In a destination contract, the risk of loss is with the carrier until the product reaches a specified destination.3 min read updated on February 01, 2023
In a destination contract, the risk of loss is with the carrier until the product reaches a specified destination. When the shipment reaches its destination, it then transfers to the seller and is transferred to the buyer when it reaches the buyer's destination. There are rules and terms when shipping via a destination contract that you should review.
Destination Contract: Introduction
Freight contracts are contracts between the carrier and either a buyer or a seller. When shipping freight, you need to note the freight terms because it tells you the delivery agreement. You can either enter in a shipment contract or a destination contract.
- With a destination contract, the risk of loss transfers from the carrier to the seller when the goods reach their destination. The seller is responsible for the goods until they reach the buyer's destination. However, if anything happens to the shipment once it's delivered, the buyer is responsible for any costs.
- With a shipment contract, on the other hand, the seller is not responsible for the goods once he gives it to the carrier for delivery. Hence, if the shipment is damaged before it gets to the seller, the carrier, and not the seller, is responsible.
Destination Contract: Terms Used
There are terms including the following that indicates the agreement is a destination contract.
- FOB (Free on Board) clause indicates a destination contract.
- EX SHIP stands for “from the carrying vessel” and implies the seller is obligated to pay for the freight and unload the goods when it reaches the destination.
- NO ARRIVAL, NO SALE clause denotes the seller is liable for the goods unless the goods are damaged due to the seller's negligence.
- A BREACH clause means the buyer "rightfully revoked acceptance" and that the goods' title transfers from the buyer to the seller until the seller resolves the breach.
- PROPER, TIMELY, AND RIGHTFUL REVOCATION clause requires the buyer to properly notify the seller of the breach. If the seller does not inform the seller, then he must pay per invoice terms.
- FOB DESTINATION OR FOB BUYER'S WAREHOUSE clause, the seller is responsible for shipping cost and is responsible for transporting the goods to a stated location.
- The term FACTORY DEFECTS indicate the buyer found factory or manufacturing defects with the goods. Title reverts to the seller only after the buyer properly notifies the seller.
- A “timely” notification usually implies the buyer has 14 days of receipt to arrange shipment back to the carrier.
- The “invitation” to pick up the defective goods must come from the person who has the goods.
- REFUSING DELIVERY is a way for the buyer to revoke acceptance.
- NOTATION ON THE BILL OF LADING happens when the delivery records contain damage notations. In this case, the buyer must still formally revoke acceptance.
- CONCEALED DAMAGE is when the buyer opens the package after delivery and discovers “concealed freight damage.” The buyer still must file a claim with both the carrier and the seller. The carrier is responsible for investigating and remediating the issues with the seller or career.
Destination Contract: Determining Which Party Bears Risks of Loss for Shipments
If the seller delivers the goods to a common carrier for shipment and the goods are either lost or damaged in the carrier's position and the contract authorizes the carrier to ship the goods to the buyer via the seller then the risk of loss depends on whether the contract requires the carrier to deliver to a specified destination.
Destination Contract UCC Rules
Performance of a contract simply means to do the work required as stated on the contract. UCC laws call for “perfect tender” by the seller, meaning he must meet the precise terms stated in the contract. According to the UCC, if the seller fails in any aspect, then the buyer's options include rejecting the goods.
Learn the rules of destination contracts before shipping. Liability transfers at different points in the shipment process. However, most freight contracts are shipment contracts, and thus the carrier, not the seller, bears the risk. Contact your lawyer if you need help determining what type of freight contract you should use to deliver goods.
If you need help with reviewing a freight contract, you can post your legal on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
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FAQs
A destination contract is an agreement between two parties — a buyer and a seller. The seller promises to deliver specified goods to the buyer's destination. The seller is, therefore, liable for the goods until they reach that destination — taking responsibility for risks and costs during transit.
What is a destination contract? ›
Under a destination contract, the seller promises to deliver specified goods to the buyer's destination. The seller must confirm that the purchased goods get to the buyer's destination. The destination contract can be used for the transactions which are overseen by the Uniform Commercial Code.
