Transportation to New York

On 1st June 2009 Cortez Ltd entered into an agreement to sell 6,000 tons of grain to Farm Supplies Ltd FOB Southampton for transportation to New York. The shipment period was to end on 31st October 2009. Cortez Ltd had other cargoes of grain bound for ports in the United State and offered to arrange the shipment for Cortez Ltd. Cortez Ltd informed Farm Supplies Ltd that the grain would be shipped aboard the “Weatherill Mesa” Which would be ready to load on 17th October. When the cargo was loaded the 6,000 tons of grain for Farm Supplies Ltd and 10,000 tons of grain for other buyers was loaded aboard the “Weatherill Mesa” as part of a bulk consignment. The “Weatherill Mesa” discharged 10,000 tons of grain at two US ports before proceeding to New York. On the way to New York the grain sustained water damage. Farm Supplies Ltd has refused to accept the goods.

Rights And Responsibilities Of The Parties.

First choosing English law as the law governing the contract will be affected by the Sale of Goods Act.

Yangtsze Insurance Association v Lukmanjee [1918] AC 585

“the seller has to cause delivery to be made to the buyer from a ship which has arrived at the port of delivery and has reached a place therein which is usual for the delivery of goods of the kind in question”

The FOB (Free on Board) price is inclusive of Ex-Works price, packing charges, transportation charges upto the place of shipment, Seller also responsible for o clear customs dues, quality inspection charges, weight measurement charges and other export related dues. It is important that the shipment term in the Bill of Lading must carry the wording “Shipped on Board’ it must bear with signature of transporter or carrier or his authorized representative with the date on which goods were “Boarded”.

Buyer: The buyer indicates the ship and pays freight, transfer expenses and risks is done when the goods passes or forwarding to the buyers warehouse by rail or ship.

The property in the goods passes to the buyer. At the time a contract is made, goods are either “specific” or “unascertained”. Section 60(1) defines specific goods as “goods identified and agreed on at the time a contract of sale is made…” Although there is no statutory definition of unascertained goods, ascertained goods may be defined as goods which are identified as the subject matter of the contract after the contract of sale was concluded. Unascertained goods can become ascertained if the seller separates the correct quantity of the goods from other goods of the same kind in his warehouse or by packaging them in readiness for delivery to or collection by the buyers. No property can pass in goods till separation from bulk. In this case, the goods were loaded as a bulk assignment which means that they were unascertained at that time of delivery and this raises the question of when property passes.

Section 17 provides that;

“property passes to the buyer when the parties intend it to pass but only if the goods are specific or have been ascertained.”

Section 16 further provides that;

“Under a contract of sale of unascertained goods, no property is transferred to the buyer until the goods are ascertained”.

One of the ways that the seller can ensure that he gets paid is to retain title in the goods until payment is received. This means, that regardless of anything else, the seller remains the owner of the goods until the buyer pays for them. This is permitted under s.19 of SOGA. However, the seller must be careful when inserting such terms into a contract, as it may change the nature of the contract significantly, meaning that it is not longer FOB .This Term involves insurance with FOB price and ocean freight. The marine insurance is obtained by the buyer at his cost against the risk of loss or damage to the goods during the carriage. property passes when the seller performs his last obligation, that is to load the goods onto the ship.

Property passes when the seller performs his last obligation, which is to load the goods onto the ship. Even though this is the traditional point for the passing of property, property cannot pass if the goods are not ascertained and set aside specifically for this contract. There is a limited exception to this provided for by the Sale of Goods (Amendment) Act 1995 where property in part of an undivided bulk can pass if the parties so agree. Where the property in the goods is to pass at this traditional point, as highlighted by Justice Devlin in the case of Pyrene & Co v Scindia Navigation Co Ltd this can give rise to the somewhat absurd spectacle of the liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting from the ship’s rail.

The case concerned a fire engine that was being loaded aboard a ship under an FOB contract. The fire engine became detached from the crane and fell onto the small boat from which it was being loaded. The fire engine was badly damaged. The court had to decide who owned the fire engine at the time it fell, as they would bear the risk of its loss. As the fire engine had not yet crossed the ship’s rail, the goods were held to be the property of the seller at the time the accident occurred and therefore the buyer was not liable for the price. The seller may wish to retain title in the goods until he has received payment. If that is the case, then property cannot pass on shipment and the goods do not become the property of the buyer. The buyer’s duty to nominate a ship under an fob contract. Under an fob contract, the buyer has a dual obligation to nominate a port and an effective ship and to give the seller sufficient notice of such nomination to enable him (the seller) make the necessary arrangements for the delivery of the goods at the correct place and within the contractual time. The buyer’s duty to nominate a ship is a condition precedent to the seller’s duty to load the goods and in the case of Bunge & Co. v. Tradax England, the court held that the vessel must be nominated with sufficient time to allow the seller to load the goods. In other words, it is the buyer’s duty to nominate the ship which would be used in the transport of the goods. However, this contract can be described as an extended fob as distinguished by Delvin J. This type of fob contract where the seller makes arrangement for the shipping of the goods was approved by the Court of Appeal in The Amria and The El Minia, where Devlin J’s classification of an fob contract into three classes namely; the strict fob, the classic fob, the extended fob, was approved. It was therefore right for the seller to make the shipping arrangements.

