CIF (Cost, Insurance, Freight) Contracts

The contract binds the seller to ship the goods to a named destination and to take out
insurance on the terms usual in the trade whilst the goods are in transit. The price of goods is
inclusive of freight and insurance costs to the destination specified by the contract.
Advantages:
- The seller can charge a higher price taking into account the extra services he provides.
His profit margin could be higher than that in an FOB contract.
- The buyer does not have to undertake the task of finding ship space or insurance.
Under Incoterms 2010
The seller must provide the goods in conformity with the contract (A1) and the buyer must
pay the price of the goods as provided in the contract of sale (B1). The seller is required to
clear the goods for export, where applicable, but is not obliged to clear the goods for import,
pay any import duty or carry out any import customs formalities (A2).
The seller delivers the goods on board the vessel or procures the goods already so delivered
(A4). The seller bears all risks of loss or damage to the goods until they have been delivered
in accordance with A4 (A5). The seller must contact for and pay the costs and freight necessary
to bring the goods to the named port of destination (A3(a), A6). The seller fulfils its obligation
to deliver when it hands the goods over to the carrier in the manner specified and not when
the goods reach the place of destination.
The buyer must take delivery of the goods when they have been delivered and bears all risks
of loss or damage from the time that they have been envisaged in A4 (B4 & B5). The buyer
must, whenever it is entitled to determine the time for shipping the goods and/or the point
of receiving the goods within the named port of destination, give the seller sufficient notice
thereof (B7). Failure to do so would result in a premature passing of risk.
The seller also contracts for insurance cover against the buyer’s risk of loss or damage to the
goods during the carriage. Under CIF, the seller is required to obtain insurance only on
minimum cover (A3(b)). Should the buyer wish to have more insurance protection, it will need
either to agree as much expressly with the seller or make its own extra insurance
arrangements (B3(b)).
Under Common Law
Contract is performed by the seller upon the delivery of the shipping documents to the buyer
and not by the delivery of the goods.
The seller is under a duty to procure and prepare proper shipment document. In the absence
of express provisions regarding documents, the seller must prepare:
- An invoice
- Bills of lading
- Insurance
Seller’s obligations:
To ship at the port of shipment goods of the description contained in the contract.
To procure a contract of carriage by sea where the goods will be delivered at the destination
contemplated by the contract.
To arrange for insurance on the terms current in the trade which will be available for the
benefit of the buyer.
- The seller is under an obligation to tender an insurance policy under a CIF contract.
Anything short of an insurance policy is insufficient to discharge the seller’s obligation
to tender a policy. The policy is security if the goods are lost. Thus, where the goods
are damaged during transit, the buyer will be able to claim from the insurer directly
on the basis of the insurance policy.
- Where the seller fails to obtain insurance cover, or does not obtain adequate
insurance cover, the goods are at the risk of the seller.
- Lindon Tricotagefabrik v White and Meacham: The seller who did not obtain
insurance cover for the entire transit was unsuccessful in obtaining the price
of the goods when they were stolen while awaiting delivery to the buyer’s
correct address.
- The seller must obtain insurance on terms current in the trade. Thus, the type of
insurance obtained is dependent on the kind of cargo, the route of the voyage and the
practices accepted as usual in that particular trade.
- The insurance must cover only the goods mentioned in the shipping documents.
Obtaining an insurance policy that also covers goods belonging to others would be a
breach of the seller’s obligations under a CIF contract.
- The insurance must cover the entire transit as insurance which covers only part of the
voyage will entitle the buyer to reject the documents upon tender.
To make out an invoice of the goods
- The seller must tender to the buyer an invoice debiting the consignee with agreed
price and giving him credit for the amount of the freight which he will have to pay the
shipowner on actual delivery.
To tender, within a reasonable time after shipment, the bill of lading, policy/certificate of
insurance and invoice to the buyer so that the buyer may obtain delivery of the goods (when
they arrive, or recover for their loss, if they are lost in the voyage) (Biddell Bros v. E. Clements
Horst Co)
- If the seller has received the documents, such as the bills of lading, he must tender
them as soon after he received them. Without a bill of lading, the buyer will be unable
to sell the goods to a third party or take delivery of the goods.
- Where there is an express provision regarding the tender of documents, the seller
must comply. Any voluntary delay in tendering the documents will entitle the buyer
to reject them.
