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Contracts FOB: A Comprehensive Guide to Free on Board Terms
Definition & Meaning
The term "Contracts FOB" refers to shipping contracts that include a Free On Board (FOB) clause. This clause specifies the responsibilities of the seller and buyer regarding the shipping of goods. It indicates who pays for shipping, who selects the carrier, and who holds the title to the goods during transit. There are different types of FOB terms, such as FOB Destination and FOB Origin, which determine the point at which ownership and risk transfer from the seller to the buyer.
Table of content
Legal Use & context
FOB clauses are commonly used in commercial contracts, particularly in the sale of goods. They are essential in defining the terms of delivery and the allocation of risks and costs between parties. Understanding these terms is crucial for businesses involved in shipping goods, as they can affect liability and financial responsibilities. Users can manage their shipping agreements using legal templates available through US Legal Forms, which provide guidance on drafting FOB clauses effectively.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company in California sells machinery to a buyer in Texas. The contract states "FOB Destination," meaning the seller is responsible for shipping costs and risks until the machinery reaches the buyer's location in Texas.
Example 2: A retailer orders furniture from a supplier, and the contract specifies "FOB Origin." This means the retailer assumes responsibility for shipping costs and risks as soon as the furniture leaves the supplier's warehouse. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
FOB Regulations
California
Commonly uses FOB Destination for consumer goods.
Texas
Often prefers FOB Origin for bulk shipments.
New York
Utilizes both FOB terms depending on the contract specifics.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Description
FOB Destination
The seller retains ownership and risk until the goods reach the buyer's location.
FOB Origin
The buyer assumes ownership and risk as soon as the goods leave the seller's location.
Ex Works (EXW)
The seller makes the goods available at their premises, and the buyer bears all costs and risks from that point.
Common misunderstandings
What to do if this term applies to you
If you are entering into a contract that includes an FOB clause, it's important to understand your responsibilities regarding shipping and risk. Review the terms carefully and consider using US Legal Forms to access templates that can help you draft or modify your contract. If your situation is complex, consulting with a legal professional is advisable to ensure your interests are protected.
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Typical fees: Varies by shipping method and distance.
Jurisdiction: Governed by state commercial laws.
Possible penalties: Liability for damages if terms are not followed.
Key takeaways
Frequently asked questions
FOB stands for "Free On Board," indicating the point at which ownership and risk transfer from the seller to the buyer.
With FOB Destination, the seller is responsible for shipping costs and risks until the goods reach the buyer. With FOB Origin, the buyer assumes these responsibilities as soon as the goods leave the seller's premises.
Yes, FOB terms can vary significantly by state, so it's important to review local laws and regulations.