Destination vs Shipment Contracts Under the New York UCC
- Reza Yassi
- Nov 15, 2024
- 4 min read
Updated: 3 days ago
How Risk of Loss, FOB Terms, and Drafting Errors Decide Real Disputes
Destination vs shipment contracts determine when risk of loss transfers from seller to buyer.Under the New York UCC, shipment contracts are the default unless the contract clearly says otherwise. If goods are damaged in transit, liability often turns on a few words like FOB shipping point or FOB destination. Many disputes happen because parties assume delivery means arrival. It does not. Clear drafting prevents lawsuits. Vague language invites them.
Why Destination vs Shipment Contracts Cause Real Legal Disputes
A shipment leaves the seller’s warehouse.
The goods arrive damaged.
The buyer refuses to pay.
The seller says risk already transferred.
Now lawyers are involved.
This exact fact pattern shows up again and again in New York commercial litigation. In most cases, the dispute has nothing to do with price or quantity. It comes down to one issue: whether the contract was a shipment contract or a destination contract.
Under the New York Uniform Commercial Code, that distinction controls who bears the loss, who deals with insurance, and who ends up defending the claim.
Understanding the Core Difference
At a high level, destination vs shipment contracts answer one simple question:
When does the seller’s responsibility end?
The answer is not intuitive, and many businesses get it wrong.
Shipment Contracts Under the New York UCC (The Default Rule)
Under New York law, a shipment contract is presumed unless the contract clearly states otherwise.
Seller’s Obligations
In a shipment contract, the seller must:
Deliver the goods to a carrier
Make a reasonable transportation contract
Notify the buyer of shipment
Provide required shipping documents
Once those steps are completed, the seller’s delivery obligation is usually satisfied.
Risk of Loss
In a shipment contract:
Risk of loss passes to the buyer when the goods are delivered to the carrier
Damage that happens during transit is typically the buyer’s problem
This is often surprising to buyers who assume delivery means arrival at their location.
Common Shipment Contract Terms
FOB Shipping Point
FOB Origin
Ex Works
If a contract uses these terms without clarification, courts often treat it as a shipment contract.
Destination Contracts Under the New York UCC
A destination contract shifts more responsibility onto the seller.
Seller’s Obligations
In a destination contract, the seller must:
Deliver the goods to a specific destination named in the contract
Bear transportation costs and transit risk until delivery
Tender the goods in a condition the buyer can accept
The seller’s job is not done until the goods reach the agreed location.
Risk of Loss
In a destination contract:
Risk of loss transfers only when goods are tendered at the destination
Transit damage remains the seller’s responsibility
Common Destination Contract Terms
FOB Destination
Delivered Duty Paid (DDP)
Clear destination language can override default UCC rules.
Why Destination vs Shipment Contracts Matter in Real Cases
This distinction becomes critical when something goes wrong. In New York disputes, delivery terms often surface when:
Goods are damaged or destroyed during transit
Buyers refuse payment claiming non delivery
Sellers argue risk of loss already transferred
Insurance carriers deny coverage based on risk allocation
Contracts are silent or poorly drafted
When delivery language is unclear, New York courts usually fall back on shipment contract rules. That outcome often surprises one side and fuels litigation.
Common Drafting Mistakes That Trigger Lawsuits
Many disputes are avoidable. The most common errors include:
Assuming FOB always means the same thing
Failing to specify a delivery destination clearly
Copying boilerplate without reviewing UCC consequences
Ignoring how insurance aligns with risk transfer
Mixing Incoterms with New York law inconsistently
Small and mid-sized businesses are hit hardest because informal contracts leave too much open to interpretation.
Business and Merchant Implications
Cost Considerations
Destination contracts often cost more for sellers due to extended responsibility during transit.
Risk Management
Knowing exactly when risk of loss transfers under the UCC affects insurance decisions and pricing.
Contract Clarity
Precise delivery language reduces ambiguity and lowers the chance of disputes.
Best Practices for Drafting Delivery Terms
Specify Delivery Terms Clearly
Say exactly whether the contract is shipment or destination based. Do not rely on assumptions.
Match Language to Intent
FOB shipping point and FOB destination carry legal consequences. Use them carefully.
Align Insurance With Risk
Make sure cargo insurance matches the moment risk of loss transfers.
A Note From a New York Commercial Litigation Attorney
Many commercial disputes I see come down to delivery terms that were never discussed properly. Parties focus on price and timing but overlook how risk moves during transit. New York courts enforce contract language and UCC defaults, not assumptions. A short legal review at the drafting stage often prevents expensive litigation later.
Key Takeaways:
Destination vs shipment contracts directly control risk, liability, and dispute outcomes
Shipment contracts are the default under the New York UCC
Clear drafting prevents unexpected liability
Most disputes arise from silence or sloppy language
Frequently Asked Questions
Is a shipment contract the default under the New York UCC?
Yes. If the contract does not clearly establish a destination contract, courts generally treat it as a shipment contract.
Can contract language override FOB terms?
Yes. Clear, specific language controls even if FOB terms are used loosely or incorrectly.
Who pays if goods are damaged in transit?
It depends on when risk of loss transfers and whether the agreement is a shipment or destination contract.
Do delivery terms affect insurance coverage?
Yes. Insurance coverage often hinges on who bore the risk at the time of loss.
Disclaimer:
This article is for informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship. Consult a qualified commercial litigation attorney for advice specific to your situation.
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