Continuous Relevance and Validity of Different FOB Contracts in English Common Law - Assignment Example

Continuous relevance and validity of different FOB contracts in English common law Continuous relevance and validity of different FOB contracts in English common law Introduction FOB is an acronym for ‘Free ON Board’, which indicates that the price of an item that has been ordered is inclusive of the delivery of the item to a certain point. Using this term alongside a physical location entails the parties to make out the freight details and the point at where the buyer takes responsibility of the item. The FOB falls into three types1; the strict or classic FOB, the FOB which has additional services and a simple FOB. The three types of FOB contracts differ in the manner in which rights are allocated the responsibilities of the buying and the selling parties. In the first type of FOB contract, the buyer arranges for the ship and the seller boards the ship, securing a bill of lading. The second type consists of the seller getting the ship but the legality of the contract remains as in the first contract. In the last type, the seller puts the goods in the ship and gives the buyer a receipt through which he can get a bill of lading2. In the first and the second type of the FOB contracts, the seller is a party to the contract with the buyer becoming a party to the same on endorsement from the seller3. This article will discuss FOB in trying to establish the relevance and validity of FOB in the English common law. The essay will focus on FOB types as the main element of discussion. There will be vast utilization of definitions, sample cases and legal analyses. Essence of FOB In English law, FOB contract is generally based on the first type of the contract. The seller is subject to the provision of putting the goods as agreed in the contract on to the ship, and at their expense. This is irrespective of whether the same was agreed on in the initial purchase. The law assumes that such an arrangement would have been done beforehand (Vondraceck, 2011). Basing on the discussed terms of FOB as above, there are responsibilities that belong to the buyers and the sellers, which can be used to explain the relevance of such contracts. A buyer, on paying for the goods, is obliged to nominate a vessel that will deliver the goods, bearing all the risks from the tie the goods are delivered to the ship. The seller is responsible for packaging of the goods as per the agreement and conditions. The seller is responsible for delivery and loading costs of the goods, obtaining a proof of delivery of the item and any other relatable information to the buyer. When such an arrangement is out in place, the buyer reserves his right to rejection of the said goods, if he or she feels that there was a certain breach in the agreed condition of the goods. On the other hand, the buyer is responsible for the nomination of the ship that will be loaded with the cargo; otherwise the contract will be repudiated. The stipulations involved in this agreement, hence are valid and reasonable in rejecting the plights of both the seller and the buyer. A buyer, is also responsible of any additional costs during shipping, if they happen to occur. This is necessary for the seller, as once the goods or the item is delivered, they have no obligation over its destiny thereof. A seller, thus is additionally protected by the FOB since, their obligations end at the ship’s rails. At this stage, all the risk is passed to the buyer, which eventually means that the seller assumes lesser obligations and costs as compared to the buyer. The contract also protects the buyer in case of a problem during freight. If a buyer rejects the goods, the seller assumes the responsibility for such and so bears the losses. In most cases, a FOB contract involves the collaboration of both the seller and the buyer. The duties of both parties is dependent on the contract on board, though the functionality of the contract holds; a seller is necessitated to put goods into the ship, and that are in conformance to the terms of shipping received from the buyer, at his cost. In arguing on the continued validity and relevance of the terms, it is hence important to understand that various legal propositions may bring a different interpretation; this treatise sticks to the English common law. The goods, on transit, are hence understood to be at the peril of the client at the time. In a case where payments are not made during the voyage and the bill of lading is already sent to the buyer, other statutes come in handy in ensuring that the purchaser cannot receive the goods until the seller confirms proof of receipt of the money. Looking at the various types of FOB contracts in existence, the validity question widens further. There is a distinction in the contract between the involved parties, as discussed, and as noted herein. The bill of lading ends with the buyer, but might pass through the seller who then transfers it to the buyer4. The buyer decides on the ship to carry the goods in type one and three of the contracts. The burden of insuring the goods is the direct responsibility of the buyer, though he may do so through an agent5. There are some legal considerations that lie within the right to nominate a ship, a failure to do so or nomination of a vessel that is not effective. In the first and the third type contract, the buyer should nominate the vessel; duly inform the seller on the date available for loading, the space and any other details. A breach of contract happens when the buyer decides on a ship that is not effective or there are some changes in the underlying procedures. The type of contract comes in handy at such a time, as the seller is liable for compensation owing to damages. At the same time, the seller cannot claim the purchase price of the goods considering that the goods are still in their custody. In