The Passing of Risk clause determines at what point in a transaction the buyer assumes responsibility for loss, damage, or deterioration of goods—even if the seller still retains legal ownership. This clause specifies the exact moment risk transfers from seller to buyer, which is critical because it answers the question: "If the goods are damaged in transit or storage, who bears the financial loss?" Typically, risk passes at one of several key points: when goods are delivered to a carrier, when they arrive at the buyer's location, when they are inspected and accepted, or upon payment. The timing matters enormously because it affects insurance obligations, who can claim damages from third parties, and who must absorb losses from accidents, theft, or deterioration.
This clause is particularly important in international and commercial transactions because goods often travel through multiple hands and jurisdictions before reaching their final destination. Without a clear risk allocation, disputes arise about who should have insured the goods or who can recover from a carrier for damage. The clause protects both parties by creating certainty: the seller knows when they stop being responsible, and the buyer knows when they should arrange insurance coverage. Misalignment between the risk clause and the title retention clause (Clause 98) can create dangerous gaps where neither party is adequately protected.
Ensure your risk clause aligns with your insurance and payment terms. If you're a buyer, negotiate for risk to pass only upon your receipt and inspection of goods—this gives you leverage to reject damaged shipments. If you're a seller, consider passing risk when goods leave your facility or are handed to a carrier, as this limits your exposure. Always coordinate this clause with your title retention provisions and explicitly state whether risk passes before or after payment is made. Document the exact trigger point (e.g., "risk passes upon delivery to buyer's warehouse") and confirm both parties understand their insurance obligations during the risk period.
Frequently Asked Questions
What does this clause mean in simple terms?
The Passing of Risk clause determines at what point in a transaction the buyer assumes responsibility for loss, damage, or deterioration of goods—even if the seller still retains legal ownership.
Why should I care about this clause?
This clause specifies the exact moment risk transfers from seller to buyer, which is critical because it answers the question: "If the goods are damaged in transit or storage, who bears the financial loss?" Typically, risk passes at one of several key points: when goods are delivered to a carrier, when they arrive at the buyer's location, when they are inspected and accepted, or upon payment.
What are my options?
The timing matters enormously because it affects insurance obligations, who can claim damages from third parties, and who must absorb losses from accidents, theft, or deterioration.
How does this affect small businesses?
This clause is particularly important in international and commercial transactions because goods often travel through multiple hands and jurisdictions before reaching their final destination.