Chapter 19: Title of Goods and Risk to Loss

no arrival, no sale contract

requires the seller to bear the expense and risk of loss of the goods during transportation. however, the seller is under no duty to deliver replacement goods to the buyer because there is no stipulation that the goods will arrive at the appointed destination.

free on board (FOB) point 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.

destination contract

requires the seller to deliver the goods either to the buyer's place of business or another destination specified. title passes when the seller tenders delivery of the goods to the specified destination.

shipment contract

requires the seller to ship the goods to the buyer via a common carrier. the seller is required to (1) make proper shipping arrangements and (2) deliver the goods into the carrier's hands. title passes to the buyer at the time and place of shipment.

risk of loss in a destination contract

risk of loss is on the seller while the goods are in transport. includes the following terms: FOB destination, no arrival no sale, and ex-ship.

risk of loss in a shipment contract

risk of loss passes to the buyer when the seller delivers the conforming goods to the carrier. includes the following delivery terms: FOB shipping, FAS, CIF, C&F.

risk of loss under the common law

the risk of loss is on the party who holds title to the goods.

risk of loss for leases under the UCC

the risk of loss passes to the lessee on receipt of the goods. if tender of delivery fails to confirm to the contract, the risk of loss remains with the lessor.

sale or return contract

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 period of time. the sale is final if the buyer fails to return the goods within that time. the risk of loss and title to the goods pass to the buyer when the buyer takes possession.

identification of the goods under the UCC

the seller or the lessor retains the risk of loss of the goods until he or she identifies them in a sales or lease contract. section 2-401(1) and 2-501 prevent title to goods from passing unless the goods are identified to the sales contract.

transfer of title under UCC

title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. 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.

risk of loss in non-carrier cases

two cases: for merchant-sellers: risk of loss does not pass to the buyer until the goods are received. for nonmerchant-sellers: risk of loss passes on tender of delivery of the goods (when the seller makes the goods available to be picked up and notifies the buyer of this fact).

conditional sales

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

void title (or void leasehold interest)

when a buyer purchases goods (or leases goods) from a thief, the purchaser does not acquire title to the goods. the real owner can reclaim the goods.

insurable interest

you must have this to obtain insurance for goods. the buyer and seller (or lessor/lessee) can have this at the same time.

buyer in breach of a sales contract

a buyer breaches this if he (1) refuses to take delivery of the conforming goods, (2) repudiates the contract, or (3) otherwise breaches the contract. a buyer who breaches a sales contract before the risk of loss would normally pass to him bears the risk of loss of any goods identified to the contract. the risk of loss rests on the buyer only for a reasonable time. the buyer is liable only for any loss in excess of insurance recovered by the seller.

bailee

a holder of goods who is not a seller or buyer (i.e. a warehouse) the risk of loss passes to the buyer when (1) the buyer receives a negotiable document of title, (2) this person recognizes the buyer's right to possession of the goods, or (3) the buyer receives a nonnegotiable document of title or other written direction to deliver and has a reasonable time to present the document to this person and demand the goods. if this person refuses to honor the document, the risk of loss remains on the seller.

cost, insurance, and freight (CIF)

a pricing term that means that the price includes the cost of the goods and the costs of insurance and freight. the seller must, at his own expense and risk, put the goods into the possession of a carrier. the buyer bears the risk of loss during transportation.

consignment

a seller (the consignor) delivers goods to a buyer (the consignee) to sell on his or her behalf. the consignee is paid a fee if he sells them. these are treated like sale or returns, so title and risk of loss pass to the consignee when the consignee take possession of the goods.

seller in breach of a sales contract

a seller breaches a sales contract if he tenders nonconforming goods to the buyer. if the goods are so nonconforming that the buyer has the right to reject them, the risk of loss remains on the seller until (1) the defect is cured or (2) the buyer accepts the nonconforming goods.

voidable title (voidable leasehold interest)

a seller or lessor has this type of title to goods if he or she obtained the goods through fraud, if his or her check for the payment is dishonored, or if the seller or lessor impersonated another person. the person with this title can transfer good title to a good faith purchaser for value (or good faith subsequent lessee).

risk of loss under the UCC

adopts concise rules for the risk of loss that are not tied to title. gives the parties to a sales contract the right to insure the goods against loss if they have an insurable interest in the goods.

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. sometimes, a buyer may be required to pick up goods from the seller. the time and place of the passage of title depends on whether the seller is to deliver one of these documents. if this document is required, title passes when and where the seller delivers it. if no document is needed and the goods are identified at the time of contracting, title passes at the time and place of contracting.

identification of goods

distinguishing of the goods named in the contract. this can be named at any time and in any manner explicitly agreed to by the parties of a contract. in absence of an agreement: 1) already existing goods are identified when a contract is made and names the specific goods sold or leased. 2) goods that are part of a larger mass of goods are identified when the specific merchandise is designated.

future goods

goods that are not yet in existence. can be crops or unborn young animals - these are identified when the crops are harvested or when the animals are born. goods other than these are identified when the goods are shipped, marked, or otherwise designated by the seller or lessor as the goods that the contract refers to.

entrustment rule

if an owner entrusts the possession of his goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights in the goods to a buyer in the ordinary course of business. the real owner cannot reclaim the goods. this also applies to leases. case: Lindholm v. Brant

free on board (FOB) point of shipment

legal term that requires the seller to arrange to ship the goods and put the goods in the carrier's possession. the buyer bears the shipping expense and risk of loss while the goods are in transit.

free alongside ship (FAS) port of shipment

legal term that requires the seller to deliver and tender the goods alongside the named vessel or on the dock designated and provided by the buyer. the seller bears the expense and risk of loss until this is done. the buyer bears shipping costs and the risk of loss during transport.

sale on approval

occurs when a merchant allows a customer to take the goods for a specified period of time to see if they fit the customers' needs. acceptance occurs if: (1) the buyer expressly indicates acceptance, (2) fails to notify rejection within the trial period, or (3) uses the goods inconsistency with the purpose of the trial. the risk of loss and title of the goods remain with the seller and do not pass to the buyer until acceptance.