CHAPTER 19
FOB AND OTHER CONTRACTS
19.1 Definition and classification
‘In an ordinary fob [free on board] contract ... “free on board” does not merely condition the constituent elements in the price but expresses the seller’s obligations additional to the bare bargain of purchase and sale.’ (Wimble v Rosenberg (1913).)
19.1.1 The ‘classic’ fob contract
Devlin J, in the case of Pyrene v Scindia Navigation Co Ltd (1954), said:
The fob contract has become a flexible instrument.
[1]In what counsel called the classic type as described, for example, in
Wimble, Sons & Co Ltd v Rosenberg & Sons, the buyer’s duty is to nominate the ship, and the seller’s to put the goods on board for account of the buyer and to procure a bill of lading in terms usual in the trade. In such a case the seller is directly a party to the contract of carriage at least until he takes out the bill of lading in the buyer’s name. Probably the classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to the berth or at least those of which she is notified. Under present conditions, when space often has to be booked well in advance, the contract of carriage comes into existence at an earlier point of time.
[2]Sometimes the seller is asked to make the necessary arrangements, and the contract may then provide for his taking the bill of lading in his own name and obtaining payment against the transfer, as in a cif contract.
[3]Sometimes the buyer engages his own forwarding agent at the port of loading to book space and to procure the bill of lading; if freight has to be paid in advance this method may be the most convenient. In such a case the seller discharges his duty by putting the goods on board, getting the mate’s receipt and handing it to the forwarding agent to enable him to obtain the bill of lading. The present case belongs to this third type; and it is only in this type, I think, that any doubt can arise about the seller being a party to the contract.
19.1.2 Distinction between fob and cif contracts
Note, in particular: (a) seller’s obligations with regard to delivery and appropriation; (b) cost of transportation and insurance; (c) risk of fluctuation in cost of these items (see the case of The Parchim (1918)).
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19.2 Duties of the seller
The duties of the seller are:
(a)to put the goods on board a ship nominated or designated by the buyer. He may not tender delivery elsewhere; nor does it seem that he can be required to deliver elsewhere even though the alternative method is less expensive;
(b)to bear expenses up to the point of shipment;
(c)to obtain such shipping documents as are required by the terms of the contract. These may require him to obtain a bill of lading, or only some other document, such as a mate’s receipt;
(d)to ship the goods at the appropriate time within the shipment period (if any) specified in the contract. The exact time of shipment within that period is normally at the buyer’s option so that shipment must be made between receipt of shipping instructions and the end of the period. The time may, however, also be at seller’s option. Stipulations as to the time of ‘delivery’ refer to the time of shipment;
(e)to perform the duties imposed by s 32 of the Sale of Goods Act 1979, to the extent that they apply to fob contracts.
19.3 Duties of the buyer
The duties of the buyer are:
(a)to give shipping instructions – that is, to name or designate a ship;
(b)to ensure that these instructions are ‘effective’ (as a matter of law, it is not necessary to make an advance reservation of shipping space);
(c)to give shipping instructions in due time. The time for giving such instructions depends on whether the time of shipment is at the seller’s or buyer’s option and on other provisions in the contract;
(d)to bear expenses after shipment;
(e)to pay the price – usually, on tender of the documents specified on the contract. The time and place for payment are (unless the contract otherwise provides) those of tender of documents.
19.4 Passing of property
(a)On shipment
Property in goods passes when those goods are unconditionally appropriated to the contract – that is, when the last decisive act has been
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performed by the seller. Property in unascertained goods cannot pass before shipment, because, until shipment takes place, there are no particular goods which the seller is bound irrevocably to ship.
(b)Documents
However, even though shipment has taken place, property in the goods will not have passed if the seller has reserved a right of disposal. He may do this:
•when the bill of lading makes the goods deliverable to the order of the seller or his agent;
•when the only shipping document in the seller’s hands is the mate’s receipt made out in the seller’s name, and when the ship will only hand over to the buyer the bill of lading on delivery of that mate’s receipt;
•when the bill of lading makes the goods deliverable to the order of the buyer, but it is agreed that the seller will retain possession of the bill of lading until payment is made.
When the seller retains a right of disposal, property will not normally pass until the conditions of the contract as to payment are met.
19.5 Passing of risk
The general rule is that risk passes from the seller to the buyer on shipment. There are two views on what amounts to shipment:
(a)the traditional view – when the goods cross the ship’s rail;
(b)when the seller’s duty with respect to loading has been performed.
The latter is preferable. If, therefore, the sale were on ‘fob and stowed’ terms, the risk would not pass until the goods were stowed.
Thus, if the goods are destroyed before delivery, the seller must deliver other goods or pay damages for non-delivery. If the goods are destroyed after delivery, the buyer must nevertheless pay the price.
19.6 Remedies of the buyer
The remedies of the buyer are:
(a)Rejection:
•of goods.
A fob buyer may reject goods when they are not in accordance with the contract in a way which amounts to a breach of an important
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term, or if they are not of the agreed quantity. Breach by a seller of a contractual provision as to shipment date is a ground of rejection;
•of documents.
A fob buyer may reject documents which do not comply with the contract.
The right to reject may be lost by waiver or acceptance. A buyer is deemed to have accepted goods if, (1) he has had a reasonable opportunity of examining them to see whether they are in accordance with the contract, or (2) he has done some act inconsistent with the ownership of the seller (such as reselling the goods) provided he has had a reasonable opportunity of examination.
In most fob contracts, the point of examination is the place of destination.
These rights of rejection are cumulative not alternative.
