Business Law: Ch 14

1. Business Law: Ch 14 Ownership and Risk of Loss in Sales

2. Who May Transfer Ownership? • Only the true owner of goods may legally transfer ownership of those goods • Exceptions: • Person’s authorized to do so may transfer another’s title • Buyers in a sale induced by the fraud of the seller may transfer better title than they have to an innocent third-party purchaser

3. Who May Transfer Ownership? • Exceptions: • Holders of negotiable documents of title may transfer better title than they have • Merchants who keep possession of goods they have sold may transfer better title then they have

4. Who May Transfer Ownership? • Authorized Persons • Person may sell what they do not own if the owner has authorized then to do so • Salespeople • Auctioneers and Sheriffs under court order or when empowered by statute, stolen or repossessed goods or foreclosed property

5. Who May Transfer Ownership? • Buyers in a Sale Induced Fraud • If an owner of goods is induced by fraud to sell the goods, the transfer of title is voidable by the seller • Upon discovering the fraud, the seller may cancel the contracts and recover the goods unless an innocent third party already has given value and acquired rights in them • Good Faith Purchaser – Innocent Third Party

6. Who May Transfer Ownership? • Buyers in a Sale Induced Fraud • Buyer with voidable title resulting from a sale induced by fraud may transfer valid title to good faith purchaser • To act in good faith, the purchaser must not have reason to suspect the person who has the voidable title • A person who buys stolen goods from a thief receives possession, but no title

7. Who May Transfer Ownership? • Holders of Negotiable Documents of Title • In business, certain documents are used as a substitute for title to goods • Warehouse receipt – issued by public warehouses when goods are stored there • Bills of lading and Air bills – issued by common carriers when goods are shipped by them

8. Who May Transfer Ownership? • Holders of Negotiable Documents of Title • In business, certain documents are used as a substitute for title to goods • Documents may be negotiable or nonnegotiable • Negotiable – Goods are to be delivered to the bearer (Person in possession of the document, or to the order of a party named by the document)

9. Who May Transfer Ownership? • Holders of Negotiable Documents of Title • Holder – Person deemed to have title to the goods • May transfer title of the goods by merely transferring the document

10. Who May Transfer Ownership? • Merchants with Possession of Sold Goods • Buyers will allow the merchant seller to temporarily retain possession of the goods after the sale • If the merchant resells and delivers these goods to a good faith purchases, the latter receives good title • The merchant must replace the resold goods or be liable to the original owner

11. Requirements for Ownership Transfer • For ownership of goods to be transferred in a sale, the goods must be both existing and identical • Existing Goods – Physically in existence and owned by the seller • Need not be in a fully assembled and immediately deliverable condition

12. Requirement for Ownership Transfer • Identical Goods – Existing goods that have been designated specifically as the subject matter of a particular sales contract • The identification of such goods may be done by the buyer, the seller, both, or my mutually agreed-upon third party • The identified goods are marked, separated, or in some way made distinct from similar goods

13. Requirement for Ownership Transfer • Future Goods – Goods that are not both existing and identified • Any contract for the sale of future goods is a contract to sell

14. Requirement for Ownership Transfer • Exception to the process of identification • Fungible goods – Goods of homogeneous or essentially identical nature • By nature or trade usage, each unit is regarded as equal to every other unit

15. Requirement for Ownership Transfer • When Does Ownership Transfer? • Common Situations • Seller delivers goods to their destination • Title passes when the goods are tendered at their specified destination • Tender of Delivery – Means that the seller places the proper goods are the buyers disposal and notifies the buyer so that delivery can be received

16. Requirement for Ownership Transfer • When Does Ownership Transfer? • Common Situations • The time, manner, and place for tender are determined by the agreement and the UCC • When additional work is required – title does not pass until such work is completed

17. Requirement for Ownership Transfer • When Does Ownership Transfer? • Common Situations • Seller ships, but does not deliver goods to their destination • Title transfers to the buyer at the time and place of shipment (when possession is transferred to the carrier)

18. Requirement for Ownership Transfer • When Does Ownership Transfer? • Common Situations • Seller delivers document of title • Seller tenders goods at place of sale

19. Ch 13 Test • Reminder that tomorrow, Tuesday, May 15, we will be taking the Ch 13 test. Please look at your handouts for the chapter.

