WRITE 3 PARAGRAPHS FOR YOUR RESPONSE. REMEMBER: NEED TO BE AT LEAST SENTENCES FOR EACH PARAGRAPH: why the UCC exists, when it applies is very important and what parties it applies. Under the UCC, risk of loss does not necessarily pass with title. When risk of loss passes from a seller or lessor to a buyer or lessee is generally determined by the contract between the parties. Sometimes, the contract states expressly when the risk of loss passes. At other times, it does not, and a court must interpret the performance and delivery terms of the contract to determine whether the risk has passed Like risk of loss, the risk of liability that arises from the goods does not necessarily require the passage of title. In addition, as with risk of loss, when this risk passes from a seller to a buyer is generally determined by the contract between the parties. CASE EXAMPLE 11.26 Tammy Herring contracted to buy a horse named Toby from Stacy and Gregory Bowman, who owned Summit Stables in Washington. The contract required Herring to make monthly payments until she paid $2,200 in total for Toby. Additionally, Herring agreed to pay Toby's monthly boarding fee at Summit Stables until the purchase price balance was paid. The Bowmans were to provide Toby's registration papers to Herring only when she had paid in full. One day, another stable boarder, Diana Person, was injured when she was thrown from a buggy drawn by Toby and driven by Herring's daughter. Person sued the Bowmans to recover for her injuries, but the court held that Herring (not the Bowmans) owned Toby at the time of the accident. Herring argued that she did not own the horse because she did not yet have its registration papers, but the court found that the contract clearly showed When does the risk of loss pass to the buyer in that Herring owned Toby. Therefore, the Bowmans were not liable for the the sale of a horse? injuries that Toby caused. iStock Photo con Project Delivery with Movement of the Goods-Carrier Cases When the contract involves move- ment of the goods through a common carrier but does not specify when risk of loss passes, the courts first look for specific delivery terms in the contract. The terms that have traditionally been used in contracts within the United States are listed and defined in Exhibit 11-4. These terms determine which party will pay the costs of deliver- ing the goods and who bears the risk of loss. If the contract does not include these terms, then the courts must decide whether the contract is a shipment or a destination contract. Shipment Contracts. In a shipment contract, the seller or lessor is required or authorized to ship goods by carrier, but is not required to deliver them to a particular final destination. The risk of loss in a shipment contract passes to the buyer or lessee when the goods are delivered to the carrier (UCC2-319(1)(a), 2-509(1)(a), 2A-219(2)(a)). EXAMPLE 11.27 Pitman, a seller in Texas, sells five hundred cases of grapefruit to a buyer in New York, FO.B. Houston (free on board in Houstonsee Exhibit 11-4). The contract authorizes shipment by carrier. It does not require that the seller tender the grapefruit in New York. Risk passes to the buyer when conforming goods are properly placed in the possession of the carrier in Houston. If the goods are damaged in transit, the loss is the buyer's. (Actually, buyers have recourse against carriers, subject to certain limitations, and buyers usually insure the goods from the time the goods leave the seller.) Destination Contracts. Ina destination contract, the risk of loss passes to the buyer or lessee when the goods are tendered to the buyer or lessee at the specified destination (UCC2-319(1)(b). 2-509(1)(b), 2A-219(2)(b)]. In Example 11.27, if the contract had been FO.B. New York, the risk of loss during transit to New York would have been the seller's. Risk of loss would not have passed to the buyer until the carrier tendered the grapefruit to the buyer in New York