User:Yumnefed/Risk of loss

Risk of loss when there is no breach
The risk of loss can be on buyer or seller, and everything depends on circumstances.

1.      Seller ships items to the buyer.
In the situation where the buyer asks the seller to ship goods but does not specify a destination, the risk of loss passes to the buyer as soon as the seller delivers items to the carrier.

The following are the shipping terms that create the shipment contracts.


 * F.O.B (“free on board”) where items come from – It means that the seller should deliver items or goods to the carrier at his own expense and risk if FOB is a “place of shipment” or “place of destination”. For example, a buyer in New York requires FOB San-Francisco delivery from a seller in San-Francisco. What the seller needs to do is to deliver items at his own expense and risk to a destination – San-Francisco – and find a carrier that will take care of items further. If the buyer wrote “FOB vessel, car or another vehicle,” it means that the seller should place items on board at his own expense and risk. Therefore, the buyer is going to bear the risk of loss once items are shipped.


 * FAS (Free-alongside ship).  -  it means that the seller must deliver items at the named port at his own expense and risk. For example, the seller needs to deliver to FAS Mary [the ship], Port Authority of New-York. It means that the seller will deliver goods to the vessel Mary at the Port Authority of New-York at his own expense and risk. Also, the seller must find a carrier (a ship or person in port) and show him a receipt for items in exchange for lading.
 * CIF (Cost, insurance, and freight). It means that the cost of the items is going to include insurance of the goods and the cost of shipping. And the seller is going to bear the risk of loss and any additional expenses until the fright is not delivered to the buyer.
 * C&F (Cost and freight). – It has the same meaning as the CIF (Cost, insurance, and freight). However, in this case, the seller has an option to insure or not goods that will be delivered to the buyer.

2.      Seller ships items to a specific destination.
In the situation where the buyer asks the seller to deliver stuff to a specific destination, the seller bears all the risk and expenses that are required to deliver items to the specified destination.


 * FOB contract where the destination is specified. – If the FOB is the place of the destination, then the seller bears all the risk and expenses of delivering goods to the specified destination. For example, the buyer is in Chicago and arranges FOB Chicago shipment with the seller in Los-Angeles. It means that the seller should deliver goods from Los-Angeles to Chicago at her own expense and risk associated with the shipment.
 * Ex-ship –The term does not relate to any particular ship, and goods need a delivery from the ship to the buyer. Until the goods are not properly unloaded from the ship, the seller bears the risk and expenses. After the goods are unloaded, the risk and expenses are the buyer’s responsibility, and the carrier will be in charge of delivering goods.


 * No arrival, no sale – It means that the seller is responsible for shipping goods to the buyer and bears risks and expenses. However, if goods do not arrive or shipped and it is not the seller’s fault, the seller does not bear any liability to the buyer.

3.      Risk of loss and sales
Seller and buyer agree

Seller and buyer can make a contract where they agree who bears the risk of loss (the buyer, the seller, or they can split the risk of loss between them (Uniform Commercial Code § 2-303). As it was discussed above, who bears the risk of loss depends on the situation unless the parties agree otherwise.


 * Sale on approval – It means that the risk of loss is on the seller until the buyer accepts the sale. And if the buyer is on trial meaning testing goods, it does not mean the buyer’s approval of the sale. If the buyer wants to return items to the seller, the seller is going to bear the risk and expenses of returning stuff. However, the seller is going to provide instructions for good’s return and the buyer must follow.


 * ·Sale or return – For this type of contract, it means that people buy goods to resell them in the future, and the buyer has an opportunity to return them. All the risk of loss is on the buyer, and if the buyer wants to return goods, he returns them at his own risk and expense. The trick with such a contract is that creditors can take goods away because the sale or return contract makes the buyer responsible for return and future resale. In other words, while the buyer is in the possession of items that a part of the sale or return contract, creditors can take items away.


 * Consignment Sales – it means that the seller bears two responsibilities: bailee and an agent. The responsibility of the agent is to sell things and get a commission in return. Such sales are considered to be a sale or return, and it means that the consignee whose place is used for the item’s sale and display for customers is a buyer and bears the risk of loss. Creditors are also involved in consignment sales. They can take away items in the possession of the consignee. However, there are exceptions. Creditors cannot take goods away from the person who sells goods that belong to others.

4. Risk of loss if affected by the insurance
The risk of loss can apply to the buyer or seller depending on the circumstances of the deal. To prevent both sides to lose money, they can buy insurance to protect against possible risks and expenses. However, the way buyers and sellers can protect their risk of loss differ.


 * Buyer’s interest in insurance and risk of loss


 * 1) According to the Uniform Commercial Code, Section 2-501(1), the buyer has insurance from the risk of loss as soon as he has a property or insurable interest in things that are identified as items that were specified in the selling agreement or contract between buyer and seller.
 * 2) Also, the buyer can have other rights that can be added to the insurable interest. For example, in the UCC Section 2-502, if the buyer paid for items and the items were not shipped yet, he can take the goods from the seller. The buyer should do it within 10 days after the full or first payment was received by the seller and if the seller is insolvent.

