SALES CONTRACT

Passing of Risk and Passing of Property under a FOB Contract and a CIF Contract

Passing of Risk and Passing of Property under a Fob Contract and a CIF Contract

Introduction

This paper intends to assess the rules relating to the passing of risk and passing of property under FOB contract and CIF contract. Further, it explores the various issues and difficulties associated with both FOB contract and CIF contract. Moreover, the paper also examines the Sale of goods act 1979.

Passing of risk

One of the key legal concepts that is involved in an agreement for the sale of hardware is passing of risk. Unless otherwise provided in the contract of sale, the risk of accidental loss or accidental damage to the goods passes to the buyer from the moment when, in accordance with the law or the contract seller is deemed to have fulfilled its obligation to transfer goods to the buyer (Sassoon, 1995).

FOB

A trade term in which the seller's quoted price includes the cost of loading goods into transport at a named point. If goods are shipped FOB shipping point, title passes to the buyer at the shipping point and must be included in the inventory of the buyer and excluded from the seller's. FOB destination means that title to the goods does not pass until it reaches its destination. In this case, title remains with seller until the goods arrive at their destination and therefore are excluded from the seller's inventory until then (Feltham, 2001).

CIF

'Cost insurance freight' is a term applying to an export contract that stipulates that the goods are at the seller's risk until they reach the dock at the destination port. The documents that give title to the goods are sent to the purchaser, who pays the purchase price on receipt of the documents. If the goods subsequently do not arrive or are damaged, the purchaser may claim on the insurance. This is in contrast to the position where the goods are at the seller's risk until they are loaded onto the ship - free on board (FOB) (Feltham, 2001).

Discussion

Rules relating to passing of risk

Under a FOB contract

Under the FOB contract, risk passes on shipment. When the seller delivered the goods on a ship's rail, he will not be responsible of any damages or loses after that. It is presumed that property in goods passed at he same time. However, the passing of property has been delayed as a result of the failure of the parties; this will not affect the passing of risk (Feltham, 2001).

Under a CIF contract

Under the CIF contract, risk passes on shipment to the buyer while property in them passed, or as from shipment. This rule indicates two different methods of passing of risk under the CIF contract. Firstly, when seller completes the contractual responsibility under the terms of CIF and delivers the goods on board the craft, and then risk is passed to the buyer when the shipment is ...