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TITLE TO GOODS AND RISK OF LOSS

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CHAPTER 13 CHAPTER 13

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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.

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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.

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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.

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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.

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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.

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Shipping Terms

Shipment Contracts• F.O.B. point of

shipment.• F.A.S.• C.I.F. or C.&F.

Destination Contracts• F.O.B. place of

destination.• Ex-ship.• No-arrival, no-sale.

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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.

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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.

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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.

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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.

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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.

Risk of Loss: Conditional Sales (continued)

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.