Risk of Loss

Risk of loss is a term used in the law of contracts to determine which party should bear the burden of risk for damage occurring to goods after the sale has been completed, but before delivery has occurred. Such considerations generally come into play after the contract is formed but before buyer receives goods, something bad happens.

Under the Uniform Commercial Code (UCC), there are four risk of loss rules, in order of application:

  1. Agreement - the agreement of the parties controls
  2. Breach - the breaching party is liable for any uninsured loss even though breach is unrelated to the problem. Hence, if the breach is the time of delivery, and the goods show up broken, then the breaching rule applies risk of loss on the seller.
  3. Delivery by common carrier other than by seller.
    1. Risk of loss shifts from seller to buyer at the time that seller completes its delivery obligations
    2. If it is a destination contract (FOB (buyer's city)), then risk of loss is on the seller.
    3. If it is a delivery contract (standard, or FOB (seller's city)), then the risk of loss is on the buyer.
  4. If the seller is a merchant, then the risk of loss shifts to the buyer upon buyer's "receipt" of the goods. If the buyer never takes possession, then the seller still has the risk of loss.

In bankruptcy law, the risk of loss rule under a contract can be abrogated by a secured interest.

Famous quotes containing the words risk of, risk and/or loss:

    “When a man leaves his mistress, he runs the risk of being betrayed two or three times daily.”
    —Stendhal [Marie Henri Beyle] (1783–1842)

    “Nature, we are starting to realize, is every bit as important as nurture. Genetic influences, brain chemistry, and neurological development contribute strongly to who we are as children and what we become as adults. For example, tendencies to excessive worrying or timidity, leadership qualities, risk taking, obedience to authority, all appear to have a constitutional aspect.”
    —Stanley Turecki (20th century)

    “If but some vengeful god would call to me
    From up the sky, and laugh: “Thou suffering thing,
    Know that thy sorrow is my ecstasy,
    That thy love’s loss is my hate’s profiting!””
    —Thomas Hardy (1840–1928)