A destination contract can be used for a transaction involving the sale of goods. The transactions is governed by the Uniform Commercial Code (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 get to buyer’s destination.
The risk of loss is on the seller until he completes his delivery obligations under the destination contract. 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 at the buyer’s destination, then the seller is no longer liable.
Destination contracts specify the buyer’s destination as the point where seller’s obligation to deliver is complete. At that point, all risk of loss passes to the buyer.
Alternatively, under a shipment contract, the seller’s obligation is complete when he passes the goods to the common carrier for delivery. In this situation, if the goods are damage during shipment, the seller is not held responsible.
Various contract terms help distinguish destination contracts. The following terms will typically point to a destination contract:
1) FOB (Free on Board) – when delivery term in the contract states "F.O.B San Francisco" and the buyer or its distribution or logistic channel is located in San Francisco, the FOB clause points to a destination contract. The seller may be obligated to:
- Transport goods to the buyer’s destination
- Transport at the seller’s own expense
- Tender the goods at the buyer’s destination
- Assume the risk of loss during transportation
2) Ex Ship – This means "from the carrying vessel." In other words, the seller may be obligated to:
- Pay freight bills
- Ensure the goods leave the ship at destination
- Ensure the goods get unloaded
3) No arrival, no sale – This is a clause that gives the seller a little bit more leeway. The seller doesn’t assume liability unless the goods are damages due to the seller’s own actions.
Transactions involving the sale of goods can become complicated. A qualified contract lawyer can help you negotiate, draft, and review your destination contract(s). A laywer can also help you obtain damages for the breach of a sales contract.