The bill of lading tendered must correctly state the date of shipment, otherwise the buyer can
reject the goods. (James Finlay and Co v Kwik Hoo Tong HM)
The seller must obtain a shipped bill of lading in order for the buyer to know whether or not
the goods are on board the ship. The bill of lading should specify the date when loading is
completed. (Mendala III Transport v. Total Transport Corporation, Total International Ltd and
Addax Ltd: The Wilomi Tanana)
- A ‘received for shipment’ bill is not a proper bill of lading for the purposes of a CIF
contract (Diamond Alkali v Bourgeois).
- The bill of lading must be a clean bill of lading so as to indicate that the goods have
been received in good order by the shipowner.
Under a CIF contract, the buyer has the right to reject the documents and also a right to reject
the goods. These two rights are distinct.
Kwei Tek Chao v British Traders and Shippers Ltd: The sellers sold Rongalite C (a chemical) to
the buyers CIF Hong Kong. The date of shipment was to be on or before 31st October. The
goods were not loaded until 3rd November. The bills of lading signed by the shipowners stated
‘received for shipment and since shipped on 31st October.’ On presentation, the documents
were accepted by the buyers, who sold the goods on to the sub-purchasers. The sub-
purchasers then discovered that the goods had not been shipped on 31st October and
requested for a cancellation of the sub-sale. The buyers, who took delivery of the goods
brought an action against the sellers for tendering inaccurate documents and claimed return
of the price or damages. The sellers argued that in accepting the goods, the buyers had waived
the breach of contract relating to the date of shipment on the bill of lading. Held: There are
two rights of rejection. The failure to reject the goods on arrival, since they did not match the
contract description, did not extinguish their right to claim damages for their loss of the right
to reject the documents.
Buyer’s right to reject:
- Buyer may reject the documents upon tender, where the seller does not tender the
right documents or where the documents are incorrect.
- E.g: Where a shipment date has been specified in the contract and the bill of
lading shows that the goods were not shipped during the period specified, the
buyer may reject the document.
- In this case, both the contract and bill of lading stipulated a shipment period
which was not followed by the carrier.
- But if the buyer accepts the documents, knowing that they are not in order, he
is estopped from later trying to reject them (Panchaud Freres S.A. v.
Etablissement General Grain Co.)
- Buyer may reject the goods on arrival if the goods do not correspond to the contract
description or are not of a satisfactory quality.
The buyer must exercise his right to reject within a reasonable time. If he does not do so, he
would be deemed to have accepted the tender and his remedy will lie only in damages.
Buyer’s obligations:
To make payment against the documents once they are tendered to the buyer.
- The buyer must accept a good tender of documents and pay for the goods upon tender
of the documents. The buyer cannot postpone payment until the arrival of the goods,
even where the goods are lost or damaged prior to the tender of the documents, and
the seller is aware of the loss or damage to the cargo.
- Manbre Saccharine v Corn Products: The documents were tendered to the buyers two
days after a submarine sank the ship carrying the cargo. The sellers, aware of this, still
tendered the documents. Held: Since all the documents were in order, the sellers
could tender them to the buyers, even though the goods were no longer in existence.
In such instance, the buyers will look to their insurers to recoup their losses provided
that the loss is caused by an event provided for in the cover.
To pay for the cost of unloading, lighterage and landing at the port of destination according
to the bill of lading.
To pay all import duties and wharfage charges, if any.
Passing of risk and property
The risk in the goods passes from the seller to the buyer on shipment. During the voyage, the
goods are at the risk of the buyer (C. Groom Ltd v. Barber). Thus, the buyer must take up and
pay for the shipping documents even though the goods may already have suffered damage
or loss during their carriage by sea.
The property in the goods does not pass until the buyer takes up and pays for the shipping
documents subject to the conditions that they revert if upon examination he finds them to be
not in accordance with the contract. Those include a bill of lading relating to the goods which
has been endorsed by the seller in favour of the buyer. By acquiring the bill of lading so
endorsed the buyer becomes a person to whom the property in the goods has passed upon.
(Kwei Tek Chao)
If, however, the goods are not ascertained at the time the documents are taken up by the
buyer, no property in the goods will pass until the goods become ascertained (The Elafi).
Exception: Sec. 20A Sale of Goods Act 1979 (UK)
- Applies to a contract to purchase a specified quantity of unascertained goods out of
an identified bulk e.g. 200 tons of wheat ex the Neptune”
- As soon as the buyer pays the price the buyer acquires an undivided share in the bulk
Where risk has passed to the buyer but before property has passed and the goods are
damaged by the negligence of some third party:
The Aliakmon: During the course of the shipment of steel coils from Incheon, South Korea to
Immingham, UK, the buyers, who intended to finance the transaction by making a contract
for the re-sale of the goods to sub-buyers before the bill of lading was tendered, found that
they were unable to do so. Thus, the buyers’ financial needs caused variations in the contract.
