CPA Exam — REG (Regulation)Business LawMedium
A buyer enters into a contract with a seller for the purchase of 500 widgets, with delivery 'FOB Shipping Point, Seller's Warehouse.' During transit from the seller's warehouse to the buyer's location, 50 widgets are damaged in an accident. Who bears the risk of loss for the damaged widgets?
- AThe carrier, because they were responsible for the goods during transit.
- BThe buyer, because the risk of loss passed upon delivery to the carrier.
- CThe seller, because the goods had not yet reached the buyer's possession.
- DBoth the buyer and seller equally, as they are parties to the contract.
Show answer & explanationAnswer & explanation
Correct answer: B. The buyer, because the risk of loss passed upon delivery to the carrier.
FOB Shipping Point means that the seller's responsibility for the goods ends once they are delivered to the carrier. At that point, title and risk of loss pass to the buyer. Therefore, any damage during transit is the buyer's responsibility.
Why the other options are wrong
- A. While the carrier might be liable to the buyer for the damage, the initial risk of loss under the sales contract passed to the buyer, who would then pursue a claim against the carrier.
- C. This is incorrect. Under FOB Shipping Point, possession by the buyer is not the determinant for risk of loss; delivery to the carrier is.
- D. Risk of loss typically falls on one party or the other, not equally, based on the agreed-upon shipping terms.
FOB Shipping Point (UCC)
A shipping term under the UCC where the seller's responsibility for the goods ends, and title and risk of loss pass to the buyer, once the goods are delivered to the common carrier at the shipping point.
- Buyer pays shipping costs.
- Buyer assumes risk of loss during transit.
- Seller must deliver goods to the carrier and make a reasonable contract for their transportation.
Memory trick: FOB Shipping: Seller's done, Buyer's on the hook.