(b)Damages:
• for non-delivery.
The quantum of damages is the difference between the contract price and the market price of the goods at the time when they ought to have been delivered or, if no time was fixed, then at the time of refusal to deliver.
The prima facie rule is that the time of delivery is the time of shipment, and the place is the place of shipment. In the case of an anticipatory breach when no time of delivery has been fixed, the price is the market price at the time the goods ought to have been delivered. Consequential damages – for example, dead freight – are recoverable;
• for defective delivery.
The quantum is the difference between the value of the goods at the time of delivery, and their value had they not been defective.
19.7 Remedies of the seller
The remedies of the seller are:
(a)Termination
The seller can normally rescind:
•where the buyer fails to comply with stipulations as to time of payment which are of the essence of the contract; or
•where the buyer refuses to accept and pay for the goods;
(b)Action for the price
Where property has passed, and the buyer wrongfully refuses to pay in accordance with the contract, the seller can sue for the price. Similarly,
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where property has not passed but the price is payable on a day certain irrespective delivery;
(c)Action for damages
For non-acceptance, the quantum is the difference between the contract price and the market price at the time and place at which the goods ought to have been accepted. If no time was fixed, the relevant time is the time of refusal to accept (subject to the rule relating to anticipatory breach).
Where the goods have been shipped, damages will usually be assessed by reference to the market at the destination. When the goods have not been shipped, the relevant market is at the place of shipment. Consequential damages are recoverable.
The seller has the right of stoppage in transit. If this right is exercised, the seller may resell the goods.
19.8 Other contracts
19.8.1 Introduction
The 1990 edition of Incoterms provides for 11 other standard forms other than fob and cif. Obviously, there is no theoretical limit to the parties’ freedom to devise their own arrangements and, with modern methods, of multimodal transport it is, no doubt, increasingly common either for the seller to take the goods all the way to the buyer or for the buyer to collect the goods and take them all the way home. Nevertheless, the standard provisions are of great practical importance because they enable the parties by shorthand to incorporate many general understandings. It is, perhaps, convenient to list some of the main possibilities in what one might call geographical order starting with the case where the buyer comes to collect.
19.8.2 Ex works
In the case of ex works, the seller’s only responsibility is to make the goods available at his premises for collection. He is not even responsible for loading the goods unless that should be expressly agreed.
19.8.3 For/fot
For/fot means free on rail/free on truck and the terms are synonymous, since the words truck is used to relate to railway wagons. This term is to be used only where the goods are to be carried by rail. A named departure point should be given.
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19.8.4 Fas
Fas means free alongside a ship. A named port of shipment needs to be given. This is similar to a fob contract except that the seller assumes no obligation as to loading so that he has performed the contract when the goods have been placed alongside the ship on the quay or in lighters.
19.8.5 C & f
C & f means cost and freight and with a named port of destination. This is very similar to cif except that the seller assumes no obligation as to insurance. Some importing countries in the third world object to cif contracts and use c & f contracts as a means of supporting their own domestic insurance industry.
19.8.6 Ex ship
Ex ship with a named port of destination means that the seller must make the goods available to the buyer on board the ship at the destination named in the contract, and has to pay all cost and risk involved in bringing the goods there. Obviously, this contract also has a good deal in common with the cif contract and, indeed, some difficult cases have arisen as to where a particular contract is properly classified as a cif or ex ship contract.
19.8.7 Ex quay
Ex quay means that the seller makes the goods available to the buyer on the quay at the named destination and has to bear the full cost and risk involved in getting the goods there. The contract should make it clear whether the contract is ‘duty paid’ or ‘duties on buyer’s account’.
Other expressions which are used in Incoterms are: delivered at frontier; delivered duty paid; fob airport; free carrier (this is similar to fob except that it is seller’s obligation, not to put the goods on board a ship, but to put them safely into the hands of the carrier at the named point – this would be an appropriate form where the carriage was going to be in a container from an inland point or by use of a roll-on-roll-off truck); freight carriage paid to; freight carriage and insurance paid to.
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SUMMARY OF CHAPTER 19
FOB AND OTHER CONTRACTS
The f(ree) o(n) b(oard) form of contract is the second most popular form of international sale contract. This chapter considers the duties of seller and buyer; the rules as to the passing of property and risk and as to the remedies of seller and buyer.
Duties of the seller
The duties of the fob seller are:
(a)to put the goods on board a ship nominated or designated by the buyer;
(b)to bear expenses up to the point of shipment;
(c)to obtain such shipping documents as are required by the terms of the contract;
(d)to ship the goods at the appropriate time within the shipment period specified in the contract;
(e)to perform the duties imposed by s 32 of the Sale of Goods Act 1979.
Duties of the buyer
The duties of the buyer are:
(a)to give effective shipping instructions;
(b)to give shipping instructions in due time;
(c)to bear expenses after shipment;
(d)to pay the price (usually on tender of the documents specified in the contract).
Passing of property and risk
Property in goods passes when those goods are unconditionally appropriated to the contract. It is clear that property in unascertained goods cannot pass before shipment because, until shipment takes place, there are no particular goods which the seller is bound irrecovably to ship.
However, even though shipment has taken place, property in the goods will not have passed if the seller has reserved a right of disposal.
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The general rule is that risk passes from the seller to the buyer on shipment.
Remedies of the buyer
The remedies of the buyer are:
(a)rejection of goods or of documents;
(b)damages for non-delivery or for defective delivery.
Remedies of the seller
The remedies of the seller are:
(a)termination;
(b)action for price;
(c)action for damages.
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