Fisher Law Corporation’s Frequently Asked Questions

The following are select subjects which are representative of the type of law we practice. Peruse the articles: If you don't find a subject that interests you, call us or e-mail us with your request.

Notice: The information contained in these articles is designed to provide accurate information in regard to the subject matters covered and is made available with the understanding that the information provided does not constitute the rendering of legal or professional services. All information is of a general nature, is specific to California law only, and is not intended to to replace professional or legal advice. Each person’s situation is unique and the information contained herein cannot be applied to any individual’s situation. If legal advise is required, the services of a professional should be sought.


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What are Encroachments? »

How does escrow work? »

What is fire and flood insurance? »

How do foreclosures work? »

What are the different forms of doing business? »

What do trade terms mean? »

What are liquidated damages in real property contracts? »

What is a Lis Pendens? »

How do loan modifications work? »

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Who bears the risk of loss during escrow? »

What are second deeds of trust? »

What is the Statute of Frauds? »

What is Statute of Limitations on Debts Secured By a Mortgage? »

Does a buyer’s broker have a duty to inspect? »

What is The Parol Evidence Rule? »

What is Adverse Possession? »

 


Q. What do trade terms mean?

A. Trade terms vary in meaning in different countries. When using a trade term, it is important to designate the specific law under which the term is to be construed. Trade terms define obligations between the buyer and the seller with respect to such important issues as delivery, payment and risk of loss. A clear understanding of trade terms may eliminate any costly misunderstandings after the contract is entered into.

Three major sources of trade terms include the Uniform Commercial Code, the International Chamber of Commerce (“Incoterms”), and the Revised American Foreign Trade Definitions (“RAFTD”).

UNIFORM COMMERCIAL CODE

Trade term definitions are found in Article 2 of the Uniform Commercial Code.

F.O.B. Section 2 319 states that unless otherwise agreed, the term F.O.B. (which means “free on board”) at a named place is a term of delivery. When the term is F.O.B. the place of shipment, the seller must at that place ship the goods and bear the expense and risk of putting them into the possession of the carrier. 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.

When 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.

F.A.S. Section 2 319 also states that unless otherwise agreed, the term F.A.S. vessel (which means “free alongside”) at a named port, is a delivery term under which the seller must (a) at his own expense and risk deliver the goods alongside the vessel and (b) obtain and tender a receipt for the goods in exchange for a bill of lading.

C.I.F. and C. & F. Section 2 320 defines C.I.F. and C. & F. terms. The term C.I.F. means that the price includes the cost of the goods, the insurance and the freight to the named destination. The term C. & F. means that the price includes cost and freight to the destination.

Unless otherwise agreed, the term C.I.F. destination requires the seller at his own risk and expense to:

(a) put the goods into the possession of the carrier at the port of shipment and obtain a negotiable bill or bills of lading; (b) load the goods and obtain a receipt from the carrier showing that the freight has been paid for;

(c) obtain a policy or certificate of insurance;

(d) prepare an invoice of the goods and procure any other documents to effect shipment; and

(e) forward and tender all documents necessary to perfect the buyer’s rights.

Unless otherwise agreed, the term C. & F. destination imposes upon the seller the same obligations and risks as C.I.F. destination except for the obligation as to insurance.

EX SHIP. The definition of ex ship (which means “from the carrying vessel”) is contained in section 2 322. Unless otherwise agreed, a term for delivery of goods ex ship is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination. Under this term, unless otherwise agreed, the seller must discharge all liens arising out of the carriage and the risk of loss does not pass to the buyer until the goods are properly unloaded.

Although not per se trade terms, sections 2 503 through 2 515 contain important additional obligations and rights of both seller and buyer, including the manner in which delivery is to be made, seller’s right to ship under reservation, the effect of the seller’s tender and delivery upon condition, right to cure by seller of improper or non conforming delivery, risk of loss in situations where there is no breach by seller, the effect of breach on the risk of loss, tender of payment by buyer, and buyer’s rights to inspect and withhold payment. These sections should be consulted before deciding on the specific trade term to be employed in the contract.

REVISED AMERICAN FOREIGN TRADE DEFINITIONS

The revised American Foreign Trade Definitions (“RAFTD”) were adopted in 1919 and revised in 1941 by the U.S. Chamber of Commerce jointly with the National Council of American Importers and the National Foreign Trade Council, Inc. Although they still serve as important trade terms, the RAFTD are disfavored over the Intercom terms.

C. & F. Under C. & F. named point of destination, the seller must pay for transportation to a named point of destination, pay export taxes or related fees, if any, provide a clean bill of lading, and provide (at the buyer’s request and expense) certificates of origin. Buyer provides and pays for insurance and is responsible for damage or loss from the time and place where the goods were placed at or on the vessel.

C.I.F. Under C.I.F. (named point of destination), the seller’s duties are the same as shipment C. & F. except the seller must also provide marine insurance at his own expense. The buyer may request the seller to obtain war risk insurance but the cost of such insurance is borne by the buyer.

