Risk of Loss

Question 1

Generally

Answer 1

The UCC expressly states that its rules as to who bears the risk of loss have nothing to do with who has technical title (§2-401(1))

§2-509 is a gap-filler, so its rules apply only insofar as the parties have not agreed otherwise

Question 2

The general Code rule on the transfer of the risk of loss is that, absent contrary agreement,

Answer 2

(1) where the seller is a merchant, the risk of loss passes to the buyer on the buyer’s actual receipt of the goods; and

(2) where the seller is not a merchant, risk of loss passes to the buyer when the seller tenders delivery. See §2-509(3)

—-Section 2-509(3) applies only when §2-509(1) or §2-509(2) does not.

Question 3

Shipment Contract

Answer 3

A contract in which the seller is authorized or required to ship the goods by carrier, but not required to deliver the goods at a particular destination, is often times called a shipment contract.

Question 4

Destination Contract

Answer 4

A destination contract, by contrast, is one in which the seller is authorized or required to ship the goods by carrier, and the seller must deliver the goods at a particular destination.

Question 5

Risk of Loss in Shipment Contract

Answer 5

Risk of loss passes to the buyer when the goods are properly delivered to the carrier

Question 6

In a shipment contract, unless otherwise agreed, the seller must:

Answer 6

Put the goods in a carrier’s possession

Make a reasonable contract for the goods’ transportation considering the goods’ nature and the surrounding circumstances (watering any livestock, including any necessary refrigeration, etc.)

Obtain and properly deliver or tender in the proper form any document needed for the buyer to take possession of the goods or any document that the agreement or usage of trade requires, and

Promptly notify the buyer that the shipment has occurred

Question 7

In Transit and Language

Answer 7

If goods are identified to the contract while in transit, then the risk of loss passes to the buyer at the time of identification

A shipment contract could be identified with language stating it is free on board and the city where the seller is located.

Question 8

Risk of Loss in Destination Contract

Answer 8

The risk of loss passes to the buyer when the goods are duly tendered to the buyer at the particular destination while in the carrier’s possession

Goods must be tendered to a buyer in such a way as to enable the buyer to take delivery

Conforming goods must be made available to the buyer at a reasonable place and time, and the buyer must receive any notice necessary for them to take delivery

Seller must tender any documents necessary for buyer to obtain delivery

Question 9

If the contract requires or authorizes the seller to ship the goods by carrier…

Answer 9

courts generally presume that the contract is a shipment contract, even if the contract specifies a particular address for shipment

Question 10

This presumption is generally overcome, and the contract is deemed a destination contract, if either:

Answer 10

The contract explicitly places on the seller the obligation to make delivery at a specific location, as opposed to merely stating a shipment destination, or expressly keeps the risk of loss on the seller until delivery to the buyer at the specified location, or

The contract uses an industry term commonly recognized to create a destination contract (Ex. F.O.B. means free on board. “F.O.B. destination” or “F.O.B. the place of destination” indicates a destination contract)