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DECEMBER 2012




Protecting Yourself From Damage Losses In Shipping

Allan P. Hillman

In your contracts, a typical "Shipment and Delivery" clause may be: Delivery will be F.O.B. (Supplier's) Corporate Headquarters in (city). Title to Products and risk of loss and damage thereto shall pass to Authorized Reseller upon delivery of Products to a common carrier at the F.O.B. point.

Sometimes your equipment arrives damaged, typically as a result of the rough handling or other negligence by the carrier's employees. But if your contract is as above, the Supplier is not responsible for the damages. While the carrier is normally responsible, it is very difficult to gain relief. Carriers deny all and it is hard to prove their errors, although they are certainly responsible for the goods if there is no other agreement.

Within the United States, the term FOB is commonly used when shipping goods to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to buyer.

"FOB shipping point" or "FOB origin" indicates the buyer pays shipping cost and takes responsibility for the goods when the goods leave the seller's premises.

"FOB destination" designates the seller will pay shipping costs and remain responsible for the goods until the buyer takes possession.

Previously, under the Uniform Commercial Code ("UCC"), both "FOB origin" and "FOB destination" left the seller responsible for paying costs of loading goods on board the carrier; hence "Free On Board". When the buyer was responsible for loading costs as well, the UCC term was "FAS", "Free Alongside". Today, the UCC has dropped those terms, but the concepts remain and many state laws still use them. Parties also may use "incoterms" shipping, terms from the International Chamber of Commerce. If the parties agree to "FOB Origin" or "FOB origin with freight charges collect," the charges are paid by the dealer (buyer) and the risk of loss and the responsibility are the dealer's.

If the parties agree to "FOB origin with freight charges prepaid," the charges are paid by the Supplier and added to the Supplier's invoice to the dealer, but the dealer still has risk of loss and must make the claim against the carrier.

As noted, the best situation for the dealer is "FOB destination" (or "FOB destination, freight collect" or "FOB destination, freight prepaid"), because then risk of loss is the responsibility of the Supplier until the goods reach the dealer. The Supplier must pay the dealer for the loss and the Supplier recovers from the carrier. That, of course, is why Suppliers do not often use "FOB destination" shipping terms.

Insurance is available for all these risks. Ask your agent or broker. Premiums may vary widely.

HillmanAllan Hillman drafted the Model Manufacturer-Dealer Contract (NAGASA Standard 2005-1). He is Chair of the Connecticut Franchise, Dealer and Distribution Law Section, was Chair of the same section in Maryland, and for several years was Associate Editor of the American Bar Association Franchise Law Journal. He specializes in dealer, distributor, franchise, trademark, copyright, trade secret, and antitrust law and litigation. He is a partner at Kern & Hillman LLC in Hamden, CT. Allan acknowledges the assistance of Marty Ellis in this article.

View And Print The Full Model Service & Maintenance Agreement:
dealercommunicator.net/maintenanceagreement.doc

View And Print The Full Model Manufacturer- Dealer Agreement:
www. dealercommunicator.net/ mfgdealercontract.doc



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