Whenever shipping is by C. & F. or C.I.F., the seller and the buyer should agree before the contract is finalized as to whom shall pay for miscellaneous charges as inspection or weighing charges. Also, while under normal circumstances, the seller is obligated to prepay the ocean freight, sometimes shipments are made freight collect and the amount of freight is deducted from the seller’s invoice. If shipping is to be made freight collect, this should be determined in advance in order to avoid additional charges resulting from fluctuating foreign currency exchanges.

EX. Under an Ex (point of origin) term (e.g., ex factory, ex warehouse), the price applies only at the point of origin. The seller must bear all costs and risks of the goods only until the buyer is obligated to take delivery. The buyer must take delivery of the goods as soon as they have been placed at the date and location agreed upon. The buyer must also pay all expenses related to exportation.

Ex Dock. When goods are shipped Ex Dock (named port of importation), the seller quotes a price which includes the cost of the goods and any other costs necessary to place the goods on dock at the named port of importation, including duty, war risk and marine insurance, and duty. The buyer must merely take delivery of the goods at the named port of importation within the free time allowed and will not bear the risk of loss until the free time allowed expires.

F.A.S. The seller quotes a price including delivery of the goods along side vessel under a term of F.A.S. Vessel (named port of shipment). Included in the seller’s price is the cost of heavy list charges, if any. The risk of loss is with the seller until he delivers the goods along side the vessel or on the dock. The buyer’s duties are greater and include giving the seller adequate notice of name, sailing date, and loading berth and time; payment of storage charges, insurance and shipping costs.

F.O.B. F.O.B. (named inland carrier at named inland point of departure) requires the seller to place goods on or deliver to the inland carrier for loading and to provide a clean bill of lading, freight collect, at which time his liability for loss ceases. A variation of this term is F.O.B. (named inland carrier at named inland point of departure freight prepaid to named point of exportation). Here, the seller quotes a price which includes transportation charges to the named point of exportation and prepays freight, but without assuming any additional responsibility for loss. Another variation is F.O.B. (named inland carrier at named inland point of departure freight allowed to named point). Here, the difference is that the seller quotes a price which includes the transportation charges to the named point, but ships freight collect and deducts the cost from his invoice.

F.O.B. (named inland carrier at named point of exportation) means that the seller quotes a prices including the costs of transportation of the goods to the named point of exportation, and the seller bears any risk of loss up to that point.

F.O.B. Vessel (named port of shipment). Here, the seller pays for all charges incurred in placing the goods on board the vessel and provides a clean bill of lading. The risk of loss then passes to the buyer at this point. The buyer must obtain and pay for all export taxes, insurances and transportation.

Perhaps the most onerous of terms for a seller is F.O.B. (named inland point in country of importation). Here, the seller must provide and pay for all transportation to the named inland point in the country of importation, pay export taxes and related charges, provide and pay for all types of insurance, carry the risk of loss until the inland point in the country of importation, pay all costs of landing, and pay customs charges.

INCOTERMS

Incoterms are published by the International Chamber of Commerce. As stated above, Incoterms have become the favored terms of trade. There are presently 14 Incoterms in effect, many of which are the same as described under the U.C.C. and RAFTD sections above. Thus, only important differences between the Incoterms, on the one hand, and UCC and RAFTD, on the other hand, shall be discussed herein.

F.A.S. Under Incoterms, notice of delivery is required, whereas under the UCC, notice may be required and under RAFTD notice is not required.

F.O.B. Incoterms do not recognize the term F.O.B. except in connection with shipment aboard a vessel. Under Incoterms, the risk of loss passes when the goods have passed the ship’s rail. Under RAFTD, the seller retains responsibility until the goods have been placed on board. Under the UCC, the seller must load the goods on board at his own expense and risk.

C. & F. and C. I. F. Under Incoterms, insurance must cover c.i.f. charge plus 10%. RAFTD is silent as to the amount of insurance and the UCC requires insurance “in the usual amount.“

EX. The UCC contains only one (1) ex term. Under the UCC, risk of loss passes when the goods leave the ship’s tackle or are otherwise properly unloaded. Under Incoterms, the risk of loss passes when the seller has placed the goods at the buyer’s disposal on board the vessel at the usual unloading point.

FINAL NOTES

Different countries construe trade terms differently. It is therefore imperative that the parties provide for in their contract which law or private body of terms will apply.

This article is intended to provide the reader with a sampling of the more popular trade terms in effect. Other terms are less frequently used, such as C.I.F. & C (cost, insurance, freight and commission) and C.I.F.C. & I. (cost, insurance, freight, commission and interest). None of the terms should be used unless there is a definite understanding as to the exact meaning thereof. This article is not intended to be a complete analysis of the terms herein, and the reader may wish to contact a lawyer before employing any of the terms.

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