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

By Ryan Weiss
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“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.
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?
Unless covered by insurance, Cook’s must bear the
loss because it owned the goods.
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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.
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).
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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.
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Collect on Delivery – the seller retains the risk
of loss for the goods until the price is payed
upon 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.
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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.
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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)
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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?
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Galaxy has to suffer the loss, unless properly
insured.