Destination Contract

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Destination Contract

A Brief Introduction About the Destination Contract

This contract is entered into between two parties, the buyer and the seller of the goods using shipping as a mode of transportation. The Uniform Civil Code (UCC) governs such transactions in goods. The obligation of the seller ends with the shipment reaching the destination of the buyer. A destination contract, as it relates to shipments, is a legally binding document where the seller of the goods assumes all the risks associated with regard to loss or damage until the goods reach the buyer’s destination.

There are other clauses that you can find in such contracts like “ex ship” or “no arrival”, “no sale”. In the case of ex ship, it is the responsibility of the seller to ensure that the goods have been unloaded from the ship or he should ensure to pay the freight bills. With regard to “no arrival”, “no sale”, the seller is excused from liability unless such is due to the seller’s fault.

As per UCC, the seller needs to fulfill ‘perfect tender,’ meaning that the terms of the contract must be followed precisely. If there is any deviation from any clause in the contract, the buyer has the option to reject the goods.

Who Takes the Destination Contract?

When goods are sent by ship from one destination to the other, the buyer and the seller of the goods being transported enter into this contract with the seller assuming all risks.

Is This a Shipment Contract or a Destination Contract?

When it comes to shipment vs destination contract, the former implies the obligation of the seller to end when the goods are reached to the common carrier whereas, in the case of the latter, the liability of the seller ends only when the goods reach the buyer’s destination.

Purpose of the Destination Contract

When goods are transported through any mode, there is a risk of loss or damage, irrespective of which mode of transport is being used.

When shipping goods from one destination to the other, the buyer of the goods needs to ensure that the shipment delivers the quality and quantity specifications mentioned by the seller.

The seller needs to take precautionary measures to ensure that the goods are delivered, and there is no loss or damage to the goods in transit. In case of any problems that occur with the goods prior to reaching the buyer’s destination, the seller will have to compensate the buyer for the entire value of the shipment, including any loss of profits that the buyer suffers.

If the seller is able to ensure that the goods specified are delivered in the right condition to the buyer, then payment is assured.

Contents of the Destination Contract

The contents of such contracts would include:

  • The names of the parties to the contract: The buyer and seller of the goods
  • Destination: The destination from which the goods are being shipped and delivery destination
  • Description of the goods: The nature of goods being transported including the quantity
  • Value of the goods: The value of the goods being shipped including any applicable duties and taxes
  • Duration of the contract: The starting and the ending date of the contract
  • Properly, timely and rightful revocation: Buyer should inform the seller of the breach
  • Factory defects: Any manufacturing or factory defects founds

How to Draft the Destination Contract?

While drafting a contract, the following points need to be considered:

  • Eligibility of Parties: They should be over the age of 18, of sound mind and not under the influence of alcohol. Coercion should not be used.
  • Value and Penalties: The value of the contract being shipped from the seller to the buyer. The liabilities of the seller and penalty for non-performance of the contract.
  • Terms of the Contract: The terms should be in accordance with the regulations governing such contracts, as the UCC. Some common terms would be FOB, concealed the damage, refusing the delivery, no arrival, no sale and these would depend on the type of contract.
  • Confidentiality Clause: Neither party should disclose confidential information to a third party.
  • Termination of a Contract Clause: If there is a violation of any clause in the contract, then the contract is terminated.

Depending on the route taken by the seller to deliver the goods under a destination contract, the seller might negotiate the delivery date to the buyer. The reasons could be clearance at various points or other issues. Both parties should decide on the extension period if any.

Benefits & Drawbacks of the Destination Contract

The benefits of a contract are:

  • Protection of Interest: The seller is guaranteed payment if the shipment is delivered on time in the right condition. Also, the buyer is aware that if there is any loss or damage, the seller has to compensate the buyer.
  • Legal Recourse: If the buyer defaults in making payment even though the goods have been delivered in the proper condition and within time, then the seller can claim compensation.

The drawbacks of a contract are:

  • The buyer will not receive the goods on time and will suffer losses as the seller will not compensate the buyer.
  • If the buyer does not pay, then the seller cannot claim the value of the goods delivered.

[ Also Read: Transport Contract ]

What Happens In Case of Violation?

If the seller is unable to deliver the goods as per the terms are given in the contract, then the seller will have to compensate the buyer for the value of the goods ordered and any loss of profits as money damages.

If the buyer has received the goods in proper condition, then payment has to be made under specific performance as the seller has successfully fulfilled the contractual obligations.

While entering into a destination contract, it is important to determine the clauses in the contract like FOB, properly, timely, and rightful revocation or concealed damage so that both parties know their rights and obligations. There should be a dispute resolution clause(1) and a termination clause.