CASE 7.

1
1. Case summary
- Seller: a German scientific equipment manufacturing firm Tola.
- Buyer: an American company, BAT Inc., of Calumet City, Illinois.
- Buyer’s insurance company: St. Guardian Insurance.
- Product: a mobile MRI machine.
- The product is in good working condition before shipment. But
when it reached its final destination, the product was found
damaged and needed extensive repair.
The buyer and its insurance believe that the machine was damaged in
transit. The buyer’s insurance company paid a total of $350,000 for the
damage. Then, they desire to recover their losses from the seller Tola. The
seller argued that they were not responsible for the loss due to the CIF
term. However, BAT and St. Guardian maintained that the Incoterm was
unavailable since it was not included in the contract.
2. Case analysis
Tola’s Claim: It is the buyer’s responsibility because the goods were
shipped under CIF (New York) terms.
The Guardian Insurance Claim: Incoterms were inapplicable since they
were not specifically incorporated into the contract.
According to these claims, there are two possibilities from the case:
● CIF is mentioned in the contract: The transfer of risk is activated
when the goods are on board the vessel, according to Incoterms CIF
2010, and Tola is only required to pay for transportation insurance.
As a result, BAT Inc., via its insurance company St. Guardian, bears
the responsibility for reclaiming the loss, and Tola is under no
obligation to pay for the damage cost.
● CIF is not mentioned in the contract: If the Incoterm is not
mentioned in the contract of sale, the responsibility of paying for
the damage will be based on the “retention of title” clause. That
means the title is transferred after the seller gets money and the
buyer successfully gets the items. The case does not mention the
 completion of payment between seller and buyer, implying that legal
title remains with the seller.
As a result, Tola has to pay the cost for the damage of the machine.
3. Suggest solution

CIF is mentioned in the contract:

● If the contract contained CIF terms, then BAT Inc. and St. Guardian
Insurance were wrong when demanding the seller Tola to cover the
loss. As the goods were truly carried on the vessel's board and
turned damaged during the main carriage, it fitted with the CIF term
and thus, the buyer's insurance company must take responsibility
for the damage and pay $350,000.

● Moreover, the argument that the seller’s explicit retention of title

modified the risk of loss is totally wrong because the Incoterms do
not cover the transfer of title scope, it belongs to payment terms.

The insurance company is in the business of insurance - providing

compensation in the event of a loss that is caused primarily due to an
accident.
Therefore, as an insurance company, it has no right to make a recovery from
its counterpart to its policyholder.
Secondly, after the purchase of the MRI machine, the product is under the
jurisdiction of the buyer (BAT) and that the seller has no right over the
product. The seller has couriered the product on behalf of the buyer after
confirmation that the product was in its rightful state at the time of
shipment.
This does not mean, the seller owns the responsibility of the product being
delivered in the rightful condition. It is the buyer's responsibility to ensure
this and it is the buyer that is expected to bear the loss related to any
damage that the product may go through in the course of transit.
CIF is not mentioned in the contract:
 ● If the contract did not include CIF term, BAT and St. Guardian
insurance were right in requiring the seller to cover the loss.
Because the contract of sale now relied entirely on the retention of
the title clause, ownership remained with the seller because the
payment was not made, and thus the seller must pay for the damage.
● In addition, if the CIF term was not mentioned in the contract, the
buyer bears no risk of loss of or damage to the goods from the time
the goods pass the ship's rail at the port of shipment and pays all
costs relating to the goods from the time they have been delivered
in the contract.

CASE 7.2
1. Summary:
- Seller: International Commodities Export Corporation (ICEC).
- Product: 230 tons of Chinese white beans.
- Buyer: North Pacific Lumber company (NPL).
- Incoterm: C&F.
- Path: from the port of Hong Kong to Portland, Oregon.
At the port of Hong Kong: the bean had been confirmed as conformed
with the sample pc-16.
At Portland, Oregon: The U.S. Food and Drug Administration (FDA)
detained the shipment because of containing filth goods that were unfit
for human consumption.
Finally, the buyer rejected the shipments for failure to conform to the
contract.
2. Analyze and answer the questions:
Question 1: The transfer of title is not specified by the use of the
Incoterms but should be included in the body of the contract and
commercial invoice. In this case, we do not have the exact information
about this statement, so we cannot conclude when the title will/was
passed from seller to buyer.
Question 2: According to Incoterm 2010 about C&F (Cost & Freight) terms
the seller takes responsibility for the goods until they are delivered on
board the vessel. From that time, all the risks and responsibility belong to
the buyer. Therefore, in this case, after thirteen containers of beans were
loaded onboard two vessels at Hong Kong port by the seller the risks had
been transferred to the buyer.