Friday, July 19, 2013

Risk of Loss in Carrier Cases (UCC)

It's likely you'll be required to determine who (among the seller and the buyer) has the risk of loss in a UCC carrier contract when the goods are damaged or destroyed while in transit to the buyer. The rules are straight-forward, but become more complicated when one party has breached the contract.

First, determine whether the contract is a shipment contract or a destination contract. In a shipment contract, the risk of loss passes to the buyer when the goods are delivered to the carrier. In a destination contract, the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination specified in the contract. Note that there is no distinction made here between merchants and non-merchants (as there is in non-carrier cases.)

Let's assume, however, that when the seller delivers the goods to the carrier (in a shipment contract) or to the destination (in a destination contract), the goods are defective. If the goods are defective then the risk of loss will not pass to the buyer. Risk will only pass to the buyer once the defects are cured, or once the buyer accepts the goods with the defects.

It's also possible that risk will not yet have passed to the buyer (for example if the goods have not yet been delivered to the carrier in a shipment contract), but the buyer breaches the contract prior to tender of delivery. In such instances, risk will be treated as having passed to the buyer for any loss occurring within a commercially reasonable time after seller learns of buyer’s breach.

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