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Another equally important argument stems from the analysis of contractual obligation of CIF contracts. They are contracts for sale and purchase of goods, and which may be performed by first placing the goods on board ship, and secondly by transferring to the buyer the shipping documents.20 As we have seen, both goods and documents have their own value: delivery of goods and documents are two aspects of the seller’s obligation. The emphasis on documents is simply part of the terms of the contact and the manner of its performance rather than its essence. It would be unacceptable to allow tender of documents to replace the delivery of goods and it would also appear unreasonable for a businessman involved in such contracts to expect that he is buying mere papers not goods.
Finally, to look more deeply into the documents themselves, when we say “sale of documents”, do we really mean the sale of an actual insurance policy, a cargo invoice or other certificates? The answer is obviously no. How about the bill of lading? While there has been much debate over its legal character, it is clear that the bill of lading is not the certificates evidencing the ownership of the cargo that can be used to defend the claims of the third party.21 That is to say, if the carrier sold the cargo to any other than the processor of the bill of lading, this bill processor can not claim ownership against the buyer but instead sue the carrier of breaching or get compensation through insurance policy. It is transferable, because it is conventional that it be made “to order”, and entitle the consignor to transfer the rights represented by it. It is also easy to be misled by the process that the seller tender the documents then claim payment from the buyer, but we should keep in mind that the payment is for the goods not for the documents.
3. It is the goods that really count in a CIF contract; tender of the documents cannot exempt the seller’s liability of tender the goods.
It has been established as a rule in Hindley & Co v East India Produce Co Ltd22 that goods must exist in the first place and must have been shipped before tender of documents relating to them. This is in fact supported by the many other cases, such as Johnson v Taylor Brothers Co Ltd23. Perhaps, those who regard CIF as sale of documents will argue that its contractual obligation is delivery of documents which can give the buyer the right of action to cover his compensation, but this premise is just an assumption, for the right of action against a third party is immaterial with the obligation the seller, otherwise why cannot we say that the buyer buys the right of action other than the documents. In other words, if no goods have been shipped but the seller nevertheless tenders documents good on their face, he is in breach even though those documents could have given the buyer a right of action against the carrier or some others.
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