CHAPTER 13 TITLE TO GOODS AND RISK OF

CHAPTER 13 TITLE TO GOODS AND RISK OF LOSS © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 1

Identification of Goods • Goods named in contract distinguished from seller/lessor’s other goods – E. g. , carton marked with buyer’s name. • Risk of loss cannot pass until goods identified. • Title cannot pass until goods identified. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 2

Identification of Goods (continued) • Parties can agree to time and manner of identification. • Existing goods identified when specific goods named. • Future goods identified when born, planted, shipped, marked, or designated. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 3

Passage of Title • Title cannot pass until goods exist and have been identified. • Title passes upon terms agreed to in contract. • If no terms are stated, title passes when delivery is completed. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 4

Shipment and Destination Contracts • Shipment Contract – Seller should make proper shipping arrangements. – Deliver the goods into the carrier’s hands. • Destination Contract – Seller delivers goods either to buyer’s place of business or another destination specified in sales contract. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 5

Delivery of Goods Without Moving Them – Buyer is required to pick up goods from seller – If document of title or bill of lading is required, title passes when seller delivers the document. – If no document of title and goods are identified, title passes at time of contracting. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 6

Shipping Terms Shipment Contracts • F. O. B. point of shipment. • F. A. S. • C. I. F. or C. &F. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall Destination Contracts • F. O. B. place of destination. • Ex-ship. • No-arrival, no-sale. 7

Risk of Loss: No Breach of Sales Contract • Carrier Cases: Movement of Goods – Shipment Contracts - Risk of loss passes to buyer when seller delivers the conforming goods to the carrier. – Destination Contracts - Risk of loss passes to buyer when seller delivers the conforming goods to the specified destination. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 8

Risk of Loss: No Breach Noncarrier Cases: No Movement of Goods – Merchant Seller - Risk of loss passes to buyer when buyer receives the goods. – Nonmerchant Seller - Risk of loss passes to buyer upon tender of delivery. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 9

Risk of Loss: No Breach (continued) Goods in Possession of a Bailee: – Buyer receives negotiable document of title or – Bailee acknowledges buyer’s right to possession, or – Buyer receives a nonnegotiable document of title and has reasonable time to demand goods. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 10

Risk of Loss: Conditional Sales Sale on Approval • No sale unless and until the buyer accepts the goods. • Risk of loss, title pass when goods are accepted. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 11

Risk of Loss: Conditional Sales (continued) Sale or Return • Buyer may return goods unsold after a period of time. • Risk of loss and title pass to buyer when buyer has possession of goods. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 12

Risk of Loss: Conditional Sales (continued) Consignment • Seller (consignor) delivers goods to buyer (consignee) to sell. – Consignor paid a fee if he/she sells the goods on behalf of the consignor. • Treated as sale or return. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 13

Risk of Loss: Breach Seller in Breach - If seller delivers nonconforming goods to the buyer, seller retains risk of loss. Buyer in Breach - If buyer refuses to take delivery of conforming goods, repudiates the contract or otherwise breaches the contract, buyer takes risk of loss of identified goods. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 14

Risk of Loss: Lease Contracts • In ordinary lease, risk of loss retained by lessor. • In case of finance lease, risk of loss passes to lessee. • If tendered goods nonconforming, risk of loss remains with lessor or supplier until cure or acceptance. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 15

Insurable Interest • Seller has insurable interest as long as seller retains title or has security interest. • Lessor has insurable interest during term of lease. • Buyer/lessee has insurable interest in identified goods. • Both parties may have insurable interest simultaneously. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 16

Sales by Nonowners Void Title and Lease: Stolen Goods • Buyer does not obtain good title to stolen goods. • Lessee has no leasehold interest in stolen goods. • Rightful owner can reclaim. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 17

Sales by Nonowners (continued) • Seller/lessor has voidable title if goods were obtained by fraud, if a check is later dishonored, or if he/she impersonates another person. • Can transfer good title to good faith purchaser for value or good faith subsequent lessee. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 18

Sales by Nonowners (continued) Entrustment Rule – If owner entrusts the possession of his/her goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights/title in the goods to a buyer in the ordinary course of business. – The real owner cannot reclaim the goods from this buyer. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 19

Electronic Contracts and Signatures • E-signatures effective. • Electronic record or electronic signature is attributable to a person if it was act of that person or his or her electronic agent. • Electronic communication is effective even if no individual aware of its receipt. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 20

Letters of Credit • To manage risk of nonpayment or nonreceipt of goods in international transactions. • Substitutes credit of bank for that of buyer. • Issuing bank agrees to pay upon delivery of documents from beneficiary (seller). • Governed by Article 5 of UCC. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 21