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3 Int'l Tax & Bus. Law. 346 (1985-1986)
Practical Considerations in Drafting F.O.B. Terms in International Sales

handle is hein.journals/berkjintlw3 and id is 352 raw text is: Practical Considerations in Drafting F.O.B. Terms in International Sales by Alain Fr cont INTRODUCTION Shipping terms in a contract for the international sale of goods, assign the parties' rights and obligations with regard to transportation of the goods. The common understanding of a Free on Board (F.O.B.) shipping term is that the goods will be delivered onto a carrier free of charge.2 However, use of the F.O.B. term has other legal effects, including the determination of which party will bear the cost of shipping, who must bear the risk of loss of the goods, and whether a trader may utilize the foreign tax credit. Despite the important legal implications of its use, international traders often employ the F.O.B. term in a perfunctory manner with little, if any, regard for its meaning and potential effect. In failing to draft shipping terms that accu- rately reflect their bargained-for expectations, the parties risk misunderstand- ings, increased taxation, and, in some cases, costly litigation. The potential for dispute is particularly acute where the parties are unaware that the trade practices of their respective countries do not coincide.3 t Partner, Popham, Haik, Schnobrich, Kaufman and Doty, Ltd. Member of Minnesota, American, Federal and International (London) Bar Associations. The author gratefully ac- knowledges the assistance of the editorial board of the International Tax and Business Lawyer in the preparation of this Article. 1. For purposes of this Article, contract for the international sale of goods or interna- tional sale shall mean a contract between parties whose places of business are in different states or countries. 2. Black's Law Dictionary defines the term F.O.B. as: free on board some location (for example, F.O.B. shipping point; F.O.B. destination); the invoice price includes delivery at seller's expense to that location. Title to goods usually passes from seller to buyer at the F.O.B. loca- tion. BLACK'S LAW DICTIONARY 578 (5th ed. 1979)(citing U.C.C. § 2-319(1)). 3. In the introduction to the INCOTERMS 1980, the International Chamber of Commerce states: Frequently parties to a contract are unaware of the differences in the trading practices of their respective countries. The existing diversity of interpretation is a constant source of friction in international trade, leading to misunderstandings, disputes and references to the courts with all the waste of time and money that these entail. INCOTERMS 1980, infra note 5, at 6. In Miami Purchasing Serv. Corp. & Miami Aviation Serv., Inc. v. Comm'r of Internal Revenue, 76 T.C. 818 (1977), petitioners stated that they attached no special legal significance to the use of the term 'F.O.B.' The individual who served as president of both petitioning corporations testified that he knew that the term meant 'free on board', but that he had 'never heard of the Uniform Commercial Code in all of the time that he had been in the exporting business.' Id. at 827.

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