Sales and Leases | 14
shipment contract, even if the contract specifies a shipment address. But terms such as “F.O.B. destination” or “F.O.B. the place of destination” usually indicate a destination contract. In a destination contract, risk of loss passes to the buyer when the goods are duly tendered to the buyer, so as to enable the buyer to take delivery, at the particular destination while in the carrier’s possession. 3. Rule in Cases Not Involving Shipment Contracts, Destination Contracts, Sale on Approval, or Goods in a Bailee’s Possession In cases that do not involve shipment contracts, destination contracts, sale on approval, or goods in a bailee’s possession, when risk of loss passes depends on whether the seller is a merchant. If the seller is a merchant, risk of loss passes when the buyer receives the goods. If the seller is not a merchant, risk of loss passes when delivery is tendered.
Effect of Breach on Risk of Loss under § 2-510
If either the buyer or the seller has breached the contract, the rules on risk of loss change substantially.
1. Risk of Loss if Seller’s Tender or Delivery Does Not Conform to the Contract If the seller breaches by tendering or delivering nonconforming goods, thus giving the buyer a right to reject the goods, risk of loss stays with the seller until either the seller cures the nonconformity in the goods themselves ( e.g. , by repairing the goods) or the buyer accepts the goods. If the seller furnishes replacement goods, risk never shifts as to the goods replaced, but it shifts under the normal rules as to the replacement goods. If the buyer rightly revokes acceptance, she may proceed as though the seller always bore the risk of loss, to the extent of a deficiency in the buyer’s insurance coverage. 2. Risk of Loss if Buyer Breaches the Contract Special rules apply if the buyer breaches the contract, as to conforming goods, before risk of loss has passed to the buyer. Here, the seller may proceed as though the buyer bore the risk of loss for a commercially reasonable time ( e.g. , long enough for the seller to dispose of the goods).
Course of Performance, Course of Dealing, and Usage of Trade
Apart from express language, perhaps the most important factors in interpreting any contract for the sale of goods are course of performance, course of dealing, and usage of trade.
1. Course of Performance and Course of Dealing
Course of performance references the parties’ sequence of conduct concerning one specific
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