order to avert any disaster of this nature, the seller can propose an extra clause or a down payment. In a strict contract, the buyer must hence nominate the vessel before delivery of the item. Failure to promptly and correctly nominate the vessel may lead to the seller not delivering the goods at the prescribed point. In a simple FOB, the right of nomination may be left to the seller, therefore reducing the risk on the buyer. An FOB contract comes in handy when there is change of vessel. In such a case, the buyer is supposed to name a substitute vessel that should replace the previous one and ensure that the time of loading holds as agreed. The purchaser is liable for any additions in cost that may come up as a result of the substitution (Beale, 1935; Dicey & Morris, 1993). The variations in the type of contract echo varying legal viewpoints. In the classic FOB and FOB with additional services, the buyer enters in to a contract of carriage only when the bill of lading has been endorsed to him. At such a time he can be able to sue the carrier. In a simple FOB, the buyer is automatically a party to the contract and can get into a legal tussle with the carrier, in case there is a problem (Barnett, 2008). With such open positions, the law allows users to check on the necessary requirements best for getting into a contract. The contracts stipulate the transfer of the property as well as the accompanying risks at certain periods in the process. The goods are passed to the buyer once they pass the ship’s rail. Such a clause is subject to other jurisdictions6. A case of Pyrene vs. Scindia occurred that an item was damaged immediately after crossing the rail. The item was taken to have been in the hands of the seller despite there being no possibility of the seller protecting the equipment from the damage. Such a case and other possibilities that may occur as the goods are in transfer indicate the essence of the contracts in transfer of property. On shipment of the goods, the risk is passed to the seller. This is irrespective of whether payment was complete or the bill of lading was still possessed by the seller. The various types of contracts in existence, for free on board, and as per the English common law, go hand in hand with the stipulations of incoterms.7 In incoterms 2000, the seller should provide the goods and a valid invoice that conforms to the terms agreed. The export licenses fall within the expense of the seller. The seller is not obliged to the contract of carriage or the contract of insurance. The terms hold true to the ship’s rail rule. As for the buyer, on the other hand, payment is made as per the contract; the buyer should take responsibility of any import licenses; they must accept the carriage risk and subject to contract of carriage. The contract of insurance is not an obligation.8 FOB terms are very flexible and subject to change by the buyer and the seller. The flexibility makes them adaptable to a myriad of trades and practices. An example of flexibility is evident in NV Handel My J Smits Import-Export v English Exporters (London) Ltd9, where it was said that the seller was to secure the shipping space as per the agreement, though he claimed that there was no obligation (Lorenzon et al. 2012). Conclusion Various cases, definitions, scenarios and explanations have been given with respect to the types of FOB. It is evident that the various types govern the manner in which goods are voyaged from one country to another, in a controllable manner. The choice of the contract is very important, mostly in case an unexpected occurrence such as damage or loss of goods take place. It is responsible and advised to both the buyers and the sellers to be aware of their obligations and responsibilities in order to fulfill them aptly to avoid losses. This treatise has offered the necessary discussions that solidify the essence, validity and continuous relevance of the different FOB contracts in reference to the English common law. The paper has also acknowledged that the FOB terms are not stringent and cast in stone. There are variations that do exist and in most cases, such variations are localized by those involved in the business that is the buyer and the seller. Lastly, it is important to note that international contracts such as FOB contracts falling under the English Law may differ from other contracts such as the Czech Republic’s with slight word variations only. Most of the content is always almost similar (Vondreck, 2011). Bibliography Barnett, H., 2008. Constitutional & Administrative Law. London: Routledge-Cavendish. Beale, H., 1935. A Treatise on the Conflict of Laws. London: Baker, Voorhis & Co. Berman, H. and M. Ladd, Risk of Loss in Documentary transactions etc. (1988) 21 Cornell Intl L J 423, 432. Dicey, J. & Morris, C., 1993. The Conflict of Laws 12th edition. London: Sweet & Maxwell Ltd.  El Amria and El Minia [1982] 2 Lloyd’s Rep 28 Lorenzon, F., Baatz Y., Skajaa, L., & Nicoll, C., 2012. CIF and FOB Contracts. London: Sweet & Maxwell Ltd NV Handel My J Smits Import-Export v English Exporters (London) Ltd [1957] Lloyd’s Rep, 517. Pyrene & Co v. Scindia Steam Navigation Co [1954] 2 QB 402 “Rights and duties of international buyers, sellers and sea carriers” The law of international trade and carriage of goods. Slapper, G. & David K., 2008. The English Legal System. London: Routledge-Cavendish.  Spurin, C., 2004, “Rights and duties of international buyers, sellers and sea carriers” The law of international trade and carriage of goods. London: Nationwide Mediation Academy for NADR UK Ltd. Vondraceck, O., 2011. “Selling goods across the channel: comparative aspects of an international sales contract.” The common law review. Retrieved from http://www.commonlawreview.cz/selling-goods-across-the-channel-comparative-aspects-of-an-international-sales-contract#ref-20. Wimble, Sons & Co v Rosenberg & Sons [1913] 2KB 743 Read More