Determining Rights: Risk of Loss Paper

Determining Rights: Risk of LossIdentification determines insurability, and title determines rights of such third parties ascreditors. Risk of loss determines who must pay under a contract in the event the goodsthat are the subject of the contract are damaged or destroyed during the course ofperformance.FIGURE 23-2 Passage of Title under Article 2EXISTING TIME OF CONTRACTFOB PLACE OFSHIPMENTTITLE PASSES UPONDELIVERY OFGOODS TO CARRIERTITLE PASSESUPON TENDERTITLE PASSES UPONDELIVERY OFTITLE DOCUMENTTITLE PASSESAT TIME OFCONTRACTINGFUTUREFUNGIBLESHIPPED, MARKED,OR OTHERWISEDESIGNATEDGOODSIDENTIFIED?YESYESNODELIVERY? TITLE CANNOT PASSNOYES NODOCUMENT OF TITLE?FOB PLACE OFDESTINATIONtendergoods havearrived, are available forpickup, and the buyer isnotified.19 In re Sunbelt Grain WKS, LLC, Bkrtcy., 406 B.R. 918 (D. Kan. 2009).risk of lossin contractperformance, the cost ofdamage or injury to thegoods contracted for.444 P A R T 3 : S a l e s a n d L e a s e s o f G o o d sCopyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-20323-4a Risk of Loss in Nonshipment ContractsAs noted earlier, Article 2 has no provision for delivery in the absence of an agreement. Therules for passage of risk of loss from the seller to the buyer in a nonshipment contract makea distinction between a merchant seller and a nonmerchant seller. If the seller is a merchant,the risk of loss passes to the buyer on actual receipt of the goods from the merchant.20 If theseller is a nonmerchant, the risk of loss passes when the seller makes the goods available tothe buyer or upon tender. For Example, if John buys a refrigerator at Kelvinator Appliancesand then leaves it there while he goes to borrow a pickup truck, the risk of loss hasnot yet passed to John. He may have had title at the time he entered into the contract forthe existing goods, and the goods are identified, but the risk of loss will not pass to Johnuntil he has actually received the refrigerator. His receipt will not occur until the refrigeratoris placed in the back of his pickup truck. John is fully protected if anything happens tothe refrigerator until then. If John buys the refrigerator from his neighbor at a garage sale,the risk of loss passes at the same time that title passes, or at the time of contracting.23-4b Risk of Loss in Shipment ContractsIf the parties have agreed to delivery or shipment terms as part of their contract, the rulesfor risk of loss are different.21C P A Contract for Shipment to Buyer (FOB Place of Shipment)In a contract for shipment only, or FOB place of shipment, the risk of loss passes to thebuyer at the same time as title does: when the goods are delivered to the carrier, that is, atthe time and place of shipment. After the goods have been delivered to the carrier, theseller has no liability for, or insurable interest in, the goods unless the seller has reserveda security interest in them. For Example, if the Los Angeles seller has a shipment contract(an FOB Los Angeles contract), once the goods are in the hands of the carrier, the riskbelongs to the buyer or the buyers insurer. If the goods are hijacked outside Kansas City,the New York buyer must still pay the Los Angeles seller for the goods according to thecontract price and terms.E-

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