Business Law Chapter 19

Bailee

A holder of goods who is not a seller or a buyer.

United Nations Convention on Contracts for the International Sale of Goods

A model act for international sales contracts that provides legal rules that govern the formation, performance, and enforcement of international sales contracts entered into between international businesses.

Good faith purchaser for value

A person to whom good title can be transferred from a person with voidable title. The real owner cannot reclaim goods from a good faith purchaser for value.

Voidable leasehold interest

A title that a purchaser has on goods obtained by (1) fraud, (2) a check that is later dishonored, or (3) impersonation of another person.

Consignment

An arrangement where a seller (the consignor) delivers goods to a buyer (the consignee) for sale.

Identification of Goods and Passage of Title

Identification of goods is accomplished by distinguishing the goods named in a contract.

Entrustment Rule

If an owner entrusts possession of goods to a merchant, they can transfer the goods to a buyer in the ordinary course of business.

Finance lease

If the lease is a finance lease and the supplier is a merchant, the risk of loss passes to the lessee on the receipt of the goods.

Contemporary Environment

Insuring Goods Against Risk of Loss A party with an insurable interest in goods may purchase insurance to reimburse him or her from loss.

C.&F.

It is a pricing term that means that the price includes the cost of the goods and the cost of freight.

Title

Legal, tangible evidence of ownership of goods.

Shipment terms

Many sales contracts contain shipping terms that have different legal meanings and consequences.

No-arrival, no-sale contract

Requires the seller to bear the expense and risk of loss of the goods during transportation.

F.A.S.

Requires the seller to deliver and tender the goods alongside the named vessel or on the dock designated and provided by the buyer.

Lessor

The party who leases the goods.

Nonmerchant-Seller

The risk of loss will transfer to the buyer when the seller gives notice that he has placed the goods aside for the buyer.

Seller in Breach of a Sales Contract

The seller is considered in breach if he delivers nonconforming goods. The buyer may reject the goods. The risk stays with the seller until he either delivers conforming goods or the buyer accepts the nonconforming goods.

Voidable title

Title that a purchaser has if the goods were obtained by (1) fraud, (2) a check that is later dishonored, or (3) impersonating another person.

Conditional sale

Type of sales where the seller entrusts possession of goods to a buyer on a trial basis.

Destination contract

A contract that requires the seller to deliver the goods either to the buyer's place of business or to another destination specified in the sales contract.

Shipment contract

A contract that requires the seller to ship the goods to the buyer via a common carrier.

Void leasehold interest

A situation in which a thief acquires no title to goods he or she steals.

Future goods

Goods not yet in existence (ungrown crops, unborn stock animals).

Lessee

The party who receives the goods.

Risk of loss in a destination contract

The seller bears the risk of loss during transportation.

Risk of loss

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

Risk of Loss in Conditional Sales

Conditional sales are goods entrusted to buyers on a trial basis.

Stolen Goods

If a buyer has purchased goods from a thief, the real owner can reclaim the goods from the purchaser or lessee. This is a void title.

Buyer in Breach of a Sales Contract

If the buyer either refuses delivery of conforming goods, repudiates the contract, or breaches the contract; he will bear the risk of loss for a commercially reasonable time.

Electronic communication

If the receipt of an electronic communication has a legal effect, it has that effect even if no individual is aware of its receipt.

Merchant-Seller

If the seller is a merchant, risk does not transfer until the goods are received.

F.O.B. point of shipment

Requires the seller to arrange to ship the goods and put the goods in the carrier's possession.

Risk of loss in a shipment contract

The buyer bears the risk of loss during transportation.

Sale or return contract

A contract that says that the seller delivers goods to a buyer with the understanding that the buyer may return them if they are not used or resold within a stated or reasonable period of time.

Good faith subsequent lessee

A person to whom a lease interest can be transferred from a person with voidable title. The real owner cannot claim the goods from the subsequent lease until the lease expires.

Buyer in the ordinary course of business

A person who, in good faith and without knowledge that the sale violates the ownership or security interests of a third party buys the goods in the ordinary course of business from a person in the business of selling goods of hat kind. A buyer in the ordinary course of business takes the goods fee of any third-party security interest in the goods.

Void title

A thief acquires no title to the goods he or she steals.

Sale on approval

A type of sale in which there is no actual sale unless and until the buyer accepts the goods.

Risk of Loss: No Breach of Sales Contract

Although common law places the risk of loss on the party who had title, the UCC allows the parties to agree who will bear the risk.

Document of title

An actual piece of paper, such as a warehouse receipt or bill of lading, that is required in some transactions of pickup and delivery.

