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Title and Risk of Loss. RISK OF LOSS The common law placed the risk on the party who had the title at the time of the loss.

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  • The common law placed the risk on the party who had the title at the time of the loss.
  • The UCC rejects this approach and provides specific rules governing risk of loss. Risk of loss under the UCC depends on (1) the terms of parties’ agreement, or (2) on the moment the loss occurs, or (3) on whether one of the parties was in breach of contract when the loss occurred.
Read the following cases and decide which party should bear the risk of loss and what is the applicable rule.
  • A Chicago-based seller contracts to sell a quantity of shirts to a buyer FOB Phoenix, the buyer’s place of business. The shirts are destroyed en route when the truck carrying the shirts is involved in an accident.
  • In the above case , if the contract has called for delivery FOB the seller’s manufacturing plant, then who bears the risk of loss of shirts?
(3) If Farmer sells Miller a quantity of grain currently stored at Grain Elevator, when will the risk of loss of the grain shift from Farmer to Miller?
(4) If Jones bought a TV set from ABC Appliance on Monday, intending to pick it up on Thursday, and the set was stolen on Wednesday, who bears the risk of loss ? If Jones had purchased the set from his next-door neighbor and could have taken delivery of the set on Monday (i.e., delivery was tendered then), who bears the risk?
(5) If Adler bought a new Buick from Brown Buick that he later returned to Brown because of serious defects in it and if through no fault of Adler’s automobile was damaged while in his possession, then who should bear the risk of loss?
(6) Cannery contracts to buy Farmer’s entire crop of peaches. Farmer picks, crates them, tenders delivery to Cannery, and stores them in his barn for Cannery. Cannery then tells Farmer that it does not intend to honor the contract. Shortly thereafter, but before Farmer has a chance to find another buyer, the peaches are spoiled by a fire, who should bear the risk of loss?
INSURABLE INTEREST: Buyers and Sellers
  • What is insurable interest?

----the right to purchase insurance on goods to protect one’s property rights and interest in the goods

  • The buyer gains an insurable interest when the goods are identified to the contract.

The seller has an insurable interest for as long as he or she retains title to the goods.

Output, Inc., purchases 200 personal personal computers from an overseas manufacturer through a telephone transaction. The manufacturer, upon discovering that the model Output had requested is not in stock, substitutes a comparable but slightly different model computer at the same wholesale cost. At this point, does Output , Inc., have an insurable interest in the personal computers?
  • yes, definitely– even though, technically, they are nonconforming goods.
  • No; given the substitution, Output has no insurable interest.