Week 5 Writing Assignment

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Business Law

Tenth Edition

Chapter 19

Title to Goods and Risk of Loss

Learning Objectives (1 of 2)

19.1 Describe how title to good passes in sales contracts.

19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract.

19.3 Describe what party bears the risk of loss of goods where there has been a breach of a sales contract.

19.4 Describe which party bears the risk of loss of goods in conditional sales contracts.

Learning Objectives (2 of 2)

19.5 Describe what party bears the risk of loss of goods in lease contracts.

19.6 Identify who bears the risk of loss when goods are stolen and resold.

Introduction

Common law placed the risk of loss to goods on the party who held title to the goods

Article 2 of the Uniform Commercial Code (UCC) rejects this notion and adopts concise rules for risk of loss that are not tied to title

Article 2A (Leases) of the UCC establishes rules regarding title and risk of loss for leased goods

Identification of Goods (1 of 2)

Distinguishing goods named in a contract from the seller’s or lessor’s other goods

In the absence of an agreement, the UCC mandates when identification occurs

Already existing goods are identified when a contract is made and names the specific goods sold or leased

Identification of Goods (2 of 2)

Goods that are part of a larger mass of goods are identified when the specific merchandise is designated

Future goods: Goods not yet in existence

Identified when the goods are shipped, marked, or designated by the seller or lessor as the goods to which the contract refers

Passage of Title

Title: Legal, tangible evidence of ownership of goods

Passage of title to goods

If the parties do not agree to a specific time, title passes to the buyer when and where the seller’s performance with reference to the physical delivery is completed

Shipment and Destination Contracts

Shipment contract: Requires the seller to ship the goods to the buyer via a common carrier

Destination contract: Requires the seller to deliver the goods either to the buyer’s place of business or to another destination specified in the sales contract

Delivery of Goods without Moving Them

Buyer is required to pick up the goods from the seller

If the document of title or bill of lading is required, the title passes when the seller delivers the document

Document of title: Actual piece of paper that is required in some transactions of pickup and delivery

If no document of title and goods are identified, the title passes at the time of contracting

Risk of Loss – No Breach of the Sales Contract (1 of 3)

Carrier cases: Movement of goods

Shipment contracts

Risk of loss in a shipment contract: Buyer bears the risk of loss during transportation

Destination contracts

Risk of loss in a destination contract: Seller bears the risk of loss during transportation

Risk of Loss – No Breach of the Sales Contract (2 of 3)

Noncarrier cases: No movement of goods

Merchant seller

Bears the risk of loss between the time of contracting and the time the buyer picks up the goods

Nonmerchant seller

Risk of loss passes to buyer upon tender of delivery of the goods

Risk of Loss – No Breach of the Sales Contract (3 of 3)

Goods in possession of a bailee

Bailee: Holder of goods who is not a seller or a buyer

If goods are to be delivered to the buyer without the seller moving them, the risk of loss passes to the buyer when:

Buyer receives negotiable document of title

Bailee acknowledges buyer’s right to possession

Buyer receives a nonnegotiable document of title and has reasonable time to demand goods

Risk of Loss – Breach of the Sales Contract (1 of 2)

Seller in breach of a sales contract

Seller tenders or delivers nonconforming goods to the buyer

Risk of loss remains on the seller until:

Defect or nonconformity is cured

Buyer accepts the nonconforming goods

Risk of Loss – Breach of the Sales Contract (2 of 2)

Buyer breaches a sales contract if he or she:

Refuses to take delivery of conforming goods

Repudiates the contract

Breaches the contract

Risk of Loss in Conditional Sales (1 of 4)

Conditional sales: Seller entrusts possession of goods to a buyer on a trial basis

Sale on approval: No actual sale occurs until the buyer accepts the goods

Risk of loss and title pass when the goods are accepted by the buyer

Risk of Loss in Conditional Sales (2 of 4)

Sale on approval

Acceptance of the goods occurs if the buyer:

Expressly indicates acceptance

Fails to notify the seller of rejection of the goods within the agreed-on trial period

Uses the goods inconsistently with the purpose of the trial

Risk of Loss in Conditional Sales (3 of 4)

Sale or return

Sale or return contract: Seller delivers goods to a buyer with the understanding that the buyer may return the goods if they are not used or resold within a stated or reasonable period of time

Risk of loss and title pass to buyer when buyer has possession of goods

Risk of Loss in Conditional Sales (4 of 4)

Consignment: Arrangement in which a seller (the consignor) delivers goods to a buyer (the consignee) to sell on his or her behalf

Treated as sale or return under the UCC

Risk of Loss in Lease Contracts

Passes to the lessee on the receipt of the goods in ordinary lease, if the lessor is a merchant

Passes to lessee in case of finance lease

Remains with the lessor or the supplier until cure or acceptance if tendered goods are nonconforming

Sale of Goods by Nonowners (1 of 3)

Void title: Situation in which a thief acquires no title to goods he or she steals

Purchaser does not acquire title to the goods

Lessee has no leasehold interest in stolen goods

Rightful owner can reclaim

Sale of Goods by Nonowners (2 of 3)

Fraudulently obtained goods

Voidable title: Title that a purchaser has on goods obtained by:

Fraud

Check that is later dishonored

Impersonation of another person

Good faith purchaser for value: Person to whom good title can be transferred from a person with voidable title

Sale of Goods by Nonowners (3 of 3)

Entrustment rule: Merchant has the power to transfer all rights in the goods to a buyer in the ordinary course of business

If the owner entrusts the possession of his/her goods to a merchant who deals in goods of that kind

Real owner cannot reclaim the goods from the buyer

Case 19.1: State Court Case Entrustment Rule

Case

Lindholm v. Brant

925 A.2d 1048, Web 2007 Conn. Lexis 264 (2007)

Supreme Court of Connecticut

Issue

Is Brant a buyer in the ordinary course of business who has a claim of ownership to Red Elvis that is superior to that of the owner Lindholm?