Risk of loss is a term used in the

law Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vario ...

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

s 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 The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...

(UCC), there are four risk of loss rules, in order of application: # Agreement - the agreement of the parties controls #

Breach Breach, Breached, or The Breach may refer to: Places * Breach, Kent, United Kingdom * Breach, West Sussex, United Kingdom * ''The Breach'', Great South Bay in the State of New York People * Breach (DJ), an Electronic/House music act * Miroslava ...

- 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. # Delivery by

common carrier A common carrier in common law countries (corresponding to a public carrier in some civil law systems,Encyclopædia Britannica CD 2000 "Civil-law public carrier" from "carriage of goods" usually called simply a ''carrier'') is a person or compan ...

other than by seller. ##Risk of loss shifts from seller to buyer at the time that seller completes its delivery obligations ##If it is a

destination contract Destination may refer to: Music * Destination (group), a disco studio group from New York * ''Destination'' (Eloy album), 1992 * ''Destination'' (FictionJunction Yuuka album), 2005 * ''Destination'' (Ronan Keating album), 2002 * ''Destination'' (E ...

( FOB (buyer's city)), then risk of loss is on the seller. ##If it is a delivery contract (standard, or FOB (seller's city)), then the risk of loss is on the buyer. # In cases not covered by the foregoing rules, 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 Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...

, the risk of loss rule under a

can be abrogated by a secured interest.''In re H.S.A., II, Inc. (GMAC Business Credit, L.L.C. v. Ford Motor Co.)'', 271 B.R. 534, 47 UCC Rpt.Serv. 747 (Banktcy. E.D. Mich. 2002).

References

Contract law {{contract-law-stub