Risk of Loss Provisions

A Tiny Provision That May Be Missing From Your Terms Of Purchase (that make all the difference)

If you sell products in any form of an online shop, today’s post is incredibly important for you.

I’ll be following up this article with a personal story at a later date, but if you sell any products online, I want you to look in your Terms of Sale for these three words: Risk of loss (it may be phrased as “risk of transit” or something similar).

Black’s Law Dictionary defines risk of loss as:

“The chance of bearing the costs that are associated with destruction, damage or the inability of locating goods, documents and other property.”

In other words, if a package gets lost, stolen, or damaged at any point from the moment it leaves the maker’s hands, who pays for the replacement?

As a business owner, you must answer that question now, and you must define who bears the risk of loss in your contract: you, until the item arrives in your customer’s hands; or does the customer bear the total risk of loss once the item leaves your hands?

I've mentioned it before, but it's worth mentioning again: contract law is considered the trickiest part of the bar exam, and the “risk of loss” portions of bar prep are some that I remember vividly as being the trickiest. So, while they might be seemingly simple provisions that should be added to any contract, they require carefully detailed language. If they're left out or improperly drafted, and something gets lost or damaged from the point of leaving your hands until it gets to your client, you don't want to be left in the awkward situation of having to fight that with your client over who has to pay for what. Damage must be recompensed, and it is far better to determine who pays for what in that scenario prior to it happening, rather than having to awkwardly fight it with your client after they are already upset.