Risk of Loss in the Sale of Goods
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What Is the Risk of Loss in the Sale of Goods?
When goods are purchases, someone must be responsible for damages that may occur while the goods are being shipped to the buyer. The risk of loss while the goods are in transit may include:
- Physical destruction of goods
- Spoilage of the goods
- Lost or stolen items
The sale of goods contract between the buyer and seller should define who bears the risk of loss.
Transfer of the Buyer’s Risk of Loss in Shipment Contracts
A shipment contract between buyer and seller will usually have a "FOB/location of the seller" term. If the buyer and seller enter into the shipment contract, the seller’s risk of loss passes to buyer when the seller delivers the goods to the common carrier at the "location of the seller" specified in the contract. Thereafter, whatever damage or destruction the goods suffer while in transit to the buyer would constitute part of buyer’s risk of loss.
Transfer of the Buyer’s Risk of Loss in Destination Contracts
A destination contract is likely to be spotted by a "FOB/buyer’s location" term. In a destination contract, the seller continues to bear the risk of loss while the goods are on their way to the buyer until goods end up at the "buyer’s location" specified in the contract.
If the goods are destroyed or damaged while in transit, the seller bears the risk of loss. Only when the goods reach the buyer’s destination will the risk of loss shift to the buyer. At that point, the seller’s delivery obligations cease.
Seeking Legal Help
Disagreements and ambiguities often arise during the sale of goods that require the attention of a qualified UCC lawyer. Your lawyer can negotiate, draft, and review your contract and assess its clauses, risks, and possible liabilities. Your lawyer can also help you protect your rights under the contract or defend against a breach of contract claim in the court of law.
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Last Modified: 03-12-2014 03:37 PM PDT
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