Transfer of risk in sale of goods on shipment terms

Abstract: A seller f.o.b. performs his obligation by putting the goods which conform with the contract onboard the ship at his expense. The general rule in f.o.b. contracts is that risk passes on shipment and according to the traditional view, this is made when the goods cross the ship's rail. The seller in c.i.f. contract performs his obligation by tender the proper documents i.e. a bill of lading, a policy of insurance and an invoice to the buyer. The buyer is bound to pay the price even if the goods fail to reach him. Therefore, it can be stated that a c.i.f. contract is a sale of documents (related to goods) rather than sale of goods itself. The general rule in c.i.f. contracts is that the risk generally passes on or as from shipment. However, it will only pass if the seller has performed his physical duty to ship goods or to procure goods shipped which conform to the specifications set out in the contract of sale and which comply with the seller's duties implied by the SOGA- 79 regarding satisfactory quality and conformity with description and sample. In other words, the buyer takes the risk of loss or damage to the goods even in the case where the damage occurred prior the conclusion of the contract between the seller and the buyer. It must be recalled that the retrospective passage of risk to the buyer does not mean that he is left without any remedy. It means simply that the seller has performed his duty of physical delivery and that the buyer must look elsewhere for a remedy if the goods do not arrive at the agreed destination or if they arrive in a damaged state. However, there may be exceptional cases where the risk will remain by the seller. This is where he fails to make a reasonable contract of carriage or fails to give the buyer notice as may enable him to insure the goods during transit. If the goods are lost or damaged before the contract is concluded, the preferred view to be taken is that the buyer is obliged to pay for the goods on the ground that risk passes to the buyer as from shipment. A more difficult situation is where the parties have entered into the contract and the goods are lost before or possible after they have been appropriated. A c.i.f. buyer is clearly bound to pay where the goods are sold, appropriated and then lost. The position is however less clear when the goods are lost before the seller has appropriated the goods to the contract. In this situation, the rules in shipment terms appear to put the risk of transit loss to the buyer. The justification for this view stated is that there is no good reason to distinguish between goods damaged and goods lost. It will also strike at the principle of retrospective risk allocation. However, it can be argued that if the seller knows about the transit loss and makes the contract with the intention of appropriating the lost cargo thereto, in this case, it can been seen as a fraudulent misrepresentation on the fact that the seller will benefit of the loss at the expense of the buyer.