In the previous lesson we learned about transfer of title and
transfer of risk of loss for contracts from the sale of goods,
but we only discussed that in the context of each party doing what it was supposed to do.
Nobody had breached the contract.
But if one party does breach the contract
the rules about transfer of title and risk of loss change a little bit.
Actually, just the rules about risk of loss.
The first thing we need to learn in this lesson is
that transfer of title is not affected.
But if one party breaches the contract the transfer of the risk of loss is affected.
So, let's take separately the buyer and
the seller and what happens when each of them breach the contract.
So for a buyer,
how does a buyer breach a contract for the sale of goods?
Well, far and away,
the most common way is just to say,
"I'm not going to pay or I can't pay" or some
indication that they're not going to pay for the goods.
Now, when that happens the buyer
immediately obtains the risk of loss to the goods at the time they breached the contract.
Even if it would not have transferred it to them until some time later.
So for instance, suppose we have
a destination contract and the goods are on their way. They're being shipped.
Remember, in a destination contract the seller bears
the risk of loss until the goods get to the buyer.
But say the goods are on their way when the buyer
notifies the seller that it won't be paying for the goods.
At that moment even though the goods are still in transit,
the risk of loss of those goods shifts from the seller to the buyer.
So, if they're damaged or destroyed after
that time it's on the buyer and not on the seller.
This makes sense, right? If you breach the contract you bear the consequences of it.
We shouldn't hold a seller liable for
this loss when the other party has breached the contract.
Now on the flip side if the seller breaches the contract we have some different remedies.
So, how does a seller breach a contract?
Well, the most common way is to send nonconforming goods.
Obviously, they can breach a contract by not sending any goods at all,
but if they haven't sent any goods at all we're not super
concerned about risk of loss because the seller still has them.
So, when the seller sends goods but sends the wrong goods, what do we do?
Well, the rule here is that the seller keeps the risk of damage or loss to those goods
until the seller either cures the nonconformity or the buyer accepts the goods.
So, let's take an example.
Suppose we have a shipment contract calling for
a bicycle company to ship me 10 blue bikes using FedEx or whatever.
So, normally under this contract the moment they deposit the bikes
with FedEx title and risk of loss would both transfer to me the buyer.
But if instead of shipping 10 blue bikes they ship 10 red bikes,
those are nonconforming goods.
Therefore the seller keeps the risk of loss until they get to me,
and even once I get them,
they in my possession if they're damaged,
that still is the responsibility of the seller until one of two things happen.
Either I say, you know what?
I like these red bikes, I'll keep them, they're fine.
That's acceptance. At that point the risk of loss finally transfers to me.
Or the seller comes up with some form of cure.
Now, it's hard to turn a blue bike into a red bike,
but with some products if you ship the wrong products it may be possible to ship a fix to
those products or to show up and make
a modification to them so that they are now conforming.
Sellers have the opportunity to cure when they ship nonconforming goods.
Professor Michael R FrickeTeaching Assistant Professor
