CPA Exam — REG (Regulation)Business LawEasy
A client, 'Green Thumb Nurseries,' contracts with 'EcoFertilizer Co.' for the delivery of 50 tons of organic fertilizer. The contract specifies 'F.O.B. Seller's Plant.' During transit, and before reaching 'Green Thumb Nurseries,' a fire breaks out in the shipping truck, destroying 20 tons of the fertilizer. Who bears the risk of loss for the destroyed fertilizer?
- AThe shipping company, due to their negligence in the fire.
- BEcoFertilizer Co., as they were responsible for arranging the shipment.
- CGreen Thumb Nurseries, as the risk of loss passed upon delivery to the carrier.
- DBoth parties equally, as it was an unforeseen event during transit.
Show answer & explanationAnswer & explanation
Correct answer: C. Green Thumb Nurseries, as the risk of loss passed upon delivery to the carrier.
Under an F.O.B. Seller's Plant (or F.O.B. Shipping Point) contract, the risk of loss transfers from the seller to the buyer when the goods are delivered to the carrier. Therefore, Green Thumb Nurseries bears the risk of loss for the destroyed fertilizer.
Why the other options are wrong
- A. While the shipping company might be liable for negligence, between the buyer and seller, the risk of loss is determined by the F.O.B. term.
- B. EcoFertilizer Co. is not responsible for risk of loss once goods are at carrier under F.O.B. Seller's Plant.
- D. Risk of loss is generally not shared equally under UCC F.O.B. terms; it shifts entirely at a specific point.
F.O.B. Shipping Point (UCC)
A shipping term where the seller's responsibility ends and the buyer's responsibility begins when the goods are delivered to the carrier at the shipping point. Risk of loss transfers to the buyer at this point.
- Seller pays to get goods to carrier.
- Buyer pays freight from shipping point to destination.
- Risk of loss transfers to buyer at shipping point.
Memory trick: F.O.B. Shipping Point? Once it's on the truck, it's YOUR bad luck!