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 What Is A Contract?

A contract is an agreement between two private parties that creates mutual legal obligations for those parties. While a contract can be either oral or written, oral contracts are more challenging to enforce and should be avoided whenever possible.

Furthermore, some contracts must be written in order to be valid, such as contracts that involve a significant amount of money over $500. Regardless of the contract’s content, all valid contracts must include the following elements in order to be enforced:

  • An offer;
  • An acceptance of the offer presented;
  • A promise to perform;
  • A valuable consideration;
  • A time or an event of when the performance must be made;
  • Terms and conditions for the performance; and
  • Performance.

Courts will not enforce certain contracts unless they are in writing, because these contracts fall under the Statute of Frauds, which dictates that they must be in writing. These contracts include:

  • Marriage contracts;
  • Contracts not to be performed within one year;
  • Interest in land contracts;
  • Paying the decedent’s debt guarantees; and
  • The sale of goods contracts over a specific amount, as was previously mentioned.

The contract must have a legal purpose, and cannot be used for illegal purposes. An example of this would be contracting to commit a crime, such as hiring a hitman. Second, there must be a mutual agreement between the parties, which is also known as “the meeting of the minds.” An example of this would be signing a contract that shows that there is a mutual agreement among the parties.

It is important to note that some offers may not have an expiration period, in which case the offer remains open for a “reasonable” amount of time. Additionally, offers can be revoked until the acceptance occurs. Acceptance generally means agreeing to the terms of the offer, and if there is any change to the terms in the acceptance, it would be considered a counteroffer.

Third, consideration is key in order for the contract to be valid, which is when both parties agree to provide something of value in exchange for a benefit. Consideration can be nearly anything, but it must be something of actual value. Additionally, there is a distinct difference between gifts and promises. An example of this would be how if someone gifted you an item, it is not considered to be a contract. However, a contract exists when the item is being exchanged for completing a task promised to you.

Fourth, all parties must be legally competent, meaning that minors and the mentally impaired cannot validly contract. Additionally, the party must be of a sound mind while contracting, which means without the influence of drugs or alcohol. Finally, all parties must come to an agreement based on their own will. Contracts will be void if there is a mistake, duress, or fraud by one or more parties.

What Is A Shipment Contract?

A shipment contract is associated with the sale of goods, defined as transfering a tangible item for a price, and other commercial transactions that are subject to the Uniform Commercial Code (“UCC”). Entered into by a buyer and seller, the shipment contract states the buyer’s risk for any loss or damages that result during the shipment of goods.

Shipment contracts also establish the seller’s liability, up to the moment when the goods are delivered to a common carrier or port of shipment, which is when liability is either transferred to the carrier or back to the buyer.

The UCC is a codified set of laws and rules intended to achieve uniformity among the states in terms of commercial transactions. The UCC governs commercial and business transactions involving:

  • Sales;
  • Leases;
  • Funds transfers;
  • Documents of title;
  • Secured transactions; and
  • Investment securities, among other commercial transactions.

It is important to note that while the UCC addresses the transfer or sale of personal property, it does not regulate transactions associated with real property. The UCC does require some sales of goods to be in writing, in order to be legally enforceable. Shipment contracts discuss the risks of both the buyer and the seller. Additionally, the shipment should include all aspects of good contract requirements concerning the sale of goods, including but not limited to price, payment, quantity, and delivery.

Is A Shipment Contract Any Different From A Destination Contract?

A destination contract can be used for a transaction which involves the sale of goods, and the transaction is governed by the UCC. In a destination contract, the seller promises to deliver specified goods to the buyer’s destination; the seller must ensure that the purchased goods actually arrive at the buyer’s destination. The risk of loss is on the seller until they complete their delivery obligations under the destination contract.

Additionally, if the goods are destroyed or damaged while in delivery, the seller bears the risk of loss. After a common carrier has delivered the goods to the buyer’s destination, the seller is no longer liable.

Similar to a shipment contract, a destination contract is a type of freight contract that concerns the sale of goods and is governed by the UCC. In comparison, a shipment contract states that the seller’s liability generally ends when the goods are loaded onto the carrier, or are delivered to a specified location for shipment to the buyer. At that point, the liability is transferred to the buyer, or to the common carrier by contract.

What Are Some Terms That Are Commonly Included In A Shipment Contract?

According to the UCC, the shipment contract allows the buyer and seller to allocate risk in the event that the goods are lost or damaged before the buyer receives the goods. The seller promises to get the goods to a common carrier in order to make delivery of goods from seller to buyer. The shipment contract will generally state “free on board,” and list where the seller is located.

If your contract has language that is similar, you probably have a shipping contract. Additionally, the shipment contract may read similar to the following:

  • FOB, plus the Place of Shipment or Seller’s Location: The place from which the goods ship is stated at the end of a “free on board,” or “freight on board” (FOB) clause. An example of this would be if the seller is shipping a load of televisions from New York to the buyer in Chicago. The contract states “FOB New York Factory,” which indicates that the seller is required to load the goods from its factory in New York. Once done, it no longer has any liability to the buyer under the contract;
  • FAS [name of the port/vessel]: This means “free alongside ship,” which is followed by the name of the port or vessel from which the goods are shipped to the buyer; and
  • CIF or CF: This refers to “cost, insurance, and freight” (CIF) or “cost and freight” (CF), and means that the seller assumes the costs and responsibility for the freight to deliver the buyer’s goods to the port of destination. The seller’s CIF may be reflected in a higher price on the buyer’s goods. Additionally, the risk transfers back to the buyer once the goods are loaded on the ship.

Alternatively, the following terms generally denote a destination contract:

  • FOB Destination: This is also known as “FOB Buyer’s Factory;”
  • Ex Ship: This means the seller’s price includes charges up to the port of destination, or arrival when liability passes to the buyer, who is responsible for unloading the goods; and
  • No Arrival, No Sale: This is a UCC term that gives the buyer the option to cancel the contract, or accept the goods at a discounted cost. This covers scenarios in which the goods are lost or damaged while the seller is delivering the goods to the specified location.

Do I Need A Lawyer For A Shipment Contract?

If you have questions concerning your obligations under a shipment contract, you should work with a qualified contract lawyer. An experienced business attorney can help you negotiate and draft your shipment contract, and assist if the shipment contract has been breached and you have suffered damages as a result.

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