Chapter 22

common-carrier delivery contract

When the seller passes the goods using a common-carrier delivery contract. (CC is an independent contractor and not an agent of the seller) UCC names two delivery contracts in this category. 1. Shipment contract: The title passes to the buyer at the time and place of shipment. This occurs when the seller ships the goods to the buyer via common carrier. 2. Destination contract: the title passes as soon as the buyer receives the shipment and the seller has risk of loss until item arrives.

Ownership

When does the title actually transfer from the seller to buyer? Since the right to transfer ownership of the goods, whether through a subsequent sale or gift, is tied to title?

Types of sales contracts

1. Simply delivery contract 2. Common-carrier delivery contract 3. Goods-in-bailment contract 4. Conditional sales contract

Nonnegotiable Document

A document lacking the words "to the order of", then the title passes with the instrument of the title, but the risk of loss does not pass to the buyer until the bailee (the custodian of the goods) is notified of the transfer or a reasonable time has elapsed since the transaction.

Insurable interest occurs

Created when the buyer/seller holds the title.

Zaretsky v. The william goldberg diamond corp.

Goldberg consigned jewelry to Kahn. A person who loaned jewelry to celebrities. A written consignment agreement prohibited Kahn from selling the piece. kahn never returned the diamond which ended up with Zaretsky. Ten years later, Goldberg sued Zaretsky for the diamond to be returned to him. Goldberg was able to get diamond back since Kahn basically stole the diamond and wasn't a merchant so it was a void title.

Three kinds of title

Good Title Void title Voidable title

Goods-in-bailment

Good that are in some kind of storage (in a warehouse or on board a ship), so the seller cannot transfer physical possession to them. The seller has one of three documents indicating the ownership of the goods. 1) A negotiable document 2) A nonnegotiable document of a title. 3) Or a contract or some other instrument showing ownership that is not a negotiable or nonnegotiable title.

Entrustment Rule

If an owner entrusts a merchant with the possession of their item and the merchant then sells the item in the ordinary course of business. The new buyer of that item gets a good title if it was bought in good faith, even though the merchant originally did not have any title of some sort. This is relevant as long as the buyer did not buy it at an unreasonably low price. The original owner's only recourse is to bring suit against the merchant.

Third-party purchaser

If the buyer with a voidable title sells the item to a third-party whom bought the item in good faith, it turns into a good title and the original seller can never reclaim the item.

Sale-on-approval contract

If the seller allows the buyer to take possession of the good before deciding whether to complete the contract by making the purchase. The title and risk of loss remain with the seller until the buyer notifies the seller about the approval of contract.

Risk of loss during a breach of contract

If the seller does not provide the goods that were described in the contract (breach), the buyer may either. 1. Accept the nonconforming goods as is 2. Reject the goods subject to the seller's curing of the goods (fixing it). In this case, the risk of loss remains with the seller until the buyer accepts the goods or the seller cures the deficiency. If the seller does not timely cure the contract the buyer has the option to revoke the contract. Though remember, if the seller never breached the risk transfers to the buyer at the extent of the seller's insurance.

Negotiable document

If the seller has a negotiable document (a document containing the words "deliver to the order of [seller]" then both the title and risk of loss transfer from the seller to the buyer as that negotiable instrument is endorsed over to the buyer. Ex: Fedex delivery "sign here please".

tender of delievery

If the seller is not a merchant, the risk of loss remains with the buyer. Tender of delivery is the moment the goods were available for the buyer to take. Ex. if you buy a dresser from a garage sale, but you want to go home and get your truck. If a car hits your dresser before you are able to claim, the risk of loss is on you because 1. the law does not consider the seller a merchant and 2. you could have taken the dresser with you when you bought it.

(Risk of) Loss

In regard to the right to indemnification (compensate) if the goods are damaged, when the risk of loss attaches is important. We need to know the the seller's and buyer's responsibility to each other in the event that the goods are damaged or destroyed before the buyer takes complete possession of the goods.

Good title

Is title that is acquired from someone who already owns the goods free and clear. Attaining a good title can be acquired from someone who owns the goods free and clear without any qualifications

A sale is not straightforward

It doesn't tell the parties: -When the buyer can resell the goods to a third party -When the insurance on the goods can be purchased -When the goods become part of the buyer's inventory and can serve as collateral for a loan. Theres also no indication of who takes the loss of the goods if the goods are damages before delivery, during possession by the seller, or in transit.

