Professional Products, Inc. (PPI), bought three pallets of computer wafers from Omneon Video Graphics. (A computer wafer is a thin, round slice of silicon from which microchips are made.) Omneon agreed to ship the wafers to the City University of New York “FOB Omneon’s dock.” Shipment was arranged through Haas Industries, Inc. The “conditions of carriage” on the back of the bill of lading stated that Haas’s liability for lost goods was limited to fifty cents per pound. When the shipment arrived, it included only two pallets.
(a) The first group will determine who suffers the loss in this situation.
(b) The second group will discuss whether it is it fair for a carrier to limit its liability for lost goods.
SOLUTION
(a) PPI suffered the loss. In a shipment contact, if the seller or lessor is required or authorized to ship goods by carrier, but not required to deliver them to a particular destination, risk of loss passes to the buyer or lessee when the foods are delivered to the carrier. Buyers and lessees have recourse against carriers, and they also usually buy insurance to cover the goods.
In this problem, the contract between PPI and Omneon stated that the sale was “FOB Omneon’s dock.” This meant that PPI (the buyer) paid the transportation charges from Omneon’s dock. This authorized a shipment by carrier, but it did not require Omneon (the seller) to tender the wafers at the destination (the City University of New York). This also designated that the risk of loss passed to PPI when conforming goods were placed in the possession of Haas (the carrier).
(b) Arguments in favor of a carrier’s limitation of liability for lost goods include that parties are free to make a contract with whatever terms they can negotiate. Limiting liability encourages carriers to do business, and it supports carriage at more affordable rates. Buyers and sellers can—and usually do—obtain insurance to cover the risk of loss. Arguments against allowing carriers to limit their liability include that it may not be a term for negotiation, but a term imposed on shippers by carriers. Limiting liability can encourage carelessness or even reward negligence.