Opinion on International Sale of Goods
Sale of goods in international commerce is relatively complex. The Parties in the sale need to exercise due diligence to protect their rights under the relevant contracts. Notably, the exporter must be sure that the importer will pay for the shipment. The buyer also must be sure that the seller will deliver merchantable goods of the required conditions under the contracts. It follows; the parties to the contact secure their rights using terms in the contracts.
First, in my opinion, the parties need to enter a Carriage Insurance and Freight Contract (“CIF”) under the negotiations. Under this agreement, the exporter takes care of all costs and expenses involved in shipping the goods to the buyer. CIF contracts must have the invoice; bill of lading; and the policy of insurance. The seller makes the invoice following the seller’s usual commercial common practice. The bill of lading is the evidence that there is a contract with respect to the carriage of the goods. Lastly, the policy of insurance secures the risk of any loss or damage to the goods. Notably, the insurance policy covers the market value of the goods when the seller entered the contract with the buyer. The supplier’s delivery of the goods must comply to all the conditions in the documents. In Arnold Karberg & Co. v Blythe, Green Jourdain & Co., the goods were delivered at a different destination than was agreed under the contract. Consequently, the buyer refused to accept the goods. The court stated that a CIF contract is an agreement that the seller supplies the goods according to the provisions of the contract of sale. Therefore, according to Court of Appeal in Arnold, it can be concluded that a CIF contract is a contract for the sale of goods based on the terms of the documents that represent the shipment. A sale under a CIF contract is not a documentary sale per se. However, it can be said that CIF contracts, just like in documentary sale, provide for payment of the goods upon a tender of documents.
The parties should also negotiate on the terms of a Letter of Credit to Finance the shipment. A letter of credit, also known as “documentary credit”, is a guarantee from the buyer’s bank that the bank will pay the seller the amount in the seller’s invoice and that the said payment will be made on time. To ensure that he would receive the goods in good condition, the importer should provide a term in the Letter of Credit that describes the conditions that have to be met by the cargo. It is worth noting that for payment of the shipping, the buyer is bound by the terms of the Letter of Credit, independent of any contract of sale.
The buyer should also enter a Revolving Line of Credit Agreement with the issuing bank. The major importance of this agreement is that it ensures a readily available credit for any of the buyer’s transactions. There are several terms the agreement should contain. The parties should ensure they settle on terms that will enable the buyer get access to funding without any difficulty.
The buyer and the seller also need to ensure they have secured the shipment with an insurance policy. It follows; insurance policies are contained in CIFs, as already mentioned above. Insurance policies come in handy where the goods are spoilt or damaged in transit. In Willits & Patterson v. Abekobei & Co, the Court declined to enforce a clause in a contract that required the seller to deliver the goods in a specific weight. According to the court, such clauses would make the sellers bear unnecessary risks which should be borne by the buyer. It follows; the only obligation of the seller as to the risk of the goods is to ensure that he takes an insurance policy over the goods and certifies that the goods are of good and merchantable quality.
Accordingly, a buyer who chooses to trade via a CIF is at an advantage. Besides, the Letter of Credit would help the buyer obtain financing for the shipping. In this case, the buyer in Charlotte should have obtained the said documents and terms to secure his goods. Notably, the sellers are under an obligation to adhere to the terms of a contract of sale. It follows; under a CIF, the Seller is obligated to obtain an insurance policy for the goods. This policy would take care of the goods in the event of any unforeseen circumstance. In the instant case for example, neither of the parties contemplated that the goods would be damaged in transit.
In conclusion, the buyer and the seller must ensure they opt for a CIF where the insurance policy would guarantee that the buyer will be compensated in the event of a loss or damage to the goods on voyage. Also, the buyer should obtain funding through a letter of credit. Preferably, the buyer should settle for a revolving line of credit to ensure ready and accessible financing for the buyer at any time.
REFERENCE
Arnold Karberg & Co. v Blythe, Green Jourdain & Co., [1915] 2 K B 379: 85 L.J.K.B. 665.
Congimex Companhia etc SARL v. Tradax Export SA [1983] 1 Lloyd’s Rep. 250
Sztejn v J Henry Schroder Banking Corporation (1941) 31 NYS 2d 631.
Uniform Customs and Practice for Documentary Credits, 600, Article 4(a).
Van Houtte. The Law of International Trade. (1995) 259.
Willits & Patterson v. Abekobei & Co I97 App Div 528.
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