The variations meant that the buyers were no more than an agent of the seller (only had
contractual rights to the goods), who would receive the goods under the bill of lading and
transport them to the warehouse and hold them as agents of the seller, until payment was
made and the sale completed. Upon arrival of the ship at Immingham, the goods were found
to be in a damaged condition caused by the negligence of the carrier. Thus, the issue was
whether the respondents (carrier) owe a duty of care to the appellants (buyer) in respect of
the carriage of the goods.
Held: Where the risk had already passed to the buyers upon shipment under the original
terms, and there was nothing in the new terms which caused it to revert to the sellers, thus,
the property in the goods remained with the seller (buyer had yet to take up and pay for the
shipping documents when the variations were made) but the risk had passed to the buyer.
- Lord Brandon: In order to enable a person to claim in negligence for loss caused to
him by reason of loss of or damage to property, he must have had either the legal
ownership of or a possessory title to the property concerned at the time when the loss
or damage occurred, and it is not enough for him to have only had contractual rights
in relation to the property. Thus, the buyer not being the legal owner of the property,
could not sue for negligence.
Where the appellants only had contractual rights toward the goods at the time when the
damage occurred, the respondents cannot be said to owe any duty of care to the appellants.
FOB (Free on Board) Contracts
Under Incoterms 2010
The seller must provide the goods in conformity with the contract (A1) and the buyer must
pay the price of the goods as provided in the contract of sale (B1). The seller is required to
clear the goods for export, where applicable, but is not obliged to clear the goods for import,
pay any import duty or carry out any import customs formalities (A2).
The seller delivers the goods on board the vessel nominated by the buyer at the named port
of shipment or procures the goods already so delivered. The seller’s obligation to place the
goods on board the ship in due time is the essence of the FOB term (A4). The buyer must take
delivery of the goods when they have been delivered and bears all risks of loss or damage
from the time that they have been envisaged in A4 (B4 & B5). The risk of loss or damage to
the goods passes when the goods are on board the vessel. However, failure to notify the seller
of the vessel name, loading place and required delivery time may result in a premature
passing of risk (B7).
The seller has no obligation to contract for carriage and would not be requested to do so if
the FOB term is used for the carriage of full ship loads of bulk commodities (A3(a)). The buyer
has to contract for carriage at its own expense so that the goods can be place on board.
(B3(a)). However, the seller may contract for carriage at the buyer’s risk and expense if it is
commercial practice or if he is requested by the buyer to do so. The seller is also not obligated
to make a contract of insurance, but must provide the buyer with the necessary information
for obtaining insurance (A3(b)).
Under Common Law
A contract for the sale of goods where the seller agrees to deliver the goods over the ship’s
rail and the buyer agrees to convey it overseas (Wimble, Sons & Co v Rosenberg & Sons)
An FOB Contract: Specifies a port of range or ports for shipment of the goods; requires
shipment of the goods at the port specified by or on behalf of the seller or buyer; and although
the seller may contract for and pay the freight, the buyer carries the risk (Scottish & Newcastle
International Ltd v Othon Ghalanos Ltd).
Types of FOB Contracts
Donaldson LJ in The El Amria and El Minia approving Devlin J’s classification of fob contracts
in Pyrene & Co. v Scindia Navigation Co.:
“In the first case, or classic type, the buyer nominates the ship and the seller puts the goods
on board for account of the buyer, procuring a bill of lading. The seller is then a party to the
contract of carriage and if he has taken the bill of lading to his order, the only contract of
carriage to which the buyer can become a party is that contained in or evidence by the bill of
lading which is endorsed by him and the seller.
The second is the variation of the first, in that the seller arranges for the ship to come on the
berth, but the legal incidents are the same.
The third is where the seller puts the goods on board, takes a mate’s receipt and gives this to
the buyer or his agent who then takes a bill of lading. In this latter type the buyer is a party to
the contract of carriage ab initio.”
Classic FOB
Seller’s obligations:
- To ship the goods of contract description at port of shipment
- To pay handling and transportation costs
- To ship the goods on time at port of shipment
- To deliver the goods on the specified date and notify buyer of the shipment
Buyer’s obligations:
The buyer must arrange for his own shipment and insurance, if any.
The buyer must name the seller an effective ship that is a ship ready, willing and able to carry
the goods away from the port of shipment within the stipulated shipping time.
