Question

Fashion Avenue Sweater Knits, a New York company engaged in importing and selling women’s knitted gar- ments to U.S. retailers, contracted with Tian Long Sweater Knits, LLC, a sweater manufacturer in China, to manu- facture and deliver certain sweaters. After discussing each sale’s terms, Fashion Avenue would send Tian Long a pur- chase order memorializing the agreement. Every purchase order included the term “DDP” (an Incoterms designation meaning delivery, duty paid) for each garment, requiring the shipper (here, the seller of the sweaters, Tian Long) to be responsible for choosing the method of shipment and for paying all the shipping costs and duties involved in getting the goods to the named destination. In certain instances, to meet retailing deadlines, Tian Long delivered the goods via the more expensive air freight, instead of by sea. In certain of those cases, Fashion Avenue agreed to pay 50% of the air freight costs and sent an email to Tian Long confirming that agreement. Tian Long’s invoice for those shipments included a charge for the air freight with a notation that “FA [Fashion Avenue] AGREE TO PAY 50% AIR.” When Fashion Avenue did not agree to pay for the air freight, the invoices did not include that notation. After working together for a number of years, Tian Long instituted suit against Fashion Avenue alleging that it was owed thousands of dollars in air freight costs. Tian Long asserted that even though Fashion Avenue did not expressly agree to pay for air freight in certain cases, it was his “expectation and intent at the time of contracting . . . that where expedited air shipment was requested, Fashion Avenue would pay for all or at least half of the shipping costs.” Tian Lang argued that there was a “general course of dealing” whereby Fashion Avenue would pay for half of the air freight when it requested shipment by air to meet a deadline.

1. Does the conduct here constitute a course of dealing that would allow modification of the DDP Incoterm?

2. Does a request by Fashion Avenue to ship the sweaters by air instead of sea shift the burden to pay forshipping to the buyer when the DDP Incoterm is used on the purchase order?

3. May the express terms of the purchase orders at issue here, where both parties are merchants, be invalidated by emails or phone calls?

4. Does the fact that one of the “Terms and Conditions” of the agreement stated that all packing lists must be submitted “within 48 hours after ship sailed” make the purchase order ambig- uous as to which party was to pay the air freight?

Answer 1

1. The conduct here does not provide a reason to modify the DDP Incoterms. This is given the situation of the case, there have been instances where FA allowed transportation through air freight. However, under circumstances when they have explicitly agreed for air freight, they sent an email asking for the specific mode of transport. Otherwise it should be considered normal mode of transportation between the companies. Ideally this should not have provision for modification to the DDP incoterms. Especially not without the explicit consent of the buyer.

2. Yes. The DDP incoterms outlined that the shipping decision and cost will be borne by the seller. However if the buyer is insistent on a particular shipping mode and that mode is more expensive than the one that the seller had planned (and quoted) then the burden to pay for the shipping must lie with the buyer.