Risk of Loss and Insurable Interest (pages 251-254)

1. Risk of Loss and Insurable Interest(pages 251-254) By Ryan Weiss

2. Vocab • “FOB” – Free on board. The risk of loss transfers to the buyer at a specified point. • CIF (cost, insurance, freight) – Seller contracts for adequate insurance and for proper shipment to the named destination and then adds these items to the price or cost of the goods. Often used in shipments from foreign countries. • Baliee – has temporary possession of another person’s goods, holding them in trust for a specified purpose. • Credit Sale – A sale that, by agreement of both parties, calls for payment for the goods at a later date. • COD – Collect on delivery. The carrier collects the price and transportation charges upon delivery and transmits this amount to the seller. • Sale or Return – a completed sale in which the buyer has an option of returning the goods. • Sale on Approval – Ownership and risk of loss doesn’t pass until the buyer approves of the goods. • Sale of an Undivided Interest – Ownership and risk of loss pass to each buyer at the time of the sale of each undivided interest. • Auction – Public sale to the highest bidder. • Bulk Transfer – transfer of all or a major part of the goods of a business in unit at one time.

3. Do Now Cook’s Christmas Tree Corner ordered 50 cases of fragile ornaments from a wholesaler. The contract did not require delivery to Cook’s or to any other designated destination. The wholesaler routinely shipped the ornaments using an independent trucker selected by Cook’s. The shipment was lost when the trailer that contained the ornaments was stolen at an overnight truck stop. Who is responsible for the loss of the ornaments?

4. Do Now Answer Unless covered by insurance, Cook’s must bear the loss because it owned the goods.

5. Seller Ships Goods by Carrier • If the seller is required to deliver the goods to a particular destination but is allowed to use a carrier, such as a railroad, to make the delivery, the risk of loss passes over to the buyer at the destination, upon tender of delivery. • If the seller is not required to deliver the goods to the buyer at a particular destination, and the seller uses a carrier, the risk of loss is passed over to the buyer when the goods are delivered to the carrier. • If the goods are labeled “FOB (location)” then the risk of loss is transferred to the buyer at this location and the carrier has to bring the goods to this location, and no further.

6. Goods Held by Bailee When the risk of loss transfers to buyer: When the buyer receives a negotiable document title covering the goods. When the Bailee acknowledges the buyer’s right to possession of the goods After the buyer receives a non-negotiable document of a title or other written direction to a bailee to deliver the goods. (The buyer must have had a reasonable time to present the document to the bailee, who must have honored it).

7. Either Breaches After Goods Identified • The seller sometimes breaches by providing goods so faulty that the buyer rightly rejects them. The risk of loss remains with the seller until the defects are corrected. Cash-and-Carry Sales When the buyer in a sales contract pays cash and take immediate delivery, the title passes to the buyer at the time of the transaction. The seller may request legal tender. Checks are not legal tender. Acceptance of a check by seller isn’t considered payment until the check is cashed. However, this doesn’t effect the timing of the title or risk of loss transfer.

8. COD • Collect on Delivery – the seller retains the risk of loss for the goods until the price is payedupon delivery. Sale or Return If the buyer returns the goods within a fixed or reasonable amount of time, then the risk of loss is returned to the seller.

9. Sale on Approval • Prospective ownership and risk of loss do not pass until the prospective buyer approves the goods • This can be done with words, payment, any conduct indicating approval, or retention of the goods beyond a reasonable time.

10. Auctions • When the Auctioneer accepts the bids from the bidder for the goods, the risk of loss transfers when the auctioneer acknowledges the buyers right to possess the goods. (typically upon tender of the goods in exchange for payment)

11. Closing Questions • Galaxy Furniture Company shipped a truckload of chairs and sofas to Brenda’s Bargain Basement. Without unloading the tractor-trailer, inspection disclosed that Galaxy had mistakenly shipped sofas and chairs upholstered in costly Italian leather. Brenda had ordered the durable but much cheaper vinyl upholstery models. Brenda promptly notified Galaxy of the error and asked for instructions on what to do with them. After a week, the unloaded trailer was still parked in back on Brenda’s warehouse. Then a fire of undisclosed origin destroyed the trailer (along with some other vehicles). Who is responsible for the chairs?

12. Closing Question Answer • Galaxy has to suffer the loss, unless properly insured.