MBE Rules · Contracts
Shipment vs. Destination Contracts
UCC — FOB/shipment vs. destination
The rule
FOB seller's city creates a shipment contract (risk passes on delivery to carrier); FOB buyer's city creates a destination contract (risk passes on tender at destination); shipment is the default.
In plain English
In contracts, a shipment contract means that the seller is responsible for delivering goods to a carrier, and the risk of loss passes to the buyer once the goods are handed over to that carrier. Conversely, a destination contract means that the seller retains the risk of loss until the goods reach the buyer's specified location.
Worked example
A seller in New York ships a package to a buyer in California under an FOB seller's city term. Once the seller delivers the package to the carrier, the risk of loss transfers to the buyer. If the package is damaged during transit, the buyer bears the loss.
Memory hook
FOB seller's city = shipment contract; FOB buyer's city = destination contract.
The trap
Students often confuse shipment and destination contracts, especially when the terms are similar or when they overlook the FOB designation in the question. This can lead to incorrect assumptions about risk transfer.
How examiners test it
Questions typically present a scenario involving the shipment of goods with specific FOB terms, testing the candidate's understanding of when risk of loss transfers between the parties.
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