- The buyer must ensure that the shipping space he has acquired will enable the seller
to load the goods on to the ship within the shipping period specified in the contract of
sale.
- Cunningham v Munro: The contract of sale for bran FOB Rotterdam specified October
as the shipment period. The sellers obtained the goods from their suppliers on 13 th
October. The buyers were unable to get a ship to load the bran until 28th October. The
sellers claimed that the buyers were in breach of nominating a ship within the
shipment period and were liable to pay the warehousing costs. Held: The shipment
period of October specified in the contract placed the buyers under an obligation to
nominate a ship that would load the goods before the end of October. They had
provided a ship that would enable the sellers to load the goods over the ship’s rail
within October, and the buyers were, therefore, not in breach.

- If the buyer fails to nominate an effective ship or give instructions to the seller on time
to enable him to make suitable arrangements for loading the cargo, the seller cannot
make such a nomination. The buyer will be liable in damages for non-acceptance, but
will not be liable for the price of the goods.
- The seller’s remedy in this situation is an action for damages for non-acceptance of
the goods but not an action for the price of the goods.
- Colley v Overseas Exporters: The vessel nominated by the buyer was withdrawn by the
shipowner. The buyer was unable to find a substitute vessel. The seller argued that
the buyer was liable for the contract price. Held: Since the property had not passed to
the buyer, the seller could not sue for the price.
The buyer must pay for the goods in accordance with the contract. In the absence of express
provisions as to how and when payment is effected, the price is due when the goods pass the
ship’s rail.
FOB with additional services
The parties agree that arrangements for carriage by sea and insurance shall be made by the
seller, but for and on behalf of the buyer and for his account.
- The seller nominates the ship and makes the contract of carriage in his own name as
principal.
- The El Amria and El Minia: FOB sellers of Egyptian onions bound for European ports
were parties to a contract of affreightment through co-ordination of Supreme Onion
Shipping Committee. They also took order bills of lading which contained an exclusive
jurisdiction clause in favour of the Egyptian courts. The cargo arrived damaged and
the cargo-owners (FOB buyers) sued the shipowners in England. Held: They were
barred by the jurisdiction clause because their only contract was on bill of lading
terms. This was an FOB contract with additional duties, where the sellers were not
acting as agents for the buyers in entering the contract of carriage.
Simple FOB
The bill of lading is obtained by the buyer’s nominated agent or the buyer himself. However,
it is the seller who obtains the mate’s receipt, which is prima facie evidence of the quantity
and condition of the goods received, and the person who receives it is prima facie entitled to
have the bill of lading issued to him.
- The bill of lading is issued on production of a mate’s receipt. Thus, the seller loads the
goods on board, collects the mate’s receipts from the vessel and gives them to the
buyer or his agent, who obtains a bill of lading from the master in exchange for it.
The buyer or his agent nominates and charters the ship (enters into a contract of carriage
with the shipowner).
- The buyer (and not the seller) is the party to the contract of carriage
Pyrene Co. Ltd. v. Scindia Navigation Co. Ltd.: The cargo (a fire tender) was dropped and
damaged by the negligence of the shipowner during loading. At this stage, before the goods
had passed the ship's rail, they were still the property of the seller. The seller sued the carrier,
for the full value of the damage (£966) in the tort of negligence. The issue was whether the
shipowner could claim the benefit of an exemption clause written into the contract of carriage
by virtue of the Hague Rules, the effect of which was to limit his liability to £200. It was
essentially a question of privity of contract, in effect whether the seller was party to the
contract of carriage. The seller claimed that he was not, and that therefore he was not bound
by the exemption clause.
Held: The shipowner was entitled to the benefit of the clause limiting liability to £200.
- Although the buyer was the shipper, the seller was party to an implied contract with
the carrier, even though he did not expressly make the contract of carriage. The
reasoning adopted was that the buyer, seller and carrier were all parties in a joint
venture. Therefore the seller was bound by the exemption clause, despite not being
expressly party to the contract of carriage.
The sellers argued that the Rules only applied once the goods were loaded that is from the
ship’s rail at loading to the ship’s rail at discharge. However, the Hague Rules, incorporating
the exemption clause, also applied to the loading process.
- At least where (as in the case itself) the shipowner had undertaken responsiblity for
the entirety of the loading and discharging process, the Hague Rules should also apply
to the entirety of the process. This is an interpretation of Art. 1(e) of the Rules.
