Fundamentals of Business Law

1. 6th Edition Fundamentalsof Business Law Chapter 15Sales Contracts: Title and Risk of Loss

2. Introduction • Sale of goods requires different rules than real property transactions: risk should not always pass with title. • UCC replaces title with identification, risk, and insurable interest.

3. Identification For any interest to pass to buyer, goods must be: • In existence. • Identified as specific goods in the sales contract (by serial numbers and/or physically separated from others. Except for fungible goods which do not need separation).

4. Identification • Gives the buyer the right: • To obtain insurance on the goods. • To recover from third parties who damage the good. • Identification occurs: • If goods are designated when contract is made. If goods are not designated when contract is made, then identified at time of designation.

5. Passage of Title • Unless there is an agreement to the contrary, title passes to the Buyer at the time and place the Seller physically delivers the goods. • Case 15.1 In Re Stewart (2002).

6. Shipment vs. Destination Contracts • Title passes when agreed to by the parties. • If no agreement, depends on whether the contract is a shipment or destination contract: • Shipment: title passes at time and place of shipment. • Destination: title passes when goods are tendered at the destination.

7. Delivery Without Movement of Goods • Title passes when agreed by the parties. • If no agreement, title passes: • With document of title: when and where document delivered. • Without document: when sales contract is made, if goods have been identified or when identification occurs if they have not been identified.

8. Sales or Leases By Non-Owners • Void Title: true owner gets goods back. • Voidable Title: good faith purchaser keeps goods. • Case 15.2 Memphis Hardwood Flooring Co. v. Daniel (2000). • Entrustment rule: good faith purchaser keeps goods.

9. Risk of Loss: Delivery with Movement of Goods • In a shipment contract, ROL passes when seller tenders goods to carrier. • Case 15.3 Windows, Inc. v. Jordan Panel System Corp. (1999). • In a destination contract, ROL passes when goods tendered at destination.

10. Risk of Loss: Delivery Without Movement of Goods • Goods Held by Seller: • Document of Title is generally not used. • If Seller is a merchant, ROL passes when buyer takes physical possession of goods. • Goods Held by Bailee (Warehouse). ROL passes when: • Buyer receives document of title; bailee acknowledges Buyer’s right to goods and buyer receives title and has reasonable time to pick up.

11. Conditional Sales • Sale on Approval. • ROL passes when buyer approves expressly or implicitly. • Sale or Return. (Consignment is sale or return unless it complies with Article 9.) • ROL passes to buyer with possession.

12. ROL: Seller’s Breach of Contract • Generally breaching party bears ROL. • Seller’s Breach. • Rejection - risk stays with seller. • Revocation of acceptance - risk passes back to seller to the extent that buyer’s insurance does not cover the loss.

13. ROL: Buyer’s Breach of Contract • Buyer’s Breach. Goods are identified, risk passes to buyer for a reasonable amount of time after seller learns of the breach, to the extent that seller’s insurance does not cover loss.

14. Insurable Interest • Buyer has an insurable interest in goods that have been identified. • Seller has an insurable interest in goods as long as they retain title or a security interest. • Both buyers and sellers can have an insurable interest at the same time.

15. Bulk Transfers • Covered by Article 6 of the Uniform. Commercial Code. • A bulk transfer is defined as: • Major part of seller’s inventory. • Not made in the usual course of business. • UCC 6 is becoming obsolete and has been repealed by many states.