Mellon v. Biltmore

Mellen delivered diamond to diamond dealer without intention of them selling it. Bilmore received this diamond as a collateral as pawn loan, then bought the remaining amount with cash. Since diamond dealer never purchased the diamond, they had a void title.

Voidable title

Occurs in certain situations where the contract between the original would be void but the goods have already been sold to a third party. The buyers gets a voidable title if: -The buyer has deceived the seller regarding his or her true identity. -The buyer has written a bad check for the goods -The buyer has committed criminal fraud in securing the goods. -The buyer and seller agreed that title will not pass until later time. -The buyer is a minor (common law)

When the buyer is in breach

Occurs when the buyer refuses to accept conforming goods from the seller and then the goods are subsequently lost or damaged. Usually occurs in a destination contract, when the risk remains with a seller. In order to encourage sellers to create origin contracts, the UCC requires risk of loss remain with the seller to the extent of the seller's insurance.

simple delivery contract

Occurs when the purchased goods are transferred to the buyer from the seller either that time of the sale or some time later by the seller's delivery. The buyer and seller typically execute an agreement, and the buyer leaves with the goods. Under UCC 1. The title transfers to the buyer on the goods' being identified to the contract, that is, when the contract is executed. 2. Risk of loss transfers to the buyer when the buyer takes possession 3. Insurable interest is created in the buyer when the goods are identified to the contract, in other words, at the same time the title passes. (so if you hold the title you have insurable interest)

Sale-or-return contract

Occurs when the seller and buyer agree that the buyer may return the goods at a later time. Such contracts usually occur when the buyer is buying inventory to resell.

Pileri v. Consolidated

Pileri industries (seller) shipped goods via a common carrier to Consolidated Industries (buyer). The goods were lost prior to actual delivery. Pileri claimed that it was a shipment contract and that the risk of loss was with Consolidated. Consolidated disagreed. Verdict: Judge Crawley dissented stating that since their previous 6 contracts were shipment contracts and reminding 4 is silent (indicates shipment contract). The course of dealing causes this case to be a shipment contract. Pileri also used usage of trade insisting that its standard procedure in their industry. Reversed in favor of Pileri

Delivery ex-ship (delivery from the carrying vessel)

Risk of loss passes to the buyer when the goods leave the ship.

Risk of loss

Risk of loss transfers from buyer to seller along with the title

Conditional Sales Contracts

Sale-on-approval contracts Sale-or-returns contracts

Encumbrance

The right to encumber goods as collateral for a debt is dependent on who is holding title.

Insurable interest

The right to insure the goods against any risk exposure such as damage or destruction. Both the buyer and seller can insure themselves from potential loss, in the event that the goods are damaged or destroyed at some point in the transition.

CIF or C&F (cost, insurance, and freight; cost and height)

The seller puts the goods in possession of a carrier before the risk passes to the buyer. Contracts are usually shipment contracts rather than destination contracts.

Free alongside (FAS)

The seller, at seller's expense, delivers the goods alongside the ship before the risk passes to the buyer

Free on board (FOB)

The selling price includes transportation costs, and the seller carries the risk of loss to either the place of shipment or the place of destination.

There is either a negotiable or nonnegotiable document of title

The title passes at the time the sales contract is executed but the risk does not transfer to the buyer until the bailee (the entity holding the item) is notified of the transaction and acknowledges such notification.

Shipment/origin contract

Title passes to buyer when the goods are shipped

Destination contract

Title passes to buyer when the shipment is received

Risk of loss and merchants

Under the UCC, if the store is a merchant, the risk of loss remains with the seller until the couch is actually delivered to you.

Seller to buyer when the goods are elsewhere in some kind of storage and in a third party's possession and care.

Title: when the document of title (Bill of lading or warehouse receipt) is actually endorsed or signed over to the buyer. If theres no document of title then the title and transferred when the goods are identified to the contract. Risk of loss: passes to buyer simultaneously with the document of title provided that the document of title is a negotiable one. If nonnegotiable, the risk does not pass until bailee (the possessor or custodian of the goods) is notified or a reasonable time has passed. If no document of title, the risk passes when the bailee is notified and acknowledged Insurable Interest: created when either party has title, risk of loss, or some other economic interested attached to the goods. .

Sale

UCC defines a sale as the passing of title from the seller to the buyer for a price. However, this definition does not indicate the relationship between passing title and ownership.

Void title

is not a true title. Someone who purchases stolen goods, knowingly or unknowingly, has void title. Good faith is irrelevant for void title. Stolen goods will always remain stolen goods.