On the night of July 2, the tractor was destroyed by fire of unknown origin. Neither Stein nor Beal had any fire insurance. Who must bear the loss? Why?
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Stein, a mechanic, and Beal, a life insurance agent, entered into a written contract for the sale of Stein’s tractor to Beal for $6,800 cash. It was agreed that Stein would tune the motor on the tractor. Stein fulfilled this obligation and on the night of July 1 telephoned Beal that the tractor was ready to be picked up upon Beal’s making payment. Beal responded, “I’ll be there in the morning with the money.” On the next morning, however, Beal was approached by an insurance prospect and decided to get the tractor at a later date. On the night of July 2, the tractor was destroyed by fire of unknown origin. Neither Stein nor Beal had any fire insurance. Who must bear the loss? Why? |
Explanation
The risk of loss deals with the problem of allocation of loss between the buyer and the seller since the goods are destroyed without any fault of the buyer or the seller. If the loss shifts to the buyer, then they need to pay the price for goods to the seller, without even receiving or using the goods. If the loss shifts to the seller, then they cannot recover the price of goods from the buyer.
In this case, the loss shifts to Individual B, which means Individual B needs to pay the price of Item T as agreed to Individual S. The risk of loss has shifted to the buyer because Individual S is not a trader and in the case of a non-trader, the risk of loss shifts on the tender of delivery. The tender of delivery implies that:
A seller has held the conforming goods for selling it to a buyer.
A seller has informed a buyer that the goods are ready for delivery.
Both the above-mentioned points are true in the case of agreement between Individual B and Individual S. So, Individual B needs to bear the loss of Item T.
Verified Answer
In this case, Individual B should bear the loss since Individual S is not a trader of the goods. So, the risk of loss passes to the buyer on tender of delivery.
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