Contracts FOB Law and Legal Definition

Contracts dealing with goods to be shipped often include an FOB clause, which stands for "free on board". This means that the goods will be shipped to a specific place without cost. The FOB terms are an important part of the purchase contract. The FOB terms describe:

  • who selects the carrier
  • who pays the freight charges
  • who has title to the goods during shipment

FOB clauses may be stated as either FOB Destination, FOB Origin, or FOB Shipping point. FOB Destination is the standard and most common FOB term used by buyers. The seller is the owner of goods while in transit and is responsible for any loss or damage up to the time of delivery. Other ways of expressing the FOB Destination are "FOB Destination Name".

Less often, a buyer will use the shipping term FOB Origin or FOB Shipping point. FOB Origin is usually used when the price of shipping is negotiated separately from the price of the goods, such as when the item to be shipped is extremely large or heavy. Sometimes a buyer will use FOB Origin when they have all of their shipping to be done by a specific carrier with they had negotiated favorable pricing, terms and conditions.

The following is an excerpt from a state statute dealing with F.O.B. clauses:

"(1) Unless otherwise agreed the term F.O.B. (which means "free on board") at a named place, even though used only in connection with the stated price, is a delivery term under which:

  1. When the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this article (Section 7-2-504) and bear the expense and risk of putting them into the possession of the carrier; or
  2. When the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this article (Section 7-2-503);
  3. When under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this article on the form of bill of lading (Section 7-2-323)."