The FOB Contract

Under the free on board contract ‘fob’ the seller Cortez Ltd contributes to the transportation in so far as he has to load the goods ‘grain’ on a ship nominated by the buyer Farm Supplies Ltd at the agreed port. The purchase price includes all costs incurred up to this point. Once the grain is loaded, the property passes to the buyer and the goods are at his risk and expense. He then is responsible for all further arrangements and charges.

Insurance Costs

It is the buyer’s responsibility to insure the goods, although generally, there is no obligation on him to do so. The risk passes to the buyer once the goods cross the ship’s rail, so if he wishes to take the risk that they might be lost or damaged en route with no compensation then that is his choice. Sometimes however, it may be customary in a particular trade that insurance is arranged and the policy held by the seller as security until the price is paid e.g. London Rice Brokers. That way, if the buyer fails to pay and the goods are lost, the seller can at least claim on the insurance. Alternatively, it may be that the buyer has already sold the goods on to other people who require them to be insured, and then there is a duty to do so.

To insure the goods the buyer must have all the necessary information provided to him that is in the seller’s control e.g. details of cargo, port of shipment and shipping (if the seller is arranging that on the buyer’s behalf). If the seller fails to provide such information then s,32(3) SOGA provides that the goods remain at the seller’s risk. One case in which this occurred was Wimble Sons & Rosenberg. It is not often that this section will apply to FOB contracts though, as the buyer is generally the party that will arrange shipment. When arranging insurance the buyer will generally arrange insurance cover to take into account not only the cost of the goods but also freight charges, the insurance premium and the profit margin that he was hoping to recover.

Nomination Of The Ship And Loading.

The buyer’s duty to nominate a ship under the FOB contract, the buyer has a dual obligation to nominate a port and an effective ship and to give the seller sufficient notice of such nomination to enable him (the seller) make the necessary arrangements for the delivery of the goods at the correct place and within the contractual time. The buyer’s duty to nominate a ship is a condition precedent to the seller’s duty to load the goods and in the case of Bunge & Co. v. Tradax England, the court held that the vessel must be nominated with sufficient time to allow the seller to load the goods. In other words, it is the buyer’s duty to nominate the ship which would be used in the transport of the goods. However, this contract can be described as an extended fob as distinguished by Delvin J. This type of fob contract where the seller makes arrangement for the shipping of the goods was approved by the Court of Appeal in The Amria and The El Minia, where Devlin J’s classification of an fob contract into three classes namely; the strict fob, the classic fob, the extended fob, was approved. It was therefore right for the seller to make the shipping arrangements.

In conclusion, according to the previous facts, cases references and the Sale of Goods Act 1979 we find that Even if property didn’t pass on shipment because the goods were part of a bulk cargo or because the seller retained title in them, risk will still pass. See Stock v Inglis (1885) 10 App.Cas. 263 In this case, a bulk cargo of sugar was sold under a contract FOB (Hamburg). In an FOB contract the name of the place in brackets is the name of the port the goods are sailing from. The contract goods were unascertained because they were part of a bulk cargo and had not yet been separated from the main bulk. Because they were unascertained, property in the goods could not pass. The cargo was lost and the question for the courts to decide was who should bear the loss of the goods. Each of the buyers, who had paid the price for their contract goods, tried to claim under the insurance policy. The insurance company refused to pay them and this court action was to decide the question of whether they were obliged to pay the buyers. The insurance companies defence to the action was based on the fact that as property had not passed risk could not pass either. However, the court did not agree with the insurers and said that even though property remained with the seller, risk had passed on shipment and the buyers could claim their losses from the insurance company.

2) Letter Of Credit ”The Rights And Responsibilities Of The Parties

The documentary letter of credit is only one form of payment it is a secure method where the two parties do not know each other very well or there is a risk that one party may not perform their contractual obligations. This case question deals with documentary letters of credit and bills of lading as applicable under English Law.