Electronic acknowledgement

An electronic acknowledgement of the receipt of an electronic communication proves that the electronic communication was received.

Electronic agent

An electronic record (e-record) or electronic signature (e-signature) is attributable to a person if it was the act of the person or the person's electronic agent.

Electronic record

An electronic record (e-record) or electronic signature (e-signature) is attributable to a person if it was the act of the person or the person's electronic agent.

Electronic signature

An electronic record (e-record) or electronic signature (e-signature) is attributable to a person if it was the act of the person or the person's electronic agent.

Passage of title

Article 2 of the UCC establishes precise rules for determining the passage of title in sales contracts.

Contemporary Environment

Commonly Used Shipping Terms This section covers FOB, FOB place of destination, FAS, FAS port of shipment, CIF, C&F, Ex-ship, and no-arrival no-sale contracts. FOB point of shipment requires that the seller arrange for the shipment of goods and be responsible for them until they are received at the common carrier. FAS requires that the seller bear the responsibility for the goods until they are delivered alongside a vessel or at a dock. CIF is cost, insurance, and freight, while C & F is cost and freight. Ex-ship requires the seller to bear the expense and risk until the goods are unloaded. A no-arrival, no-sale contract requires the seller to bear the expense and risk of loss during transportation. If the goods do not reach the buyer, the seller is under no obligation to replace the shipment.

Identification of goods

Distinguishing the goods named in the contract from the seller's or lessor's other goods.

Identification of Goods

Identification can be made at any time and in any manner agreed upon by the parties. If the goods are not identified in the contract, the UCC establishes when identification occurs. Existing goods are identified when the goods are identified in the contract. If they are part of a larger group, they are identified when designated or separated out. Future goods are identified when the young are conceived or crops planted.

Delivery of Goods Without Moving Them

If the seller is expected to deliver a document of title, title passes when the document is delivered. If no document is needed and the goods have been identified in the contract, title passes at the time the parties enter into the contract.

Risk of Loss in Lease Contracts

In an ordinary lease, the risk of loss is retained by the lessor; in a finance lease, the risk is with the lessee. Also known as a capital lease, a financial lease is a situation in which a finance company or other lessor purchases an asset, then leases that asset to a client or lessee for a specified amount of time. At that point, the client takes possession of the asset and is free to utilize the asset for the duration of the lease agreement. Once the client has fulfilled the terms of the lease, including paying any applicable interest, the client usually has the option of purchasing the asset from the finance company at an extremely low price. If the tender is of nonconforming goods, the risk remains with the supplier until cure or acceptance.

Ordinary lease

In the case of an ordinary lease, if the lessor is a merchant, the risk of loss passes to the lessee on the receipt of the goods.

Carriage, insurance and freight (now known in the US as "cost, insurance and freight")(CIF)

Insurance and freight are all paid by the exporter to the specified location. For example, at CIF Los Angeles, the exporter pays the ocean shipping/air freight costs to Los Angeles including the insurance of cargo. This also states that responsibility of the shipper ends at the Los Angeles port.

Carriage and freight (now known in the US as "cost and freight")(C&F, CFR, CNF)

Insurance is payable by the importer, and the exporter pays all expenses incurred in transporting the cargo from its place of origin to the port/airport and ocean freight/air freight to the port/airport of destination. For example, C&F Los Angeles (the exporter pays the ocean shipping/air freight costs to Los Angeles). most of the governments ask their exporters to trade on these terms to promote their exports worldwide such as India and China. Many of the shipping carriers (such as UPS, DHL, FedEx) offer guarantees on their delivery times. These are known as GSR guarantees or "guaranteed service refunds"; if the parcels are not delivered on time, the customer is entitled to a refund.

C.I.F.

It is a pricing term that means that the price includes the cost of the goods and the costs of insurance and freight.

F.O.B. place of destination

Requires the seller to bear the expense and risk of loss until the goods are tendered to the buyer at the place of destination.

Ex-ship

Requires the seller to bear the expense and risk of loss until the goods are unloaded from the ship at its port of destination.

F.A.S. port of shipment

Requires the seller to deliver and tender the goods alongside the named vessel or on the dock designated and provided by the buyer.

Electronic lease contract

Revised Article 2 (Sales) and Revised Article 2A (Leases) establish the rules for electronic sales contracts (e-sales contracts) and electronic lease contracts (e-lease contracts).

Electronic sales contract

Revised Article 2 (Sales) and Revised Article 2A (Leases) establish the rules for electronic sales contracts (e-sales contracts) and electronic lease contracts (e-lease contracts).

Carrier Cases: Movement of Goods

Shipment contracts require that conforming goods be sent to the buyer by common carrier. The risk of loss passes to the buyer upon delivery to the carrier. Destination contracts require the seller to bear the risk of loss until the goods reach their destination.

