The term FOB is a frequent feature of contracts for the sale of goods, especially when the goods are to be delivered to a foreign destination.
In 1879, a china clay merchant offered to buy clay "at 15s. per ton FOB Fowey". The merchant went bankrupt after the clay supplier had delivered the clay to the port of Fowey, England, as per the FOB agreement. The case went before Justice Bacon who wrote, in Ex parte Rosevear China, and in an era when land transportation was by horse and cart:
"Delivery free on board (FOB) only means the price shall be that which we stipulate for, and you shall not have to pay for the wagons or carts necessary to carry the clay from the place where it is dug. We will bear all those charges and put it free on board the ship, the name of which you are to furnish."
In a 1921 case, Colley v Overseas Exporters, Justice McCardle added an essential point of FOB contracts where the FOB is to a vessel:
"It seems clear that in the absence of special agreement the property and risk in goods does not in the case of an f.o.b. contract pass from the seller to the buyer till the goods are actually put on board."
In contemporary international trade, the term continues with its traditional meaning: the vendor pays for delivery of the goods not just to the port, vessel, train, vehicle or ship of the purchaser's designation, but also any loading costs. In most contracts, the moment of passing of risk is defined as the moment the goods pass the ship's rail at the port of loading. For example, reference may be made to "FOB New Orleans" or "FOB Baie-Comeau".
Over time, and in the context of contractual negotiations, some varieties of FOB are in use, as explained by Yale Law School professor Grant Gilmore in his 1975 book The Law of Admiralty:
"In a shipment FOB, the risk passes to buyer at the FOB point.
"If the contract term is FOB At Seller's Factory, the buyer bears the risk of loss during transit. The seller completes his performance when he delivers conforming goods to the carrier. The price quoted does not include freight.
"Contrariwise, if the term is FOB Point of Destination, seller bears the risk during transit, completes his performance only by tender at that point, and the price quoted usually includes freight."
References:
- Colley v Overseas EXporters 1921 3 KB 302
- Duhaime, Lloyd, Legal Definition of CIF
- Duhaime, Lloyd, Maritime law - A Glossary
- Duhaime.org wishes to thank Mr. Darren Williams, maritime law lawyer of Victoria, British Columbia, for his assistance in regards to this definition.
- Ex parte Rosevear China Clay Company. In re Cock. 1879 11 Chancery Division 560; at page 565.
- Gilmore, Grant, The Law of Admiralty, 2nd Ed. (New York: Foundation Press, 1975), page 106.