interest passes at the same time, and risk of loss transfers when the buyer takes possession, unless the seller
is not a merchant. In the latter case, under the rule of tender of delivery, risk remains with the buyer.
A common-carrier delivery contract occurs when a common carrier, who is an independent contractor
rather than an agent of the seller (e.g., a trucking line), delivers the goods. The UCC further categorizes these
types of contracts into shipment contracts and destination contracts:
1.
A shipment contract occurs when it is the responsibility of the seller to make the shipping arrangements
and to transfer the goods to the common carrier. Under this contract, title passes to the buyer at the time
of shipment, so the buyer bears the risk of loss, even when he or she has not taken possession of the
goods.
2.
A destination contract occurs when the seller is required to deliver the goods to a location that is
stipulated in the contract. Under this contract, title transfers when the goods are delivered, but the seller
bears the risk of loss until that time.
A goods-in-bailment contract occurs when the goods are stored under the control of a third party, such as in
a warehouse or on a ship. Transfer of title and risk of loss depends on whether the seller has a document
indicating ownership of the goods and whether that document is negotiable or non-negotiable. A negotiable
document contains the words, “deliver to the order of [seller].” As soon as that document is endorsed to the
buyer, both title and risk pass to the buyer. A non-negotiable document lacks those words. Under these
circumstances, title passes with the endorsement of the document, but risk of loss does not pass until the
custodian of the goods is notified of the title. If a document of title is completely absent, title passes at the
same time as the execution of the contract, but risk does not pass until the custodian is notified of, and
acknowledges, the transaction. Insurable interest is created when either the buyer or seller has the title, risk of
loss, or an economic interest in the goods.
Finally, a conditional sales contract is a contract that occurs when the sale is dependent on approval. For
example, a sale-or-return agreement occurs when both parties agree that the buyer can return the goods at a
later date. Insurable interest is created once the goods are identified in the contract. Title and risk of loss
depend on whether the goods are delivered by the common carrier, the seller, or in bailment, as described
above.
The International Sale of Goods
With globalization, there has been a significant expansion of commercial transactions undertaken across
international borders. The United Nations Convention on Contracts for the International Sale of Goods, or
the CISG, is the main legal structure offered for the governance of international commercial transactions. The
CISG broadly covers the same topics as the UCC, but it preempts the UCC if there is a problem with an
international sale.
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Chapter 8 Sales Contracts
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