In English law, the case of Ross T Smyth & Co Ltd v T D Bailey, Son and Co Ltd [1940] 3 All ER 60 established that the term cif relates to the cost, insurance and freight in sea-borne commerce. In cif contracts, it is usually the duty of the seller to secure the bill of lading aswell as insurance policy to cover the goods and generally ensure that the goods confirm to the stipulated contract.
Adavantages
1. Cif contracts, having been used for so long, now act as a standard form of contract, thereby saving time, cost and energy that would have otherwise been required by employing lawyers to draft a carefully planned contractual document.
2. Also, due to the already assured presence of the insurance policy, the buyer can recover his money in the event of any damage or loss at sea.
3. The buyer can also use his contractual documents as security at the bank whilst the seller is also enjoys receiving payment for the goods up front as soon as the documents are accepted by the buyer.
4. Finally, as long as the seller has conformed to the contract, if the buyer refuses to pay, he can also seek legal remedy.
Disadvantages
1. One of the major difficulties associated with cif contracts is that its enforceability is strict. Failure to comply with the slightest of terms in contracts could result in the buyer rejecting the contract and goods. This has been exploited by buyers simply to take advantage of a lower price elsewhere (see
Toepfer v Lenersan-poortman NV [1980] 1 Lloyds Rep 143, CA)
2. The seller is not obligated to ensure that the contractual documents arrive before the goods get to the buyer, thus, creating problems during unloading.
3. A final disadvantage is the fact that the insurance policy taken out by the seller for the goods may not cover certain eventualities that occur in practice, therefore making the buyer to bear the responsibility for unforeseen circumstances.
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