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Contracts • Terms of the Contract
K#090
Legal Definition
If the seller is a merchant, the risk of loss passes to the buyer when they take physical possession of the goods. If the seller is not a merchant, the risk of loss passes to the buyer upon tender of delivery. Note that the seller must give the buyer notice to enable her to take possession, and tender must occur at a reasonable hour.
Plain English Explanation
When a merchant sells something to a buyer, the merchant is liable for the safety of the goods up until the buyer is safely within the physical possession of the goods. The moment that the buyer has physical possession, the merchant is no longer liable. In contrast, if the seller is not a merchant, then they are only liable for the safety of the goods up until they "tender delivery." In other words, the moment they make the goods available for the buyer as per the agreement, they are off the hook.
Hypothetical
Hypo 1: Cherie sells fancy cakes. Sam wants to order a cake for his birthday. He sends Cherie a list of his requests. Cherie says his cake will be ready for pick up at 1:00 pm on Friday. At exactly 1:00 pm on Friday, Cherie places the cake out on the counter of her shop, ready for Sam to pick up. Sam never shows up. Cherie puts it away in the back room. That night, there is a large earthquake. Sam's cake falls on the floor and splatters. The next day, Sam shows up, apologizes for being late, and asks for his cake. Cherie says, "Your cake was destroyed in the earthquake, but it wouldn't have happened had you shown up on time to pick it up." Result: Yes, Sam is kind of a jerk for not picking up his cake on time, but that doesn't matter here. Because Cherie is a merchant, the risk of loss remains on her until Sam physically possesses the cake.
Hypo 2: Cherie sells fancy cakes. Sam wants to order a cake for his birthday. He sends Cherie a list of his requests. Cherie says his cake will be ready for pick up at 1:00 pm on Friday. Sam shows up at 1:00 pm exactly on Friday and sees his cake on the counter. As he is walking up to the cash register, there is a large earthquake. Sam watches his cake fall to the ground. Result: This is the same as Hypo 1. Even though Sam was right there next to the cake, it never passed to his physical possession, so he never took on the risk of loss. Had Sam taken the cake and slipped on his way out of the bakery, then it would be his problem and not Cherie.
Hypo 3: Bob is a stay at home Dad. He's a pretty good cook. One day, Sam asks Bob if he would make him a cake for his birthday for $50. Bob agrees and says it will be ready for pick up at 1:00 pm on Friday. At exactly 1:00pm on Friday, Bob finishes the cake and sets it on the table ready to be picked up. At 1:05 pm, as Sam is knocking on the door to come pick up the cake, there is an earthquake. The cake smashes on the floor. Result: Risk of loss has passed to Sam, the buyer, because Bob is not a merchant. The moment that Bob tendered the delivery of the cake by making it available to Sam for pickup at the designated time, he was no longer responsible for the safety of the goods.
Hypo 2: Cherie sells fancy cakes. Sam wants to order a cake for his birthday. He sends Cherie a list of his requests. Cherie says his cake will be ready for pick up at 1:00 pm on Friday. Sam shows up at 1:00 pm exactly on Friday and sees his cake on the counter. As he is walking up to the cash register, there is a large earthquake. Sam watches his cake fall to the ground. Result: This is the same as Hypo 1. Even though Sam was right there next to the cake, it never passed to his physical possession, so he never took on the risk of loss. Had Sam taken the cake and slipped on his way out of the bakery, then it would be his problem and not Cherie.
Hypo 3: Bob is a stay at home Dad. He's a pretty good cook. One day, Sam asks Bob if he would make him a cake for his birthday for $50. Bob agrees and says it will be ready for pick up at 1:00 pm on Friday. At exactly 1:00pm on Friday, Bob finishes the cake and sets it on the table ready to be picked up. At 1:05 pm, as Sam is knocking on the door to come pick up the cake, there is an earthquake. The cake smashes on the floor. Result: Risk of loss has passed to Sam, the buyer, because Bob is not a merchant. The moment that Bob tendered the delivery of the cake by making it available to Sam for pickup at the designated time, he was no longer responsible for the safety of the goods.
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