There is always risk to the parties when the sale of goods is involved. Despite best practices procedures in place, goods sometimes are destroyed, spoiled, lost or stolen. Having a sale of goods contract in place can reduce your liability by passing on the risk to the other parties to the contract. The contract can assign the liability to the purchaser, seller or the shipper at any time during the delivery of the goods from port to portal.
The Uniform Commercial Code (UCC) is a collection of laws concerning the sale of goods and is intended to create uniformity and predictability among the states who have adopted it. Broadly defined, goods are movable, tangible items that have been manufactured and offered for commercial sale by a merchant (seller) who normally deals in such items. The goods (i.e. television, toys, cars) are passed from the seller to the buyer for price.
Therefore, goods that are passed to the buyer pursuant to a loan are not covered. Disputes concerning the sale of goods are normally resolved pursuant to the UCC.
With the prevalence of online retailers offering a variety of goods for sale, there is some consumer predictability about what agreements retailers have in place concerning the purchase of their goods. For example, retailers will have a return policy that typically allows the consumer to return non-customized goods and unused items within a certain time from purchase, usually under thirty days.
Customers return goods for a variety of reasons. When the goods are simply no longer desired for the purpose for which they were purchased, the retailer usually accepts that risk and restocks the item. The consumer may be charged a nominal restocking or return fee.
Even if the goods were damaged, most retailers again will assume the risk as the cost of doing business and simply replace the items. However, if the items were damaged before the consumer received it, the liability for the damaged goods will depend on the contract between the seller and the carrier.
Common carriers, such as FedEx and UPS, may be held liable for damaged or lost goods in certain circumstances. The parties involved in the sale of goods, including the carrier, typically will seek to manage their liability by purchasing insurance for the type of goods being shipped.
Further, the seller and the carrier will try to limit their liability further pursuant to a shipment contract or a destination contract. If a shipment contract is involved, the contract will state that the seller’s liability ends the moment when the goods are delivered to the common carrier. For example, the shipment contract may state that the goods will be picked up at seller’s factory or warehouse (i.e. “F.O.B. Seller’s Factory”).
On the other hand, the seller can bargain to retain liability until the goods are delivered to the retailer. The risk of loss remains with the seller until such time that the goods are delivered to the retailer’s specified location, which may be a physical location (such as a customer’s house) or a shipping vessel. In this case, what the parties have entered into is a destination contract, which will include a common terminology like “F.O.B. Destination.”
Carrier liability is also commonly bargained for in a contract. Under a carrier liability contract, the carrier can assume the risk for loss, damage or delay of goods. In establishing a claim against the carrier, the shipper will be required to file their claim within a certain timeframe and the carrier will have a certain amount of time within which to investigate and respond to the claim.
Even when a shipment contract or destination contract is involved, the parties may be released from liability, or have their liability reduced, in the event of certain events, such as an act of God or the acts of a third party (i.e. piracy).
Further, the carrier may be released from liability or assume reduced liability if the carrier exercised reasonable skill and care under the circumstances, the shipper failed to provide all material information to allow the carrier to properly protect the shipment of goods, or the seller failed to heed warnings from the carrier about how to package the goods to reduce the potential for damage.
If you are entering into a contract to reduce your liability concerning the sale of goods, you may wish to consult with a business attorney. The attorney can help you with your contract from the bottom up and help you plot your course of action. In the event you need to enter into litigation concerning the breach of your sales contract, your attorney can represent you in court.