Time of pass of risks in the contracts for the purchase and sale of goods (Part 2)

In the previous article, TNTP analyzed the risks in the contracts for the purchase and sale of goods and the pass of risks in cases where there is a fixed place of delivery of goods. In this article, TNTP will continue to analyze the remaining cases of the time of risk pass in the contract of sale of goods.

2. Time of pass of risk in the contract of sale of goods

Case 2: Pass of risks in cases where there is no fixed place of delivery of goods

Unless otherwise agreed, if the contract contains provisions on the goods transportation and the seller is not obliged to deliver the goods at a given place, the risk of goods loss or damage shall be passed to the purchaser as soon as the goods are delivered to the first carrier. For the pass of risks in this case, the following two conditions are required, one is that the contract contains provisions on the goods transportation and the other is that the seller is not obliged to deliver the goods at a given place. In case the above two conditions are not satisfied, the pass of risks will be determined according to the remaining cases regarding the time of pass of risks.

If the contract contains provisions on the goods transportation, the seller or the purchaser will have to sign a contract for the carriage of the goods. Regardless of which party entering into the contract of carriage and the goods are carried by more than one person, the risk of goods loss or damage passes to the purchaser when the goods have been delivered to the first carrier. In order to avoid a dispute with the purchaser about the time of pass of risks, the seller needs to fulfill the following responsibilities:

• Where goods are handed over to the carrier without being identified with specific signs or marks on them, accompanied with transportation documents or otherwise, the seller must notify the purchaser of the handover of goods to the carrier and identify names and methods of recognizing transported goods.
• Where the seller is obliged to arrange the goods transportation, the seller shall have to enter into necessary contracts for the transportation of goods to the destination by means of transportation suitable to specific circumstances and under normal conditions for such modes of transportation.
• Where the seller is not obliged to purchase insurance for the goods in the course of transportation and if requested by the purchaser, the seller must supply to the purchaser all necessary information on the goods and the transportation thereof to enable the purchaser to purchase insurance for the goods.

Case 3: Pass of risks in cases where goods are handed over to a bailee that is not a carrier

Unless otherwise agreed, if the goods are being kept by a bailee that is not a carrier, the risks of goods loss or damage shall be passed to the purchaser in one of the following cases:

• Upon receipt by the purchaser of documents of title to the goods. Proof of ownership of goods are documents showing the seller’s pass of ownership of goods to the purchaser such as bills of lading, invoices, delivery notes, certificates, etc.
• Upon the confirmation by the bailee of the purchaser’s right to possession of the goods. In this case, the seller needs to agree in advance with the bailee on the confirmation of the purchaser’s receipt of the goods by means of delivery records signed by the purchaser and the bailee, videos, and photos of the receipt of the goods.

If neither of the above two cases falls, the party that bears the risk is the seller.

Case 4: Pass of risks in case of purchase and sale of goods in transportation

Unless otherwise agreed, if the subject matter of the contract is goods in transportation, the risk of goods loss or damage shall be passed to the purchaser from the time the contract is entered into.

“Goods in transportation” in this case are not the goods that are the subject of the contract and are in the process of being transported from the seller to the purchaser. “Goods in transportation” means that at the time of entering into the contract, the goods are being moved from one place to another, have no fixed location, are not the subject of any contract, and are under the ownership of the seller. The risk is passed to the purchaser immediately after the parties enter into the contract.

The following example can be considered to better understand this case, Party A (Hung Yen, Vietnam) signed a contract to buy and sell agricultural products with Party B (China). When Party A transported agricultural products to Huu Nghi International Importer (Lang Son), received information that this border gate had temporarily stopped customs clearance for the import and export of goods to trace and check cases related to COVID-19. Therefore, the two parties could not carry out the delivery of goods and were forced to terminate the contract. On the way to transport the goods back to Hung Yen, Party C (Hanoi, Vietnam) had agreed to buy the goods of Party A and the two parties had entered into a contract. Thus, from the time Party A and Party C enter into the contract, the risk of goods loss or damage is passed to Party C.

Case 5: Pass of risks in other cases

If not falling into cases 1, 2, 3, 4, the risk of goods loss or damage is to be passed to the purchaser as from the time the goods fall under the purchaser’s right of disposal and the purchaser breaches the contract by rejecting the goods, specifically the purchaser did not perform the receipt of goods as agreed on the time and place to receive the goods.

The risk of goods loss or damage is not to be passed to the purchaser if the goods are neither clearly identified by their signs, codes, or bills of transportation, nor notified to the purchaser, nor identified by any means.

3. Notes on the issue of “determining risks” when entering into the contracts for the purchase and sale of goods

• When entering into a contract, the parties need to have foresight about the risks that may arise, thereby agreeing to the terms of the contract at the time when the parties must bear the risks.
• For contracts of great value, where goods are prone to risks, the parties need to agree specifically on the way, transportation, place, and time to deliver and receive the goods, and also buy insurance for the goods in transportation.

Above is the article “Time of pass of risks in the contracts for the purchase and sale of goods (Part 2)”. We hope this article is useful to you.