Delivery Terms and Risk of Loss Flashcards
Four Questions when Accessing Risk of Loss
1) Is there a delivery term
2) what type of contract is it
3) has the seller tendered
4) has the risk of loss passed
FOB
FOB means free on board, which can either be a shipment contract or destination contract. In either case, where the term is followed by a vessel name, the seller must load the goods on board.
FAS
The term FAS means free alongside, in which the seller must deliver the goods alongside the vessel. FAS will be followed by a vessel name and will be a shipment contract.
CIF
CIF means that the price includes the cost of the goods, insurance, and freight to the named destination.
A CIF delivery term will always be a shipment contract, the seller is required to load the goods, and the seller is required to purchase insurance which pays out to the buyer.
CF
CF means the price includes the cost of the goods and the freight to the named destination. A CF delivery term will always be a shipment contract, and the seller is required to load the goods.
EX-Ship
Ex-Ship is a delivery term which will always be a destination contract and the seller is required to unload the goods (off ship)
Different Types of Delivery Contracts
Shipment Contract - A contract in which the buyer bears the risk of loss while the goods are in transit
Destination Contract - A contract in which the seller bears the risk of loss while the good are in transit
Bailee Contract - A contract in which the seller tenders while the goods are in the hands of a third party but with no movement
True No Movement - A contract in which the seller has possession of the goods and are to be tendered without movement
What must seller do in a shipment contract
In a shipment contract the seller must
1) get the goods to the point of shipment
2) engage in a reasonable contract for carriage
3) tender any necessary documents
4) provide notice
Once these are accomplished, the seller has “duly tendered” and the risk of loss has transferred to the buyer
What if Seller Fails to Comply with the requirements of a Shipment Contract
If the seller fails to comply with either the reasonable contract for carriage or the notice provision, and material loss or delay ensues, the buyer is entitled to reject the goods. (shove back the ROL after is has transferred to the buyer)
What must the Seller do if it is not a Shipment Contract
In a contract other than a shipment contract, the seller must:
1) if necessary get the goods to the destination for tender;
2) ensure that everything about the tender is reasonable
3) tender any necessary documents
4) provide notice
Once these are accomplished for a destination contract, the seller has “duly tendered” and the risk of loss has transferred to the buyer
Risk of Loss Transfer in a Bailee Contract
The seller will transfer risk of loss in a bailee contract when:
1) the buyer has received the document of title; or
2) the bailee has acknowledged to the buyer that the bailee is not holding the goods at the buyer’s disposition (attornment)
Risk of Loss in a True No Movement Contract
In a true no movement contract,
1) if the seller is a merchant, the risk of loss will not pass to the buyer until the buyer takes receipt of the goods
2) if the seller is not a merchant, the risk of loss will transfer to the buyer upon a due tender
Nonconforming Goods and ROL
Where the tender or delivery of goods fails to conform to the contract as to give the buyer a right of rejection, the risk of loss remains on the seller until cure or acceptance
Goods Destroyed before Risk of Loss
Identified - IF goods that were identified at the time of formation are destroyed (1) without fault of either party and (2) before the risk of loss passes to the buyer, the contract is avoided
Not Identified - IF the goods were not identified until after the contract was made, the seller must prove impracticability to be discharged
