In a destination contract, the seller guarantees delivery of goods to the buyer’s location, as required by the Uniform Commercial Code.
Our guide will tell you everything you need to know about liability in a destination contract and how this differs from a shipment contract.
Key takeaways
- A destination contract means the seller assumes responsibility for goods until they reach the buyer’s location.
- UCC oversees destination contracts.
- A shipment contract means the buyer is responsible for the goods in transit.
- Ensure validity and consistency by using contract management software to oversee your entire contract lifecycle.
What is a destination contract?
A destination contract is an agreement between two parties — a buyer and a seller.
The seller promises to deliver specified goods to the buyer’s destination.
The seller is, therefore, liable for the goods until they reach that destination — taking responsibility for risks and costs during transit.
A destination contract is used for transactions overseen by the Uniform Commercial Code (more on this later).
This differs from a shipment contract, where the seller is only responsible for the goods until they’re handed over to the courier.
Then liability and ownership pass on to the buyers.
How to spot a destination contract: terms to look out for
There are certain key terms and contract clauses that let you know you’re looking at a destination contract.
1. FOB
The initials FOB frequently appear in shipment and destination contracts — they stand for “free on board” or “freight on board.”
If you see “FOB shipping point,” that signifies a shipment contract. If, on the other hand, you see “FOB destination,” that means the seller is obligated to deliver the goods to the buyer’s destination (aka a destination contract).
2. EX SHIP
Meaning “from the carrying vessel,” this term implies that the seller is obligated to pay for freight and unload goods at their destination.
3. No arrival, no sale
This clause gives the seller more leeway. Although the risk of loss is allocated to the seller in a destination contract, the “no arrival, no sale” clause exempts them from liability for non-delivery — the sale is essentially voided.
Who pays for shipping in a destination contract?
It’s standard practice for the seller to pay for shipping in a destination contract.
The seller is responsible for all further costs associated with transport, such as taxes, customs, and other fees.
This differs from a shipping contract, where the buyer is often expected to take financial responsibility since they’re considered owners of the goods during transit.
Who is responsible if the goods are lost or damaged?
The vendor is responsible for the goods until they reach the buyer. As such, the seller must satisfy their delivery obligations regardless of circumstance.
If the goods are damaged, destroyed, or lost along the way, the seller risks loss — not the buyer.
Destination contract UCC rules
The Uniform Commercial Code (UCC) is a set of laws governing commercial transactions in the United States.
The UCC provides a framework, ensuring that businesses rely on consistent rules. Destination contracts are overseen by the UCC.
Contract performance means fulfilling the work specified in the contract.
Under UCC laws, sellers must adhere to “perfect tender,” meaning they must meet the exact terms outlined in the contract. If a seller fails to do so, the buyer has the option to reject the goods.
Here’s a brief look at the rules:
- Delivery Obligation: The seller is responsible for delivering the goods to the destination specified in the contract.
- Risk of Loss: The risk of loss transfers from the seller to the buyer upon delivery of the goods at the designated destination.
- Title Transfer: Title to the goods transfers to the buyer upon delivery at the destination unless otherwise specified in the contract.
- Transportation Costs: Unless otherwise agreed upon, the seller bears the transportation costs and risks associated with transporting the goods to the specified destination.
- Delivery Timeframes: The seller must deliver the goods within the agreed-upon timeframe or within a reasonable time if no specific timeframe is stipulated in the contract.
It’s crucial to adhere to the principles outlined in the UCC to ensure a legally valid contract.
Shipment contract vs destination contract: what’s the difference?
The defining difference between a shipment contract and a destination contract is the point at which liability shifts from the seller to the buyer.
In shipment contracts, liability shifts as soon as the goods are shipped. In destination contracts, liability does not shift until the goods reach their (usually final) destination.
Shipment vs destination contract
| Shipment contract | Destination contract |
|---|---|
| Contract doesn’t require the seller to deliver the goods to a particular destination. | Seller is contractually obligated to deliver goods to a particular destination. |
| Sale is recorded when the goods arrive at the point of origin — i.e., when they’re shipped. | Sale is recorded when the goods reach the buyer. |
| Transfer of ownership occurs at the shipping point. | Transfer of ownership occurs at delivery. |
| Buyers are considered owners while the goods are in transit. | Sellers are considered owners while the goods are in transit |
| Buyers bear risk of loss. | Sellers bear risk of loss and are responsible if goods are lost or damaged. |
| Costs of shipment reside with the buyer. | Costs of shipment reside with the seller. |
Both types of contracts are used commonly. A shipment contract is often presumed if not otherwise specified.
However, a destination contract may be more beneficial for customers’ peace of mind.
Destination contract example
Let’s look at a hypothetical example. Say a furniture manufacturer in Texas receives an order for 20 tables from a newly opened restaurant in California.
They create a contract, aka a destination contract, whereby the terms of the agreement are to deliver the goods FOB destination.
The furniture manufacturer is responsible for ensuring the goods are delivered to the specified endpoint in California.
The restaurant doesn’t own the tables until it receives them, and until then, the manufacturer cannot record a sale.
On the other hand, if a shipment contract were used, the reverse would be true. As soon as the goods are shipped from Texas, the restaurant in California is responsible for them.
The manufacturer can record a sale; any loss or damage after this point is not their responsibility.
Simplified contract management software makes business easy
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And you certainly don’t want to be slowed down by contract generation when you could focus on generating leads.
PandaDoc’s simplified contract management software helps you easily manage (and shorten) your entire contract lifecycle.
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Users can easily craft contracts using pre-approved content and customizable templates, collaborate with team members, and gather feedback.
Contracts are executed securely with legally binding e-signatures, and completed documents are stored on our cloud platform with an audit trail for accountability.
Now that you know all about destination contracts vs. shipment contracts, start reaping the benefits with PandaDoc.
Our software can take the guesswork out of contract generation, helping you put your best business foot forward every time. Request a demo today.
Disclaimer
PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDoc services are governed by our Terms of Use and Privacy Policy.