Who pays for shipping in a destination contract? ›
The seller pays for carriage to the named destination. Risk transfers to the buyer when the goods have been handed over to the carrier. The seller pays for the cost and freight to bring the goods to the destination port. The risk transfers to the buyer once the goods are on the ship.
What does the term FOB mean in a destination contract? ›
FOB DEFINITION | SHIPPING TERMS OF SALE. FOB, Free On Board, is a transportation term that indicates that the price for goods includes delivery at the Seller's expense to a specified point and no further.
Is a destination contract relieves the seller from liability when delivered to the carrier for shipment? ›
The risk of loss is on the seller until they satisfy their delivery obligations under the destination contract. If the goods are destroyed or damaged while in delivery, the seller risks loss. After a common carrier has delivered the goods at the buyer's destination, the seller is no longer liable.
What are the two duties of the seller with a destination contract? ›
If it is a destination contract, the seller has two duties: to get the goods to the destination at the buyer's disposal and to provide appropriate documents of delivery.
What is the difference between FOB and destination? ›
In a FOB shipping point contract, the seller transfers any title of ownership to the buyer upon the product leaving the seller's location. The buyer then has full ownership. In a FOB destination sale contract, the buyer may not receive the title of ownership until the product reaches the buyer's location.
What is the difference between DES and FOB? ›
Contracts for the purchase or sale of LNG have delivery terms typically specified either as 'Delivery ex ship' (DES) or 'Free on board' (FOB). In case of DES delivery terms, the seller is responsible for the LNG until it is delivered to a specified port. After delivery, all obligations shift to the buyer.
What is the primary difference between a shipment and destination contract? ›
Types of Shipping Contracts
The primary difference between Shipment and Destination contracts is which party holds the risk of loss prior to risk transfer to the buyer, and when that final transfer occurs. In the case of loss, these terms dictate the party responsible for accrued costs.
What is the difference between CPT and FOB? ›
CPT (Carriage Paid To): The seller's risk ends when the goods are handed over to the first carrier. From that point, the buyer bears all risks and costs associated with the goods during transit. FOB (Free on Board): The seller's risk ends once the goods are loaded aboard the carrier's vessel.
FOB shipping point is usually paid for by the buyer, while FOB destination is usually paid for by the seller.
What does CNF mean? ›
CNF stands for Cost and Freight. This means the supplier of goods is responsible for the freight-related charges. The buyer of the products is responsible for organising and paying the insurance on the goods. CNF is also known as C&F and CFR. All terms have the same meaning.
What does CIF mean in shipping? ›
Cost, insurance, and freight (CIF) is an international shipping agreement used when freight is shipped via sea or waterway. Under CIF, the seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit.
What is an example of a destination contract? ›
For example, if a company in New York purchases a shipment of goods from a supplier in California under a destination contract, the supplier is responsible for delivering the goods to the buyer's location in New York.
What are the obligations of the seller under a shipment contract? ›
In a shipment contract, the seller has four duties: (1) to deliver the goods to a carrier; (2) to deliver the goods with a reasonable contract for their transportation; (3) to deliver them with proper documentation for the buyer; and (4) to promptly notify the buyer of the shipment (UCC, Section 2-504).
When the customer pays for the freight of the shipment at the shipping destination? ›
FOB Destination, Freight Collect: The receiver of goods (the buyer) pays the freight charges upon delivery of the goods. The buyer does not take ownership or liability for the goods until the cargo gets to the buyer's premises.
What is a destination charge for? ›
A destination charge, often called a freight fee or freight delivery charge, is fixed and ensures that new car buyers pay equally to cover the cost of delivering a vehicle to a dealership. Manufacturers typically set a car's destination charge on a model year basis.
What does it mean when a job is a destination? ›
Now let's talk about a destination workplace: a company or business which is a truly desirable place to work. It's a place where people want to work there above most other companies because the employee experience is unique and exceptional.
What does destination mean in shipping terms? ›
FOB (Freight on Board) Destination is a shipping term which means that the seller retains the legal title to the goods until they reach the location of the buyer. In this case, the seller pays for the transportation of the freight and takes care of additional freight charges until the goods reach the buyer.
