BLaw Ch 19

Passage of title to goods

- 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

Case 19.1: Lindholm v. Brant

-925 A.2d 1048, Web 2007 Conn. Lexis 264 (2007) -Supreme Court of Connecticut •Issue -Is Brant a buyer in the ordinary course of business who has a claim of ownership to Red Elvis that is superior to that of the owner Lindholm? Lindholm entrusted painting to Malmberg (art dealer) to loan to a museum, instead sold it to Brant for $2.9 million -Decision: The trial court held that Brant was a buyer in the ordinary course of business who obtained ownership to Red Elvis when he purchased the stolen Red Elvis from Malmberg. Lindholm appealed the decision of the trial court to the supreme court of Connecticut, which affirmed the decision of the trial court and awarded the Red Elvis to Brant. A court in Sweden convicted Malmberg of criminal fraud and sentenced him to 3 years in prison. A Swedish court awarded Lindholm $4.6 million in damages against Malmberg.

Document of Title

-Actual piece of paper that is required in some transactions of pickup and delivery §Such as a warehouse receipt or a bill of lading -Usually, there is a document of title -An example could be a store receipt

•In the absence of an agreement, the UCC mandates when identification occurs

-Already existing goods are identified when a contract is made and names the specific goods sold or leased §Example A piece of farm machinery, a car, or a boat is identified when its serial number is listed on a sales or lease contract. -Goods that are part of a larger mass of goods are identified when the specific merchandise is designated §Example If a food processor contracts to purchase 150 cases of oranges from a farmer who has 1,000 cases of oranges, the buyer's goods are identified when the seller explicitly separates or tags the 150 cases for that buyer. -Future goods: Goods not yet in existence §Identified when the goods are shipped, marked, or designated by the seller or lessor as the goods to which the contract refers -Examples Unborn young animals (such as unborn cattle) are identified when the young are conceived. Crops to be harvested are identified when the crops are planted or otherwise become growing crops.

Bailee

-Holder of goods who is not a seller or a buyer (ex-warehouse, common carrier, etc) -Bailment: giving up possession of something to someone without giving up title -3 types: one that primarily benefit the bailee, one that primarily benefits the bailor, mutual benefit bailment

Risk of Loss - No Breach of the Sales Contract

-In the case of sales contracts, common law placed the risk of loss of goods on the party who had title to the goods. Article 2 of the UCC rejects this notion and allows the parties to a sales contract to agree among them who will bear the risk of loss if the goods subject to the contract are lost or destroyed. If the parties do not have a specific agreement concerning the assessment of the risk of loss, the UCC mandates who will bear the risk. -Stuff on the next couple cards is what the UCC gives you

Risk of Loss - No Breach of the Sales Contract: Noncarrier cases: No movement of goods

-Merchant seller §Bears the risk of loss between the time of contracting and the time the buyer picks up the goods. (the risk of loss does not pass to the buyer until the goods are received) -Nonmerchant seller §Risk of loss passes to buyer upon tender of delivery of the goods -Tender of delivery occurs when the seller (1) places or holds the goods available for the buyer to take delivery and (2) notifies the buyer of this fact.

Good Faith Purchaser For Value

-Person to whom good title can be transferred from a person with voidable title. someone who pays sufficient consideration or rent for the goods to the person he or she honestly believes has good title to or leasehold interest in those goods. The real owner cannot reclaim goods from such a purchaser or lessee -Also called good leasehold interest to a good faith subsequent lease

Sale or return

-Seller delivers goods to a buyer with the understanding that the buyer may return the goods if they are not used or resold within a stated or reasonable period of time (or within a reasonable time, if no specific time is stated) §Risk of loss and title pass to buyer when buyer has possession of goods. -The sale is considered final if the buyer fails to return the goods within the specified time or within a reasonable time, if no time is specified. The buyer has the option of returning all the goods or any commercial unit of the goods. -Example Louis Vuitton delivers ten women's handbags to a Fashion Boutique Store on a sale or return basis. The boutique pays $10,000 ($1,000 per handbag). If Fashion Boutique Store sells six handbags but fails to sell the other four handbags within a reasonable time, such as three months, it may return the unsold handbags to Louis Vuitton and can recover the compensation it paid to Louis Vuitton for the four returned handbags ($4,000). -Example In the previous example, title and risk of loss transferred to Fashion Boutique Store when it took possession of the Louis Vuitton handbags. If the Louis Vuitton handbags are destroyed while in the possession of Fashion Boutique Store, the store is responsible for their loss. It cannot recover the value of the handbags from Louis Vuitton.

