Mark McCown: Shipping contracts can be complicated
Published 12:00 am Tuesday, October 26, 2021
Dear Lawyer Mark: I am a parts manufacturer here in Proctorville. I have recently started talks with a new distributer in Cedar Rapids, Iowa. We have negotiated most of the formalities of the contract except for the delivery aspects.
He states that he wants a non-carrier delivery contract but my friend tells me I should demand a carrier delivery contract with him.
Can you please tell me the differences between the two types? — Small Town Business Guy
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Dear Small Town Business Guy, The Uniform Commercial Code establishes the differences between those two types of delivery contracts. The main differences between them is the place of delivery, the time of payment, and the time in risk of loss shifts from the seller to the buyer.
Being the buyer you will more then likely want a carrier delivery contract.
The following will give you a brief explanation why this is so. A non-carrier delivery contract is one that is considered to be to the seller’s advantage.
Beginning with the place for delivery, a non-carrier contract establishes that delivery or in better terms pickup is at the seller’s place of business.
When delivery has occurred then payment should be tendered. The shifting of risk depends upon if the seller is a merchant or not. A merchant is defined as one whose business is buying and selling goods for profit.
In your situation both parties would be considered merchants, however, I will described both situations. If the seller is a merchant then the risk of loss shifts when the buyer takes possession. If the seller is not a merchant then the risk shifts when the seller tenders delivery.
A carrier delivery involves somewhat different circumstances. A carrier contract is either one of destination or shipment.
If a carrier contract is one of shipment [i.e. Carrier (seller’s city)], then sellers delivery is complete when he or she delivers the goods to a common carrier (i.e. UPS). If the carrier contract is one of destination [i.e. Carrier (buyer’s city)] then the seller must deliver the goods to the buyer’s place of business.
The time of payment depends upon when the buyer receives the goods. The shifting of risk also depends if the contract is one of destination or shipment.
If a shipment contract is agreed upon then the risk of loss shifts when the seller delivers the goods to the common carrier. If a destination contract is agreed upon then the risk of loss shifts when the seller delivers the goods to the buyer.
Another way delivery is established is by freight of board, aka, FOB delivery contracts.
If the contract states that delivery is to take place at “FOB (Buyer’s City),” then the seller ships the goods to the buyer as with a destination contact with liability and payment following suit.
If the contact state FOB (Seller’s City), then the seller ships the goods to a common carrier like a shipment contact with the liability and payment again following suit.
THOUGHT OF THE WEEK: “The more people who own little businesses of their own, the safer our country will be, and the better off its cities and towns; for the people who have a stake in their country and their community are its best citizens.” — John Hancock.
It’s The Law is written by attorney Mark K. McCown in response to legal questions received by him. If you have a question, please forward it to Mark K. McCown, 311 Park Avenue, Ironton, Ohio 45638, or e-mail it to him at LawyerMark@yahoo.com. The right to condense and/or edit all questions is reserved.