From the entry to the termination of contracts for the purchase and sale of goods, the parties always want the contract to be performed smoothly, minimizing the loss and damage that may occur to the goods. However, in many cases, such as during the transportation of goods from the seller to the purchaser, when the goods are transported to the warehouse of the purchaser, etc., the goods may be lost or damaged. Will the seller or the purchaser bear the risk in these cases? TNTP will answer this question in the following article.
1. Risks in the contracts for the purchase and sale of goods
The risk is the loss or damage that occurs to the goods. Risk can occur due to subjective human error or due to objective reasons (weather, natural disaster, fire, war, strike, epidemic, accident,…). The parties do not want the risk because they will have to bear the damage caused by the risk. Therefore, determining the time the seller must bear the loss or damage of the goods; the time when such damage or loss is passed to the purchaser has an important meaning in the actual performance of the contract.
2. Time of pass of risks in the contracts for the purchase and sale of goods
Pass of risks is the determination of the purchaser or seller who is responsible for the loss or damage of the goods at a specified time. The law respects the agreement of the parties on the time of pass of risks in the contracts for the purchase and sale of goods. In case the parties do not agree, the determination of the party to bear the risk will be based on the provisions of the Civil Code 2015 and the Commercial Law 2005, specifically:
Case 1: Pass of risks in cases where there is a fixed place of delivery of goods
In principle, the law respects the agreement of the parties, so even if the parties have agreed and specified delivery locations, the time of pass of risks is first and foremost determined by the parties.
For example, the parties stipulate in the contract that the purchaser only receives the goods and signs the goods delivery receipt as a basis for payment and pass of risks after the parties have conducted the acceptance of the goods and/or the purchaser receives all documents related to the goods at the time of delivery. In case the seller does not guarantee the type, quantity, and quality of the goods and/or does not hand over sufficient documents, the purchaser has the right not to receive the goods, not to sign the goods delivery receipt, instead to make a record to determine the seller’s fault so that the purchaser does not receive the goods and does not bear the risk of the goods.
Unless otherwise agreed, if the seller is obliged to deliver the goods to the purchaser at a particular place, the risk of goods loss or damage shall be passed to the purchaser as soon as the goods are delivered to the purchaser or the person authorized by the purchaser to receive the goods at such place, even in cases where the seller is authorized to retain the documents which establish the ownership rights over the goods.
The parties often specify in the contract about the delivery location, this location can be the purchaser’s warehouse, the purchaser’s business location, or a third party’s storage location,… Some contracts also clearly stipulate the information of the person authorized by the purchaser to receive the goods.
In case the contract does not specify who is authorized by the purchaser to receive the goods, the seller should contact the purchaser to confirm this person’s information, especially when the seller delivers the goods to a third-party location. The parties can still arise disputes if the seller only delivers the goods to the place designated by the purchaser, delivers the goods to someone who is not authorized to receive the goods and the two parties do not sign any records proving the purchaser has received the goods in full. Therefore, the seller not only needs to deliver the goods to the right place specified by the purchaser but also to the right person authorized by the purchaser to receive the goods. At the same time, the parties need to sign a goods delivery receipt to prove that the purchaser or the person authorized by the purchaser has received the goods. In case the consignee is not the purchaser or the person authorized by the purchaser, it is highly likely that the seller will bear the risk unless the seller delivers the goods to the wrong person due to the purchaser’s fault, such as the purchaser intentionally provides false information about the consignee, etc.
In short, the time of pass of risks coincides with the time when the seller delivers the goods to the purchaser, and the purchaser or the purchaser’s authorized representative receives the goods. However, in not all cases the time the seller delivers the goods and the time the purchaser receives the goods is the same. Therefore, the parties need to base on the provisions on time of delivery and receipt of goods in the contract to determine whether the risk has been passed or not. Usually, the party that violates the delivery and receipt obligations will be the party that bears the risk.
- For example, the two parties agree that the time of delivery and receipt of goods is 15:00 on November 25, 2022, at the purchaser’s warehouse. The seller delivered the goods to the purchaser’s warehouse at exactly 15:00 on November 25, 2022, but this warehouse is closed and the purchaser had not received the goods. At 16:30 on the same day, it rained and part of the goods was damaged due to water infiltration. In this case, the purchaser would have to bear the risk because of breaching the receipt
- In the same example as above, the seller delivered the goods to the purchaser’s warehouse at 16:00 on November 25, 2022, later than the time agreed by the two parties. The purchaser refused to receive the goods because the seller did not deliver the goods on time. At 16:30 on the same day, it rained and part of the goods was damaged due to water infiltration. In this case, the seller would have to bear the risk because of breaching the delivery obligation.
- In the same example as above, the two parties only agreed on the time of delivery and receipt of goods on November 25, 2022, without agreeing on a specific hour. The seller delivered the goods to the purchaser’s warehouse at 16:00 on November 25, 2022. The purchaser had not received the goods, it rained and part of the goods was damaged due to water infiltration. In this case, the seller would have to bear the risk because the purchaser had not breached the receipt
Above is the article “Time of pass of risks in the contracts for the purchase and sale of goods (Part 1)”. Please follow part 2 in the next article of TNTP.