Differences
Classic FOB and FOB with additional services:
- The buyer becomes a party to any contract of carriage, but is only able to sue on it
when the bills of lading are endorsed to him
- The only contract of which he could avail himself is that contained in or evidenced by
the bill of lading
Simple FOB: The buyer enters into a contract of carriage and acquires the right to sue the
carrier under this contract
Obligations under FOB Contracts
- The cost of putting the goods on board the ship have to be borne by the seller
- Delivery is complete when the goods are put on board the ship
Risk under FOB Contracts
The risk of accidental loss under Sec. 20(1) Sale of Goods Act (UK) 1979 passes to the buyer
when the seller has placed the goods safely on board the ship.
The seller should give notice of the shipment to the buyer to enable the buyer to insure the
goods during their sea transit. If the seller fails to do this, the goods will be at his risk during
such sea transit.
However in Wimble, Sons & Co. v. Rosenberg & Sons: Goods were sold FOB Antwerp to be
shipped as required by the buyer. The buyer instructed the seller to send the goods to Odessa,
and asked him to arrange the ship and advance the freight to his account. The cargo became
a total loss two days after shipment. The buyer became aware of the shipment when he
received the bill of lading three days after the goods were lost. The seller sued the buyer for
the price. The buyer argued that the goods were at the seller’s risk, since he had not been
given notice of the shipment. Held: Although notice of shipment was not given, the buyer had
sufficient information to insure the goods, even though he may not have had the name of the
ship or the exact date of sailing.
Transfer of Property under FOB Contracts
Unless otherwise agreed, property in the goods passes to the buyer when the goods are
placed on board ship. Where goods form part of a bulk, then property will pass upon their
ascertainment. For ascertainment to take place, there must be an irrevocable act on the part
of the seller.
 - Carlos Federspiel & Co. S.A. v. Charles Twigg & Co. Ltd.: The buyer bought 85 bicycles
and paid for them in advance. The bicycles were packed, the buyer’s name was
attached to the package, and the shipment was registered. However, the bicycles had
not been sent to the port of loading. The receiver claimed the bicycles were part of
the assets charged to the debenture holders. Held: The buyer had not acquired
property, since the intention was to pass property upon shipment. The packing,
marking and other acts of the seller did not constitute irrevocable earmarking.
Where the seller has taken out a bill of lading (as in cases of FOB with additional services), the
common intention of the parties is that property in the goods shall pass on the delivery of the
bill of lading unless the facts disclose a different intention (Mitsui & Co. Ltd. v. Flota, Mercante
Grancolombiana S.A.)

Scottish & Newcastle International Ltd v Othon Ghalanos Ltd: The case involved the sale of a
consignment of cider by the claimants, Scottish & Newcastle (S&N) to the defendants, drinks
distributor Othon Ghalanos (OG). The contract of sale was governed by English law and was
on CFR Limassol terms. S&N was claiming to recover the price due under the contract and
started proceedings in England on the basis that this was the jurisdiction in which the goods
had been delivered (where the cider was loaded on board the carrying vessel). Othon
Ghalanos argued that the contract was in effect an ex-ship contract for delivery in Limassol
and that it was therefore the courts of Cyprus (Othon Ghalanos' place of business) that should
have jurisdiction.
HOL held: Under the European Judgments Regulation, proceedings could be brought either
in the place of business (domicile) of the defendant or under contract for the sale of goods,
in the State where the goods were delivered or ought to have been delivered. The HOL
affirmed the Court of Appeal’s finding in favour of S&N and upheld English jurisdiction for the
claim. The contract terms “CFR Limassol” meant the possession of the goods would be
transferred to Othon Ghalanos at the port of shipment (in this case Liverpool).
Although the contract was a CFR contract, it differed very little from a form of FOB contract.
In this case, not only were the sellers to pay the freight, but they were also to obtain the bills
of lading from the carriers. This is apparent from the term providing for the documents to be
forwarded to Ghalanos immediately after shipment. The bills were, however, to be made out
to Ghalanos as consignee and were to be non-negotiable, nor did S&N reserve the right of
disposal of the cider. Therefore, the property in the cider had passed to Ghalanos and the
consignors, S&N, were to have no continuing interest in the cider once it had been shipped.
Ghalanos were to have the bills of lading, and so were to be in a position to take delivery of
the cider from the carriers, when they were notified that the vessels had reached Limassol.
Thus, by shipping the containers on board the vessels at Liverpool with the intention that
Ghalanos should be in a position to take delivery of them immediately on their arrival at
Limassol, S&N are deemed to have delivered the cider to Ghalanos at Liverpool.