There are many things of how a buyer can protect their goods and minimize the risk of loss. Most of them are written and specified in the Universal Commercial Code.


 * Seller’s interest in insurance and risk of loss

·    While the seller is still a seller (did not transfer the risk of loss to the buyer) and has any interest in protecting owned items, the seller has an insurable interest.

Breach of the risk of loss
Different circumstances help people to understand who bears the risk of loss and when. The key takeaway from all contracts discussed is the risk of loss transfers from the seller to a buyer as soon as the seller completed his obligations specified in the contract. If the goods meet the requirements of the buyer, then the seller transfers the risk of loss to the buyer as soon as ships goods. If goods do not meet the requirements, the risk of loss does not pass from the seller to the buyer. As a result, a breach of contract can occur.


 * ·Breach by a buyer

·  The buyer can breach the contract and can bear the risk of loss. One of the examples is specified in Section 2-510(3) of the Universal Commercial Code. According to Section 2-510(3), the seller can move the risk of loss from himself on the buyer if the seller allows the risk of loss to be on the buyer for a “commercially reasonable time”. It can happen if the buyer rejects to have items before they were shipped to him. Such a situation can occur only if goods were specified in the contract between the buyer and seller.


 * ·Breach by a seller

The example will represent the idea better. Let’s assume that the seller provides goods that do not meet the requirements of the buyer – he rejects them and does not want to accept goods. From section 2-501(1) of the UCC, the risk of loss is on the seller because he did not provide require and undamaged items. The risk of loss will remain on the seller until he changes or fixes goods and as a result solves the breach of the contract. Or until the buyer will say that he agrees to accept goods that do not meet his requirements. Overall, the seller bears the risk of loss if he breached the contract unless the buyer and seller come to a different agreement.

The breach of the contract can be caused by the buyer and seller. The risk of loss will be depended on the circumstances of the contracts and breaches. To understand if buyer or seller will be responsible, people should pay attention to the Universal commercial code and who breached the contract first: buyer or seller Then they will need to get into details of the UCC to see who exactly bears the risk of loss. The examples provided above are to clarify who can bear the risk of loss and when.

Risk of loss In International Sales
For sellers and buyers that are trying to connect from different countries (from the USA and Spain), the risk of loss is an important topic. The international risk of loss is different from the domestic risk of loss because it involves long distances (even across oceans and multiple countries) and to deliver items, people use multiple types of transportation (ships, planes, cars, etc). “Both the UCC and the Convention on Contracts for International Sale of Goods (CISG) specify the risk of loss in four situations:


 * 1) where goods are being held by the seller
 * 2) where goods are being held by a third person or bailee
 * 3) where goods are in transit
 * 4) where goods are in the control of the buyer”

CISG has four different categories explaining who bears the risk of loss.


 * “Group E” or the first category – seller bears the risk of loss until he makes items available for the buyer. For example, the seller leaves items at his place where the buyer can come and pick goods up.
 * “Group F” or the second category – the seller bears the risk of loss until he delivers items to the carriers that will further ship items to the buyer. However, the seller can bear the risk of loss longer than that. Everything depends on the terms of the contract.
 * “Group C” or the third category – the seller bears the risk of loss until he finds the carries and a carrier ships goods to the buyer. After shipment, the risk of loss is on the buyer.
 * “Group D” or the fourth category – the seller bears the risk of loss until items are not delivered in the country of destination. For example, the seller will bear the risk of loss until items are delivered from the United States to Spain. If the seller and buyer agreed to have a term DAF (Delivered at Frontier), then the buyer will be responsible for delivering goods using carries from the USA to Spain. As soon as goods reached the customs boundary, the risk of loss passes to the buyer.

Contacts for International Sale of Goods (CISG) is a resource that can be used by both buyers and sellers of they did not agree on, specify, or addressed the risk of loss in the contract.


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 * 2) ^ "§ 2-319. F.O.B. and F.A.S. Terms". LII / Legal Information Institute. Retrieved 2020-12-18.
 * 3) "§ 2-320. C.I.F. and C. & F. Terms". LII / Legal Information Institute. Retrieved 2020-12-18.
 * 4) ^ "§ 2-320. C.I.F. and C. & F. Terms". LII / Legal Information Institute. Retrieved 2020-12-18.
 * 5) ^ "§ 2-319. F.O.B. and F.A.S. Terms". LII / Legal Information Institute. Retrieved 2020-12-18.
 * 6) ^ "§ 2-322. Delivery". LII / Legal Information Institute. Retrieved 2020-12-18.
 * 7) ^ "§ 2-324". LII / Legal Information Institute. Retrieved 2020-12-18.
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 * 11) ^ "§ 2-501. Insurable Interest in Goods; Manner of Identification of Goods". LII / Legal Information Institute. Retrieved 2020-12-18.
 * 12) ^ "§ 2-502. Buyer's Right to Goods on Seller's Insolvency". LII / Legal Information Institute. Retrieved 2020-12-18.
 * 13) "Risk of Loss". saylordotorg.github.io. Retrieved 2020-12-18.
 * 14) ^ "§ 2-510. Effect of Breach on Risk of Loss". LII / Legal Information Institute. Retrieved 2020-12-18.
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