Risk of Loss - Breach of the Sales Contract: Seller in breach of a sales contract

-Seller tenders or delivers 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: §Defect or nonconformity is cured §Buyer accepts the nonconforming goods -Example A buyer orders 1,000 talking dolls from a seller. The contract is a shipment contract, which normally places the risk of loss during transportation on the buyer. However, the seller ships to the buyer totally nonconforming dolls that cannot talk. This switches the risk of loss to the seller during transit. The goods are destroyed in transit. The seller bears the risk of loss because he breached the contract by shipping nonconforming goods. -Another way to breach the contract is not shipping anything at all

Risk of Loss - No Breach of the Sales Contract: Carrier cases: Movement of goods

-Shipment contracts §Risk of loss in a shipment contract: Buyer bears the risk of loss during transportation (passes to the buyer when the seller delivers the conforming goods to the carrier) -requires the use of one of the following delivery terms: F.O.B. point of shipment, F.A.S., C.I.F., or C.&F. -Destination contracts §Risk of loss in a destination contract: Seller bears the risk of loss during transportation ( Thus, except in the case of a no-arrival, no-sale contract, the seller is required to replace any goods lost in transit. The buyer does not have to pay for destroyed goods. The risk of loss does not pass until the goods are tendered to the buyer at the specified destination-goods are received at the specific destination) -requires the use of the following delivery terms: F.O.B. place of destination, ex-ship, or no-arrival, no-sale contract. -Absent any indication to the contrary, sales contracts are presumed to be shipment contracts rather than destination contracts.

Voidable Title

-Title that a purchaser has on goods obtained by: §Fraud §Check for the payment of the goods or lease is later dishonored §Impersonation of another person §Also called Voidable Leasehold Interest (Fraudulently Obtained Goods) -Example Max buys a Rolex watch from his neighbor Dorothy for nearly fair market value. It is later discovered that Dorothy obtained the watch from Jewelry Store with a bounced check—that is, a check for which there were insufficient funds to pay for the Rolex watch. Jewelry Store cannot reclaim the watch from Max because Max, the second purchaser, purchased the watch in good faith and for value.

•CIF (cost, insurance, and freight)

-a pricing term that means that the price includes the cost of the goods and the costs of insurance and freight. C.&F. (cost and freight) is a pricing term that means that the price includes the cost of the goods and the cost of freight. In both cases, the seller must, at his or her own expense and risk, put the goods into the possession of a carrier. The buyer bears the risk of loss during transportation -EX If a contract specifies "C.I.F. The Gargoyle, New Orleans, Louisiana" or "C.&F. The Gargoyle, New Orleans, Louisiana," and the goods are to be shipped to Anchorage, Alaska, the seller bears the expense and risk of loss until it delivers the goods into the hands of the vessel The Gargoyle in New Orleans. Once this is done, the risk of loss passes to the buyer during transport from New Orleans to Anchorage, Alaska.

Title: Movement Case

-it is the responsibility of the seller to arrange for the transportation of the goods to the buyer -2 types: Shipment and Destination contracts

•FOB (free on board) point of shipment:

-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 -EX If a shipment contract specifies "F.O.B. Anchorage, Alaska," and the goods are shipped from New Orleans, Louisiana, the buyer bears the shipping expense and risk of loss while the goods are in transit to Anchorage, Alaska

•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 contractual stipulation that the goods will arrive at the appointed destination

•FOB (free on board) 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 -Example If a destination contract specifies "F.O.B. Anchorage, Alaska," and the goods are shipped from New Orleans, Louisiana, the seller bears the expense and risk of loss before and while the goods are in transit until the goods are tendered to the buyer at the port of Anchorage, Alaska.