CISG: An international treaty which applies to contracts of sale of goods between parties
whose places of business are in different States (Art. 1)
Art. 4: The Convention governs only the formation of contract of sale and rights and
obligations of the seller and the buyer arising from such a contract. The Convention is not
concerned with
- The validity of the contract
- The effect which the contract may have on the property in the goods sold
- Affirmed in Société DIG v. Société Sup
Seller’s rights and obligations
Delivery of Goods:
Art. 30: The seller must deliver the goods, hand over any documents relating to them and
transfer the property in the goods, as required by the contract and this Convention.
- The contradiction between Art. 4 and Art. 30 is a matter for the national courts to
decide.
Art. 33: The seller must deliver the goods:
- (a) If a date is fixed by or determinable from the contract, on that date;
- (b) If a period of time is fixed by or determinable from the contract, at any time within
that period unless circumstances indicate that the buyer is to choose a date; or
- (c) In any other case, within a reasonable time after the conclusion of the contract.
Landgericht 29 May 2012: Where there was failure on the part of the seller to meet the fixed
date transaction under Art. 33, this entitled the buyer to a claim for damages.
Conformity of goods:
Art. 35(1): The seller must deliver goods which are of the quantity, quality and description
required by the contract and which are contained or packaged in the manner required by the
contract.
Bundesgericht 7 July 2004: A shipment of goods containing less than the quantity specified in
the contract breached Art. 35(1), since the provision expressly states that a lack of
"conformity" encompasses both a lack of quality in the goods delivered and a lack of quantity
Oberlandsgericht Schleswig 22 August 2002: A German seller and a Dutch buyer concluded a
contract for the sale of 400 sheep to be delivered to a slaughterhouse in Denmark. After
delivery the buyer refused to pay the price alleging non conformity of the cattle (in particular,
it was too thin and could not therefore be slaughtered immediately). The seller commenced
an action to recover the price. Held: The buyer had failed to prove the non-conformity of the
sheep according to Art. 35(1). This would have required proof that the buyer had made known
to the seller the use for which the sheep were intended (i.e. sheep ready for slaughter),
however, the buyer had failed to notify the seller the purpose for which the sheep were
required.
Oberlandesgericht Saarbrücken 17 January 2007: A seller's previous deliveries to the buyer,
some of which involved different kinds of goods and during which the goods had not been
damaged, did not constitute an implied agreement concerning the packaging of the goods.
Art. 35(2): Except where the parties have agreed otherwise, the goods do not conform with
the contract unless they:
- (a) Are fit for the purposes for which goods of the same description would ordinarily
be used
- (b) Are fit for any particular purpose expressly or impliedly made known to the seller
at the time of the conclusion of the contract, except where the circumstances show
that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s
skill and judgment
- (c) Possess the qualities of goods which the seller has held out to the buyer as a sample
or model
- (d) Are contained or packaged in the manner usual for such goods, or where there is
no such manner, in a manner adequate to preserve and protect the goods.
Bundesgerichtshof 26 September 2012: In order to meet the requirements of fitness for its
ordinary purpose under Art. 35(2)(a), the delivered goods must be fit for their suggested uses
in light of the material and technical specificities of the goods and reasonable market
expectation.
Bundesgerichtshof 2 March 2005: The resaleability (tradability) of the goods is an aspect of
their fitness for ordinary purposes under Art. 35(2)(a). In this case, it was found that food
intended for human consumption must at least not be harmful to health, and that mere
suspicion that the goods are harmful to health may give rise to a breach of Art. 35(2)(a).
Cour d'appel, Grenoble 15 May 1996: Art. 35(2)(a) was found to have been violated where the
seller delivered a refrigeration unit that broke down soon after it was first put into operation.
Arbitration Institute of the Stockholm Chamber of Commerce 5 June 1998: The seller was in
breach of Art. 32(2)(a) when he substituted a different component in a machine without
notifying the buyer and without giving the buyer proper instructions for installation; as a
result, the machine failed after three years of use, thus disappointing the buyer's expectation
for “long, continuous operation of the machine without failure.”
Oberster Gerichtshof 19 April 2007: The court found that the buyer intended to purchase
products with the specified vitamin levels, that “the special purpose was known by the seller
with sufficient clarity,” and that “the buyer counted on the seller’s expertise in terms of how
the seller reaches the required vitamin A content and how the required preservation is carried
out.” Where a seller agreed during negotiations that the goods would meet safety standards
applicable in the buyer's jurisdiction, the court held that Art. 35(2)(b) obligated the seller to
deliver goods that complied with those standards.
