Passing of Risk

In all legal system the passing of risk in sold goods is a big problem and an important event in the sale of goods. Once the buyer acquires risk, he become liable for the price even if the goods are lost or damaged. The financial risk of and responsibility for damage or destruction when property is being transferred between a buyer and a seller. The risk includes Peril, danger, the chance of loss or injury. Liability for injury, loss, or damage, by statute placed upon the manufacturer rather than the consumer, should it happen from normal use of a product.

The Uniform Commercial Code uses a contractual approach in allocating the risk of loss and assumes that the risk is upon the seller until some event occurs that shifts the risk to the buyer. Where the goods are identified and the contract authorizes the seller to ship the goods by carrier, the event necessary to shift the risk of loss is dependent upon whether the contract is a “shipment” or “destination” contract.

Where the contract does not require the transfer of the goods by carrier, risk of loss passes to the buyer upon the taking of physical possession if the seller is a merchant, otherwise risk passes on tender of delivery, unless an agreement to the contrary is made. The phrase is also an insurance term denoting the hazards and perils that an insured is protected against, i. e. , the contingencies or unknown events that are contemplated by the insured and that are covered by the insurance policy.

Under English law that is the sale of goods, act 1979 the general rule is that risk passes along with property though there are exceptions to this. The U. N. Sale of Goods Convention, 1980, is silent on the role of the parties’ intention in the passing of risk; nevertheless, the same rule emerges from the whole tenor of the Convention. The civil law applies the rule that the risk falls on the owner of the goods. The U. C. C. provides that risk of loss passes to the buyer when the goods are delivered to the carrier: sect. 2-509(1)(a).

In the case of CIF or FOB (vessel) contract, the seller need only put the goods into the custody of the carrier and at that point the risk of loss during carriage passes to the buyer. The Vienna convention also contains provisions relating to passing of risk. The consequence of the passing of risk from seller to buyer are passing of risk from seller to buyer are no different from those found in English domestic law. Article 66 of Vienna convention is substantively similar as Article 96 of ULIS. The UNCITRAL adopted to provide a uniform law for the international sale of goods.

It focuses on the function of the contract between parties. And also addresses the issue of who bears the risk of loss on a simple point-to-point sale. The multiple sales creates problem in transfer goods. A solution is needed for the problem. In the context of risk, the principal aspect of the problem of risk is whether the buyer is bound to pay the price although the goods are lost or damaged. In German jurisprudence this aspect of the risk problem is called preisgefahr. In Art 96 of ULIS where the risk has passed to the buyer, he shall pay the price notwithstanding the loss or deterioration of the goods.

The provisions on the passing of the risk in INCOTERMS are said to be founded on the same concept, but do not contain an express reference to the price. The UCC and Comecon conditions refrain from defining the risk as denoting price risk. The true character of the concept of risk is not treated as the meaning price risk. In another cases the reference to risk cannot denote the price risk because the defaulter, if he is the buyer, will rarely have to pay the price; the normal remedies against him are of compensatory character such as damages, compensation or a penalty. It’s something really confusing.

The trade terms developed by international usage, such as the Comecon conditions, the ECE conditions, and the UCC, treat the concept of the risk in that general manner. In the ULIS, already observed in Art96 refers to the price risk. This obeisance to antiquated doctrine does not, howevre, imply a real, substantial difference between ULIS and the other international formulations, it only reveals an inelegantia juris in the draftsmanship of ULIS. A number of developing countries objected strenuously to the retroactive passing of risk provisions, and proposed that the risk pass at the conclusion of the contract.

CONCLUSION However, the exact moment of the passing of risk under a contract of sale is of prime importance to the parties to a contract of carriage, because, in most cases, it determines who will suffer the consequences should loss or damage ensue. There are some exceptions also for this rule. When the seller fails to deliver the goods within the delay specified, they become at the seller’s risk once the buyer gives notice to the seller of the latter’s default. Another point is that the parties themselves can agree to detach the passing of risk from the passing of title.