•Ex-ship (from the carrying vessel)

-requires the seller to bear the expense and risk of loss until the goods are unloaded from the ship at its port of destination -Example If a contract specifies "Ex-ship, The Gargoyle, Anchorage, Alaska," and the goods are shipped from New Orleans, Louisiana, the seller bears the expense and risk of loss before and until the goods are unloaded from The Gargoyle at the port in Anchorage, Alaska.

Title

Legal, tangible evidence of ownership of goods, real property, or other property

Buyer in the Ordinary Course of Business

a person who in good faith and without knowledge of another's ownership or security interest in goods buys the goods in the ordinary course of business from a person in the business of selling goods of that kind

Lessor

a person who transfers the right of possession and use of goods under a lease of goods

Title: Nonmovement case

it is the responsibility of the buyer to arrange for the transportation of the goods/the buyer picks up the goods/the seller has no responsibility to ship the goods to the buyer (no responsibility to arrange for the transportation of the goods to the buyer)

•FAS (free alongside ship) port of shipment (or FAS (vessel) 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. 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. -Example If a contract specifies "F.A.S. The Gargoyle, New Orleans," and the goods are to be shipped to Anchorage, Alaska, the seller bears the expense and risk of loss until it delivers the goods into the hands of the vessel The Gargoyle in New Orleans. Once this is done, the buyer pays the shipping costs, and the risk of loss passes to the buyer during transport to Anchorage, Alaska.

Lessee

the party to whom a leasehold is transferred. Also known as a tenant

Consignee

the party to whom a seller (the consignor) delivers goods to be sold on the seller's behalf

Consignor

the party who delivers goods to a buyer (the consignee) to sell on his or her behalf

Consignment

•Arrangement in which a seller (the consignor) delivers goods to a buyer (the consignee) to sell on his or her behalf -Treated as sale or return under the UCC § that is, title and risk of loss of the goods pass to the consignee when the consignee takes possession of the goods. -The consignee is paid a fee if it sells the goods on behalf of the consignor.

Risk of Loss - Breach of the Sales Contract: Buyer in breach of a sales contract

•Buyer breaches a sales contract if he or she: -Refuses to take delivery of conforming goods -Repudiates (refusing) the contract (not paying, etc..) -Breaches the contract -A buyer who breaches a sales contract before the risk of loss would normally pass to him or her bears the risk of loss of any goods identified to the contract. The risk of loss rests on the buyer for only a commercially reasonable time (generally very short). The buyer is liable only for any loss in excess of insurance recovered by the seller.

Title: Delivery of Goods without Moving Them (without the seller having to move them)

•Buyer is required to pick up the goods from the seller - the time and place of the passage of title depends on whether the seller is to deliver a document of title to the buyer •If the document of title or bill of lading is required, the title passes when the seller delivers the document -Example If the goods named in a sales contract are located at a warehouse, title passes when the seller delivers to the buyer a warehouse receipt representing the goods. •If no document of title and goods are identified at contracting, the title passes at the time of contracting -Example If a buyer signs a sales contract to purchase bricks from a seller, and the contract stipulates that the buyer will pick up the bricks at the seller's place of business, title passes when the contract is signed by both parties. This situation is true even if the bricks are not picked up until a later date.

Introduction

•Common law placed the risk of loss to goods on the party who held title to the goods •Article 2 of the Uniform Commercial Code (UCC) rejects this notion and adopts concise rules for risk of loss that are not tied to title •Article 2A (Leases) of the UCC establishes rules regarding title and risk of loss for leased goods •It also gives the parties to a sales/lease contract the right to insure the goods against loss if they have an "insurable interest" in the goods. -Risk of loss: the responsibility in the event that damage is done to the goods -Transfer of title and risk of loss do not need to happen simultaneously -UCC allows parties to agree when title and risk of loss is transferred -Party who bears the risk of loss should be insured

Identification Of Goods

•Distinguishing goods named in a contract from the seller's or lessor's other goods -Transfer of Title and risk of loss can't take place until goods are identified -The seller or lessor retains the risk of loss of the goods until he or she identifies them in a sales or lease contract. -Further, the UCC prevents title to goods from passing from the seller to the buyer unless the goods are identified to the sales contract. In a lease transaction, title to the leased goods remains with the lessor or a third party. It does not pass to the lessee.

