if the contract.

C. Passing of Title and Risk

Passing of Title

In FOB contract the buyer becomes the owner of the goods or he has the title of the goods when the goods are placed on board of the vessel. And in the CIF contract the buyer becomes the owner only when he receives the necessary documents related to the goods.

Passing of Risk

Under the FOB contracts the seller is not liable for any damages after he deliverts the goods on board of the vessel, thus the risk is passed to the carrier.

But in the CIF contracts the risk passes on to the buyer when there is a delivery of goods to the buyer according to the terms of the contract.
 

Conclusion

Both the FOB and CIF contracts are both very important contract under the international commercial law. CIF contracts are more detailed and the performance of the contract needs to be done by fulfillment of many specified conditions, delivery of documents to the buyer thus the FOB contracts are more flexible than of the CIF contracts or more free.
 

References

Ghosh R and Lerman K, 'The Impact Of Network Flows On Community Formation In Models Of Opinion Dynamics' (2015) 39 The Journal of Mathematical Sociology.

Bridge M, 'Documents And Cif Contracts' (2012) 1998 ac.

IKONOMI E, 'FRANCHISE CONTRACT AND GOOD FAITH' [2014] Mediterranean Journal of Social Sciences.

Tyldesley P, 'Utmost Good Faith – Unintended Injustice?' (2011) 2011 ac.

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