Shipment and Destination Contracts

Shipment contracts require that the seller ship goods via a common carrier. The shipper is responsible for making the shipping arrangements and delivery passes to the buyer at the time of shipment. A destination contract requires the seller to deliver goods to either the buyer's place of business or another destination, with title passing when delivery is rendered.

Noncarrier Cases; No Movement of Goods

The UCC has two different rules for risk of loss in situations when there is no delivery requirement, depending upon whether the seller is a merchant or nonmerchant.

Destination Contracts

The delivery terms F.O.B. city of buyer, ex-ship, and no arrival, no sale are destination contracts. Since a destination contract requires the seller to tender delivery of conforming goods at a specified destination, the seller must make the goods available to the buyer and give him reasonable notice to take delivery.

Shipment Contracts

The delivery terms F.O.B. place of shipment, F.A.S. seller's port, C.I.F., and C. & F. are all shipment contracts. The seller's performance tender takes place at the shipment location, because the contract does not obligate her to deliver them at a particular destination. Within the United States, the term FOB is commonly used when shipping goods to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to buyer. "FOB shipping point" or "FOB origin" indicates the buyer pays shipping cost and takes responsibility for the goods when the goods leave the seller's premises. "FOB destination" designates the seller will pay shipping costs and remain responsible for the goods until the buyer takes possession. Previously, under the Uniform Commercial Code, both "FOB origin" and "FOB destination" left the seller responsible for paying costs of loading goods on board the carrier; hence "Free On Board". When the buyer was responsible for loading costs as well, the UCC term was "FAS", "Free Alongside". Currently, the UCC has removed FOB and FAS leaving the definition of these terms up to the interpretation of the parties or the applicable state's law. Many states have wholly or in part adopted the UCC terms without realizing that the UCC has abandoned the definitions. A related but separate term "CAP" ("customer arranged pickup") is used to denote that the buyer will arrange a carrier of their choice to pick the goods up at the seller's premises, and the liability for any damage or loss belongs to the buyer.

Free on board (FOB)

The exporter delivers the goods at the specified location (and on board the vessel). Costs paid by the exporter include load, lash, secure and stow the cargo, including securing cargo not to move in the ships hold, protecting the cargo from contact with the double bottom to prevent slipping, and protection against damage from condensation. For example, "FOB JNPT" means that the exporter delivers the goods to the Jawahar lal Nehru Port, India, and pays for the cargo to be loaded and secured on the ship. This term also declares that where the responsibility of shipper ends and that of buyer starts. The exporter is bound to deliver the goods at his cost and expense. In this case, the freight and other expenses for outbound traffic are borne by the importer.

Entrustment rule

The real owner cannot reclaim the goods from a buyer in the ordinary course of business. This is called entrustment rule.

Goods in Possession of a Bailee

The risk of loss for goods held by a bailee is transferred to the buyer when he receives a negotiable document of title and the bailee acknowledges the buyer's right to the goods or the buyer receives a nonnegotiable document of title.

Fraudulently Obtained Goods

The seller has a voidable title if the goods are obtained by fraud. However, the buyer can transfer good title to a good faith purchaser for value.

Consignment

The seller/consignor delivers goods to the buyer/consignee for sale. The consignee is paid a fee if the goods are sold. Risk passes to the buyer when the goods are transferred.

Passage of Title

The title to goods passes in any method agreed to by the parties. Absent an agreement, title passes when delivery is completed.

Sale on Approval

These are goods that a customer is allowed to take possession of for a set period of time to see if it actually fits their needs. Acceptance may be express, through the failure of the buyer to timely reject the goods, or through the buyer's inconsistent use of the goods. Risk remains with the seller during the trial period.

Sale or Return

These goods are delivered to the seller with the understanding that they will be returned if not sold in a stated period of time. The risk of loss passes to the buyer when they take delivery.

Insurable interest

To purchase insurance, a party must have an insurable interest in the goods. A seller has an insurable interest in goods as long as he or she retains title or has a security interest in the goods.

International Law

United Nations Convention on Contracts for the International Sale of Goods (CISG) The CISG is a model act for international sales contracts. The CISG provides legal rules that govern the formation, performance, and enforcement of international sales contracts entered into between international businesses. The CISG applies to contracts for the international sale of goods. The buyer and seller must have their places of business in different countries.

Consignee

In a consignment, a seller (the consignor) delivers goods to a buyer (the consignee) to sell on his or her behalf.

Consignor

In a consignment, a seller (the consignor) delivers goods to a buyer (the consignee) to sell on his or her behalf.