Risk of Loss - No Breach of the Sales Contract-Goods in possession of a bailee

•If goods are to be delivered to the buyer without the seller moving them, the risk of loss passes to the buyer when: -Buyer receives negotiable document of title -Bailee acknowledges buyer's right to possession -Buyer receives a nonnegotiable document of title or other written direction to deliver and has reasonable time to present the document or direction to the bailee and demand the goods. If the bailee refuses to honor the document or direction, the risk of loss remains on the seller

Entrustment Rule

•Merchant has the power to transfer all rights in the goods to a buyer in the ordinary course of business -If the owner entrusts the possession of his/her goods to a merchant who deals in goods of that kind §Real owner cannot reclaim the goods from the buyer §The entrustment rule also applies to leases. If a lessor entrusts the possession of goods to a lessee who is a merchant who deals in goods of that kind, the merchant-lessee has the power to transfer all the lessor's and lessee's rights in the goods to a buyer or sublessee in the ordinary course of business -EX: Kim brings her diamond ring to Ring Store to be repaired. Ring Store both sells and repairs jewelry. Kim leaves (entrusts) her diamond ring at the store until it is repaired. Ring Store sells Kim's ring to Harold, who is going to propose marriage to Gretchen. Harold, a buyer in the ordinary course of business, acquires title to the ring. Kim cannot reclaim her ring from Harold (or Gretchen). Her only recourse is to sue Ring Store. -Ways this could happen: accident, willful criminal conduct

Sale on approval

•No actual sale occurs until the buyer accepts the goods -the risk of loss and title to the goods remain with the seller. Risk of loss and title pass when the goods are accepted by the buyer. -A 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 customer's needs. The prospective buyer may use the goods to try them out during this time. -Acceptance of the goods occurs if the buyer: §Expressly indicates acceptance §Fails to notify the seller of rejection of the goods within the agreed-on trial period (or, if no time is agreed on, a reasonable time) §Uses the goods inconsistently with the purpose of the trial (e.g., a customer resells a computer to another person).

Risk of Loss in Lease Contracts

•Passes to the lessee on the receipt of the goods in ordinary lease, if the lessor is a merchant -(a lease of goods by a lessor to a lessee) •Passes to lessee on the receipt of the goods in case of finance lease (where the supplier is a merchant) -(a 3 party lease transaction of goods consisting of a lessor, lessee, and a supplier/vendor) •Remains with the lessor or the supplier until cure or acceptance if tendered goods are nonconforming to the lease contract -The parties to a lease contract are the party who leases the goods (the lessor) and the party who receives the goods (the lessee). The lessor and the lessee may agree about who will bear the risk of loss of the goods if they are lost or destroyed. If the parties do not agree, the UCC provides the rules described above

Title: Destination Contract

•Requires the seller to deliver the goods either to the buyer's place of business or to another destination specified in the sales contract - Title passes to the buyer when the seller tenders delivery of the goods at the specified destination (when goods are received at their destination)

Title: 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 (when the seller turns the goods over to the common carrier)

Conditional sales

•Seller entrusts possession of goods to a buyer on a trial basis -A sale of goods that is subject to a condition of sale -Types: -Sale on approval -Sale or return -Consignment

Void Title

•Situation in which a thief acquires no title to goods he or she steals (and sells/leases them) -Purchaser does not acquire title to the goods -Lessee has no leasehold interest in stolen goods -Rightful owner can reclaim -Also called void leasehold interest -You cannot give better title than you have

United Nations Convention on Contracts for the International Sale of Goods (CISG)

•The CISG is a model act for international sales contracts. More than 75 countries are signatories to the CISG. •The CISG provides legal rules that govern the formation, performance, and enforcement of international sales contracts entered into between international businesses. Many of its provisions are remarkably similar to those of the U.S. Uniform Commercial Code (UCC). •The CISG applies to contracts for the international sale of goods when the buyer and seller have their places of business in different countries. For the CISG to apply to an international sales contract, either (1) both of the nations must be parties to the convention or (2) the contract specifies that the CISG controls. The contracting parties may agree to exclude (i.e., opt out of) or modify the application of the CISG.