Cour d'appel, Grenoble 13 September 1995: Where a seller sold cheese that it knew would be
resold in the buyer's country, and the cheese was delivered in packaging that did not comply
with that country's food labelling regulations, the goods were deemed non-conforming under
Art. 35(2)(d).
- Improperly packaged goods failed to conform to the contract under Art. 35(2)(d).
Art. 36(1): The seller is liable in accordance with the contract and the Convention for any lack
of conformity which exists at the time when the risk passes to the buyer, even though the
lack of conformity becomes apparent only after that time
Art. 36(2): The seller is also liable for any lack of conformity which occurs after the time
indicated in the preceding paragraph and which is due to a breach of any of his obligations,
including a breach of any guarantee that for a period of time the goods will remain fit for their
ordinary purpose or for some particular purpose or will retain specified qualities or
characteristics.
Art. 40: The seller is not entitled to rely on the provisions of Art. 38 and 39 if the lack of
conformity relates to facts of which he knew or could not have been unaware and which he
did not disclose to the buyer.
Buyer’s rights and obligations
Examination of goods:
Art. 38(1): The buyer must examine the goods or cause them to be examined within as short
a period as is practicable in the circumstances.
- What is ‘as short a period as it practicable’ is a question of fact which is dependent on
the goods to be examined
Landgericht Aschaffenburg 20 April 2006: The examination pursuant to article 38 CISG may
be conducted by the buyer himself, its employees, or others. The buyer and the seller may
also choose to examine the goods together, or may agree to leave the examination to an
institution suitable for inspections of that kind.
Bundesgerichtshof 25 November 1998: The manner of inspection will depend on the parties'
agreement, trade usages and practices; in the absence of such indicators, a “reasonable’
examination, which is “thorough and professional”, is required, although “costly and
expensive examinations are unreasonable.” The extent and intensity of the examination are
determined by the type of goods, packaging and the capabilities of the typical buyer; that the
examination “should concern all aspects of conformity of the goods and be such as to reveal
all non-conformities that a buyer should discover”.
Art. 39(1): The buyer loses the right to rely on a lack of conformity of the goods if he does
not give notice to the seller specifying the nature of the lack of conformity within a
reasonable time after he has discovered it or ought to have discovered it.
Art. 39 (2): In any event, the buyer loses the right to rely on a lack of conformity of the goods
if he does not give the seller notice thereof at the latest within a period of two years from the
date on which the goods were actually handed over to the buyer, unless this time-limit is
inconsistent with a contractual period of guarantee.
 - The buyer loses the right to any remedy for the non-conformity, including the right to
require the seller to repair the goods, the right to claim damages, the right to reduce
the price, and the right to avoid the contract.
Kantonsgericht Zug 30 August 2007: Where a buyer fails to satisfy the notice requirements of
Art. 39, the buyer remains obliged to perform all obligations under the contract, namely, to
accept the goods with any defects and to pay the purchase price as a consequence thereto.
Oberlandsgericht Schleswig 22 August 2002: The buyer had failed to examine the sheep and
to give notice of any lack of conformity to the seller within a reasonable time. Held: For
durable goods under regular circumstances the examination has to be done within 3 - 4 days,
however, that is too long of a period for living cattle as the condition of cattle can deteriorate
quickly in the absence of feed and water. In such a case examination has to be done
immediately on delivery or on the very next day and that the notice has to be given shortly
thereafter. As the buyer failed to prove that it has given notice within this timeframe the court
held that it had lost the right to rely on any non-conformity of the sheep.
Duty to Pay and Take Delivery:
Art. 53: The buyer must pay the price for the goods and take delivery of them as required by
the contract and this Convention
Art. 54: The buyer’s obligation to pay the price includes taking such steps and complying with
such formalities as may be required under the contract or any laws and regulations to enable
payment to be made.
Art. 60: The buyer’s obligation to take delivery consists:
- (a) In doing all the acts which could reasonably be expected of him in order to enable
the seller to make delivery, and
- (b) In taking over the goods
Passing of Risk
Art. 66: Loss or damage to the goods after the risk has passed to the buyer does not discharge
him from his obligation to pay the price unless the loss or damage is due to an act or omission
of the seller.
Art. 67(1): If the contract involves carriage of goods and the seller is not bound to hand them
over at a particular place, the risk passes to the buyer when the goods are handed over to the
first carrier for transmission to the buyer as under the contract of sale.
Art. 68: The risk in respect of goods sold in transit passes to the buyer from the time of the
conclusion of the contract.
