Week 2 Project BUS3055

Additional Materials

View the PDF transcript for Delivery and Shipment Terms (media/transcripts/Week_2/SUO_BUS3055_W2_L4_Title%20and%20Risk%20of%20Loss.pdf? _&d2lSessionVal=EMn4rxWxXilKwFSCbq2Mk8ydE&ou=78037)

Title and Risk of Loss

Historically, title dictated rights and responsibilities; however, the UCC replaces title with identi�cation, risk and insurable interest. For interest to pass to the buyer, goods must be (1) in existence and (2) identi�ed as speci�c goods in the sales contract. Identi�cation takes place when speci�c goods are designated as the subject matter of the contract. Identi�cation gives buyer the right to obtain insurance on the goods and recover from third parties who damage the goods.

When does title pass?

The default for passage of title is by agreement between the buyer and seller. Absent an agreement, UCC 2-401 permits title to pass to the buyer at the time and place the seller performs by delivering the goods. If the parties do not determine a set time and place, the title passage is determined based on whether the parties have a shipment or destination contract.

If goods are damaged or destroyed in transit, which party bears the financial loss, buyer or seller?

Risk of loss does not automatically pass with the title. Contracts may specify when risk of loss passes from the seller to the buyer. Absent contract provisions, the UCC provides risk of loss passes to buyer depending on whether delivery is with or without movement of the goods.

When does insurable interest exist?

The buyer has an insurable interest in goods that have been identi�ed. The 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.

Incoterms® consist of 11 standard international trade terms used in international sales contracts to de�ne the responsibilities of the buyers and sellers related to costs, transportation and risks at speci�c points in the transaction. Incoterms® are maintained by the International Chamber of Commerce and assign the responsibility for arranging transportation, insurance and customs clearance between buyers and sellers. Intcoterms® do not address passage of title. Some of the terms are also used in domestic shipment and delivery transactions. The most frequently used terms are summarized in the following table.

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