Contracts and Sales Multistate Bar Practice Exam

What happens if the goods are destroyed before the risk of loss passes to the buyer?

1. The seller must compensate the buyer generously

2. The contract is avoided if goods were identified in the contract

3. The buyer has to pay for the destroyed goods

4. The seller must replace the goods at their own cost

The correct answer is: The contract is avoided if goods were identified in the contract

When goods are destroyed before the risk of loss has passed to the buyer, the correct outcome is that the contract is avoided if the goods were specifically identified in the contract. This principle is rooted in the Uniform Commercial Code (UCC), which governs sales of goods in the United States. Under the UCC, risk of loss typically transfers from the seller to the buyer at a predetermined point in the sales process, often related to delivery terms or acceptance of the goods. If the goods are destroyed before this point, the seller bears the risk, and since the specific goods set forth in the contract no longer exist, the contract cannot be fulfilled as originally intended. Therefore, the buyer is not obligated to pay for the destroyed goods, since they were never at risk of loss. This ensures fairness in the transaction, as the buyer should not suffer a financial loss for goods that were not delivered in an identifiable and usable state. Additionally, the disappearance of the goods means that there is no subject matter that can be transferred to the buyer, effectively voiding the contract as it pertains to those specific items. In contrast, other options imply different obligations or responsibilities that do not align with the principles of risk of loss under the UCC.