Art. 69(1): In cases not falling under Art. 67 and 68, the risk passes to the buyer when he takes
over the goods or, if he does not do so in due time, from the time when the goods are placed
at his disposal and he commits a breach of contract by failing to take delivery.
Art. 69(2): If the buyer is bound to take over the goods at a place other than a place of business
of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the
goods are placed at his disposal at that place.
Remedies
Art. 25: A breach of contract committed by one of the parties is fundamental if it results in
such detriment to the other party as substantially to deprive him of what he is entitled to
expect under the contract, unless the party in breach did not foresee and a reasonable person
of the same kind in the same circumstances would not have foreseen such a result.
- Bundesgerichtshof 8 March 1995: In order to rank as ‘fundamental’, a breach must be
of a certain nature and weight. The breach must nullify or essentially depreciate the
aggrieved party's justified contract expectations. What expectations are justified
depends on the specific contract and the risk allocation envisaged by the contract
provisions, on customary usages, and on the provisions of the Convention.
- E.g: Buyers cannot normally expect that delivered goods will comply with
regulations and official standards in the buyer's country.
- In this case, the delivery of mussels with a cadmium content exceeding recommended
levels in the buyer’s country has not been regarded as a fundamental breach (or a
breach at all) since the buyer could not have expected that the seller would meet
those standards and since the consumption of the mussels in small portions as such
did not endanger a consumer’s health.
Art. 74: Damages for breach of contract by one party consist of a sum equal to the loss,
including loss of profit, suffered by the other party as a consequence of the breach. Such
damages may not exceed the loss which the party in breach foresaw or ought to have
foreseen at the time of the conclusion of the contract, in the light of the facts and matter of
which he then knew or ought to have known, as a possible consequence of the breach of
contract.
Buyer’s Specific Remedies
Art. 45(1): If the seller fails to perform any of his obligations under the contract or this
Convention, the buyer may:
- (a) Exercise the rights provided in Art. 46 to 52
- (b) Claim damages as provided in Art. 74 to 77
Art. 45(2): The buyer is not deprived of any right he may have to claim damages by exercising
his right to other remedies.
Art. 49(1) (Termination): The buyer may declare the contract avoided:
- (a) If the failure by the seller to perform any of his obligations under the contract or
this Convention amounts to a fundamental breach of contract, or
- (b) In case of non-delivery, if the seller does not deliver the goods within the additional
period of time fixed by the buyer in accordance with Art. 47(1) or declares that he will
not deliver within the fixed period
Art. 49(2): However, where the seller has delivered the goods, the buyer loses the right to
declare the contract avoided unless he does so:
- (a) In respect of late delivery, within a reasonable time after he has become aware
that delivery has been made
- (b) In respect of any breach other than late delivery, within a reasonable time.
Art. 50: If the goods do not conform with the contract and whether or not the price has
already been paid, the buyer may reduce the price in the same proportion as the value that
the goods actually delivered had at the time of the delivery bears to the value that conforming
goods would have had at that time.
Art. 51(1): If the seller delivers only a part of the goods or if only a part of the goods delivered
is in conformity with the contract, Art. 46 – 50 apply in respect of the part which is missing or
not in conformity.
Art. 51(2): The buyer may declare the contract avoided in its entirety only if the failure to
make delivery completely or in conformity with the contract amounts to a fundamental
breach of the contract.
Seller’s Specific Remedies
Art. 61(1): If the buyer fails to perform any of his obligations under the contract or this
Convention, the seller may:
- (a) Exercise the rights provided in Art. 62 to 65
- (b) Claim damages as provided in Art. 74 to 77
Art. 61(2): The seller is not deprived of any right he may have to claim damages by exercising
his right to other remedies.
Art. 62 (Specific performance): The seller may require the buyer to pay the price, take delivery
or perform his other obligations, unless the seller has resorted to a remedy which is
inconsistent with this requirement.
Art. 63(1) (Extension of time): The seller may fix an addition period of time of reasonable
length for performance by the buyer of his obligations.
Art. 64(1) (Termination): The seller may declare the contract avoided:
- (a) If the failure by the buyer to perform any of his obligations under the contract or
this Convention amounts to a fundamental breach of contract, or
- (b) If the buyer does not, within the additional period of time fixed by the seller,
perform his obligation to pay the price or take delivery of the goods, or if he declares
that he will not do so within the period so fixed.
Interest
Art. 78: If a party fails to pay the price or any other sum that is in arrears, the other party is
entitled to interest on it, without prejudice to any claim for damages recoverable under
Art. 74