Chapter 21: Title, Risk, and Insurable Interest

Risk of Loss

ROL does not necessarily pass with title. ROL is important because of insurance concerns. Unless agreed otherwise, ROL passes to Buyer depending on whether delivery is with or without movement of the goods.

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.

ROL: Delivery With Movement

Shipment Contracts. ROL passes to Buyer when tendered to Carrier. If goods damaged in transit, Buyer's loss. Destination Contracts. ROL passes to Buyer when goods tendered at particular Destination

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).

ROL: 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. 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.

Identification part 2

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.

ROL: 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.

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.

ROL: 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 Art. 9.) ROL passes to buyer with possession.

Delivery Without Movement of Goods

Title passes when agreed by the parties, or 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.

Title can pass:

Upon physical delivery, or When agreed to by the parties, or If no agreement, depends on whether contract is shipment or destination contract: Shipment: title passes at time and place of shipment. Destination: title passes when goods are tendered at the destination.

Sales or Leases By Nonowners

Void Title: true owner gets goods back. Voidable Title: good faith purchaser keeps goods. Entrustment rule: good faith purchaser keeps goods