20. 14-1 Assessment • Complete the 14-1 Assessment Questions on page 246. • Complete the 14-1 Handout • Turn in your answer with the handout

21. When Does Risk of Loss Transfer • If Seller Ships Goods by Carrier • Seller is required to deliver goods to a particular destination • Risk of loss passes to the buyer at the destination, upon tender of delivery • To place the goods at the buyers disposal or to give notice to the buyer that delivery can be received • Seller not required to deliver goods to a particular destination • Risk of loss passes to the buyer when the goods are delivered to the carrier

22. When Does Risk of Loss Transfer • Commercial buyers • FOB – means “free on board” • Seller agrees to delivery the goods no further then destination • Title and risk of loss transfers at that point

23. When Does Risk of Loss Transfer • Shipments from foreign countries • Seller quotes a CIF (cost, insurance, freight) • Seller contracts for adequate insurance and for proper shipment • Adds these costs to the price or cost of the goods • Risk of loss transfers to the buyer when the seller delivers goods to the carrier

24. When Does Risk of Loss Transfer • If the goods are held by a bailee • Bailee – Temporary possession of another persons goods, holding them in trust for a specified purpose • Risk of loss transfers to the buyer • When the buyer receives a negotiable document of title covering the goods (warehouse receipts) • When the bailee acknowledges the buyers rights to possession of the goods • After the buyer receives a non-negotiable document of title or other written directions to a bailee to deliver goods

25. When Does Insurable Interest Transfers • Buyers obtain certain rights in goods at the time of their identification to a sales contract. • One right is Insurable Interest – Gives the buyer the rights to buy insurance on the goods • Necessary because the buyer may lose money should be goods be destroyed and the buyer cannot find then elsewhere.

26. When Does Insurable Interest Transfers • In addition to the insurable interest, the buyer has the following rights: • To inspect the identified goods at a reasonable hour • To compel delivery if the seller wrongfully withholds delivery • To collect damages from third persons who take or injure the goods

27. Transfer of Rights and Risks in Specific Sales • Cash-and-Carry Sales • The buyers in a sales contract is a consumer who pays cash and takes immediate delivery, title passes to the buyer at the time of the transaction • Risk of loss passes upon the buyer’s receipt of the goods from a merchant and on tender of goods by a casual seller

28. Transfer of Rights and Risks in Specific Sales • Cash-and-Carry Sales • Seller may insist on payment in legal tender • Checks are commonly used but are not legal tender. • Acceptance of checks by the seller is not considered payment until the check is paid at the bank • Acceptance of the check does not affect the risk of loss

29. Transfer of Rights and Risks in Specific Sales • Sales on Credit • Sale that, by agreement of the parties, calls for payment for the goods at a later date. • Ownership and risk of loss transfers even though payment is delayed.

30. Transfer of Rights and Risks in Specific Sales • COD Sales • COD – Collect on Delivery • Carrier collects the price and transportation charges upon delivery and transmits this amount to the seller. • If buyer does not pay, the goods are not delivered • Buyer loses right to inspect the goods before payment • Ownership and risk of loss transfers as though there was not provisions

31. Transfer of Rights and Risks in Specific Sales • Sale or Return • Completed sale in which the buyer has an option of returning the goods • When goods are delivered to a merchant buyer, the ownership and risk of loss passes to the buyer upon delivery • If the buyer returns the goods (original condition) within the fixed or a reasonable amount of time, ownership and risk of loss passes back to the seller • Not the same as a return privilege granted to customers of retail stores

32. Transfer of Rights and Risks in Specific Sales • Sale on Approval • Goods delivered to the buyer “on trial” or “on satisfaction” • Ownership and risk of loss does not pass until the prospective buyer approves the goods • When in possession of the goods, the prospective buyer is liable for any damages to them caused by their negligence

33. Transfer of Rights and Risks in Specific Sales • Sale of an Undivided Interest • A person sells a fractional interest in a single good or in a number of goods that are to remain together • Ownership and risk of loss pass to each buyer at the time of the sale of each undivided interest

34. Transfer of Rights and Risks in Specific Sales • Auction • Public sale to the highest bidder • Auctioneer accepts the bid on behalf of the owner of the goods • Ownership passes to the buyer at that time • Risk of loss passes when payment is received • Auction sales “With Reserve” – Auctioneer may withdrawal the good at anytime before completion • “Without Reserve” – Item must be sold to the highest bidder

35. Transfer of Rights and Risks in Specific Sales • Bulk Transfer • Transfer of all or a major part of the goods of a business in one unit at a time • UCC requires that notification to the sellers creditors is made before the bulk transfer is made • The buyer is required to notify those creditors of the forthcoming transfer of ownership and to pay their claims or to make other arrangement with them

36. 14-2 Assessment and Handouts • 14-2 Assessment on page 253 • 14-2 Handout