Q192: As a buyer, when do I take ownership of the goods in a CIF contract?

A192: Ownership is an action of law; it is not an action of contract.

What the above phrase means is that a private agreement may express the intentions of the merchants to transfer ownership in a given manner or at a certain point, but this intention cannot contradict a prevailing law.

The challenge in cross-border trade is that the merchants must always contemplate at least two laws, and there is no guarantee that both laws see the transfer of ownership in the same light, or in accord with the merchants’ intentions.

In some legal systems, the act of physically delivering the goods to the buyer is a key factor in transferring ownership. Once the buyer takes physical possession of the goods, ownership may pass to them.

In other examples, possession of the cargo often grants no special rights. Having possession may expose the possessor to risks and obligations, but these will not equate to ownership.

But in most cases the law is not consulted (the parties have no need of legal intervention) and ownership is transferred through a condition or trigger outlined in the sales contract.

In this manner, the contract terms and conditions describe when ownership is transferred (the intentions of the parties). Once the buyer fulfils the conditions specified in the contract (such as payment), ownership passes by consent. It isn’t law, but it serves the needs of commerce.

But, (it is a fine point yet a crucial one when relevant) the party selling the goods must have ownership to on-sell.

For example. If Seller “B” sells to Buyer “C” on the basis of passing ownership on payment, then payment by “C” is fragile if “B” bought the goods from “A” on the same basis, where “B” has not yet paid “A”.

If ownership passes on payment, and “B” has not paid “A”, then “B” does not have ownership to sell to “C”.

The intention to transfer ownership in CIF contracts (in all its many variations) is strongly associated with the symbolic delivery of passing a seafreight bill of lading from the current holder to a new holder.

CIF (or c.i.f.) is the sale of documents not the sale of goods, and a buyer in a CIF arrangement is only entitled to the documents – the cargo is a coincidental issue. In many interpretations, the seller cannot offer cargo to the buyer as a substitute for the documents.

Pressing an ‘ownership’ claim in a CIF / c.i.f. contract may result in validating the legitimate ownership of the documents; notwithstanding that the cargo may no longer exist.

Correctly worded, B/Ls are transferrable documents. This means that a holder of a document may transfer the document to a new holder by endorsement.

However, they are not ‘negotiable’ documents, so a new holder may only have the same rights as the former holder. If the former holder was not entitled to have the document (for example, it was a stolen document) then the new holder cannot be said to have title over the goods. The true owner of the stolen document typically retains superior rights.

(I realise almost everyone calls their bill of lading ‘negotiable’, but things are what they are because of what they do, not because of what we call them. Bills are transferable. The term ‘negotiable’ is being used more as a commercial convention rather than a strict legal classification.)

Therefore, although holding that document may grant the holder a form of implied title to the goods it represents; it does not necessarily grant or evidence absolute ownership of the goods.

It’s important to note that the specific rules and requirements for the transfer of ownership can vary widely depending on the legal system applied, and the circumstance of the matter.

Insolvency laws generally have a paramount influence on ownership. In such extreme cases, what the parties would like to happen becomes irrelevant to what the insolvency law directs.

So: when do you become the owner of the goods?

Ask a lawyer, but let’s hope that it is only ever for academic interest.

In all of this, bear in mind that commercial terms express where risk passes, but merely having the risk in goods does not mean to say that you are the owner of the goods in question.

Although you have not mentioned which system of commercial terms you are using, Incoterms Rules states at point 7 of the Introductory Notes –

“Perhaps most importantly, it must be stressed that the Incoterms Rules do NOT deal with the transfer of property / title / ownership of the goods sold.”

“Most people don’t know that they don’t know.”

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