FOB CONTRACTS

Although there are quite a number of special trade

terms in use, our main focus will be on the two
extremely useful trade terms, namely: FOB and CIF.

FOB stands for “Free on Board”.

The Essence of FOB Contracts
(1) Under FOB, the seller contributes to the
transportation in so far as he has to load the goods on
a ship nominated by the buyer at the agreed port.
(2) The purchase price included all cost incurred up to
this point.
(3) Once the goods are loaded, the property passes to the
buyer and the goods are at the his risk and expenses.
(4) He then is responsible for all further arrangements
and changes
Stock v Inglis (1884)12 QBD 573
The words free on board would mean that the shipper
(seller) was to put the goods on board at his expense;
and the goods so put on board would be at the risk of
the buyer, whether they were lost or not on the
voyage.
Wimble v Rosenberg (1913) 3 KB 743
The FOB is a contract for the sale of goods where the
seller agrees to deliver the goods over the ship’s rail,
and the buyer agrees to convey it overseas.
(3) The central idea in an FOB contract is clear: the
price paid to the seller includes all costs up to the
loading of the goods onto a seagoing vessel
nominated by the buyer; property and risk normally
pass to the buyer at this point and all subsequent
expenses are for the buyer’s account.
(4) But the incidents of the contract may be varied in
many ways by reason of express and implied terms in
the contract.
Types of FOB Contracts:
1. (The first type) (The classic FOB)…
 The buyer’s duty is to nominate the ship, and the
seller’s to put the goods on board and procure a bill
of lading.
 In such a case the seller may enter into the contract
of carriage but it only will be as an agent of the
buyer.
2. (The second type) is known as the “extended FOB” or
“FOB with additional services”.
Sometimes the seller is asked to make the necessary
shipping arrangements(including entering into the
contract of carriage).
This differs from the classic FOB in two ways:

(a) The seller makes the contract of carriage as

principal, the buyer is normally not a party to it.

(b) It is the seller who nominates the ship. The

extension of seller’s duties may include an obligation
to procure insurance.
3. The third type is the Strict FOB.
The buyer engages his own forwarding agent at the
port of loading to book space and to procure the bill
of lading.
The seller has no function in the making of the
contract of carriage, whether as agent for the buyer or
as principal.
Duties of the F.O.B Buyer:
1.To nominates the port of shipment, the
vessel’s name and procures the necessary
shipping space
(a) Nomination of the port of shipments:
 The port of shipment is usually designated in the
contract of sale. The contract will often state this
precisely (e.g. FOB Liverpool).
 But it may give alternatives (e.g. FOB Hull,
Liverpool or London) or a range of ports (e.g. FOB
Danish ports).
If the contract is a multi-port one, the choice of port
will normally be the buyer’s and he has the
corresponding duty of notifying the seller of his
choice in good time.

**Gill &Duffus v. Societe pour Exportation (1985)

Failure to make a nomination of the port of shipment
and to notify the seller by an agreed date may amount
to a breach of condition precedent to the seller’s
obligation to load the goods.
Date of shipment:
A date or period of shipment s normally specified in
the contract of sale.
If a period of shipment is specified, the option for the
actual time of shipment within the period lies with
the buyer.
Until the buyer has made an effective nomination of
the date of shipment, the seller’s obligation to have
goods ready to load at port does not arise.
A seller who takes goods to port for loading
in the absence of an effective nomination
by the buyer does so at his own risk
J & J Cunningham Ltd. v RA Munro & Co. Ltd. (1922)
The contract was for the sale of bran under a contract
FOB Rotterdam and the shipment period was
specified as October.-The seller moved his grain to
port on 14 October.-The buyer did not make an
effective nomination until 28 October, by which time
the grain had deteriorated.-The buyer rejected the
defective grain and it was held that they were entitled
to do so.
(b) Nomination of the vessel:
It is the buyer who has to nominate the vessel to be
used, if none is specified in the contract of sale.
He must notify the seller of the ship’s readiness to
load within a reasonable time before the date for
shipment so as to give the seller sufficient time to
complete the loading process.
BungeCorporation v Tradex Export SA (1981)
The contract of sale required for the delivery of 15,000
tons of soyabean meal FOB an American port in the
Gulf of Mexico.
The buyer is to nominate an effective ship to take
delivery of the goods and to give the seller at least 15
days notice of readiness of the vessel to load.
The notice was late for four days. The sellers selected
to treat the contract as terminated.

The court gave judgment for the sellers and held that
the notice was a ‘Condition’. It stated that “in a
contract for the sale of goods a stipulated time of
delivery is of the essence.”