A bill of lading is a document prepared by a consignor by which a carrier acknowledges the receipt of goods and which serves as a document of title to the goods consigned. The parties could always agree that the buyer will pay the seller directly for the goods in other words transfer money directly to the seller. This could be by telegraphic transfer between the buyer’s and seller’s bank or it could be a cheque sent through the mail. There is no security for either party with this form of payment it relies on the goodwill of the parties to complete their obligations. There is no real difference between this and a cash transaction. Another method of payment is the documentary letter of credit although there are other kinds of letter of credit agreement, the documentary letter of credit is the one most often used in international trade transactions. The objective of this system is to reach a compromise between the buyer who does not want to pay before knowing he will receive the goods and the seller who does not want to send the goods before he knows he will be paid for them.

The documentary letter of credit is an assurance from a banker that the seller will be paid once specific documents have been presented. The documentary letter of credit is an assurance from a banker that the seller will be paid once specific documents have been presented.

The starting point for the documentary letter of credit transaction has to be the contract between the buyer and the seller. The seller can only ask for payment to be made in this way if it is stated in the contract. Once it has been stated in the contract of sale, the seller can bring the contract to an end if the buyer fails to open the documentary letter of credit. The buyer instructs his own bank (the issuing bank) to issue a letter of credit in the seller’s favour – although the buyer does not have to be a customer of the bank, he may simply have asked for credit facilities or give the bank the funds to pay the seller at the appropriate time. The issuing bank then opens a letter of credit in favour of the seller at a bank in the seller’s country. This guarantees payment to the seller upon shipment and presentation of conforming documents. The confirming/advising bank then notifies the seller that the letter of credit has been opened and upon what terms. It is preferable for a confirming bank to be used as the seller receives a promise of payment from both the issuing and the confirming bank. Therefore, if the bank fails to pay as agreed, the seller is dealing with a bank in his own country and may take proceedings there. If an advising bank is used, this bank merely advises the seller that the credit has been opened in this favour, but doesn’t promise to pay the seller under the credit. The drawback of using an advising bank is that if the issuing bank fails to pay, any proceedings taken would have to be taken in the foreign country where the issuing bank is located.In Hamzeh Malas v British Imex, it was held that the bank is only concerned with the sufficiency of the documents. In other words, if the documents tendered by the seller are correct, then the bank will make payment in accordance with the promise it has given in communicating the credit to the beneficiary and was stated with approval in some recent decisions. The banks are only concerned with ensuring that the terms of their mandate and confirmation are complied with. A mere visual inspection of the documents will be conducted to determine that the correct documents are being tendered and the bank is under no duty, to check their authenticity. If the documents are correct and the bank prevaricates in making payment against them, it may find itself liable in damages to the seller as was held in Ozalid Group (Export) Ltd v African continental Bank, However, where there seems to be discrepancies in the document, the bank is entitled to consult the buyer who may decide to waive such discrepancy and accept the document. In this case, the issuing bank consulted the buyer upon receipt and examination of the bill of lading and the buyer decided to revoke the documentary letter of credit or withhold payment, which the bank is entitled to do.

Each of the relationships between the buyer and IB ,the IB and CB,CB and Seller , Seller and buyer are autonomous contracts. They are each independent of the original contract and each other. If there is a breach of contract, the seller has no right (for example) to sue the issuing bank. Only the confirming bank can sue the issuing bank. Any legal proceedings must be taken through the contractual chain.

In conclusion, According to the question the parties agreed on a shipment period of November, 2009 but the bill of lading stated that the loading date was the 1st December, 2009 which meant that the goods were shipped later than the shipment period. This date was however deleted and a new date of 29th November, 2009 was inserted, the implication of that being that the bill of lading was not in conformity with the terms of the contract. In Moralice (London) Ltd v E.D & F Man, McNair J. held that documents evidencing a short shipment of 0.06 percent could be rejected as not complying with the terms of the credit. In this case, the date of shipment as stated in the bill of lading is not in conformity with the contractual shipment date and this entitles the issuing bank to reject the documents and withhold payment. The buyer’s decision to withhold payment, having regards to the fact that the confirming bank has already made payment to the seller. In this case, the seller tendered the corresponding documents to the confirming bank whom upon examination, made payment. The confirming bank is entitled to five days following the receipt of the documents, to examine same and determine whether to take them up or reject them without regards to the sufficiency of performance under the contract of sale. In discharging their responsibility, the bank must comply strictly with the instruction. The confirming bank should have rejected the documents and refused to pay or notified the buyer through the issuing bank, of the discrepancy in the document and subsequently obtained his permission to pay.

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