BLAW Chapter #20- Title, Risk, and Insurable Interest

P (Bona Fide Purchaser):

Purchases the product in good faith, has no knowledge that the seller has less than full title to pass.

If tender of delivery fails to conform to the lease contract...

...risk of loss remains with the leassor or supplier until cure or acceptance (UCC Sec. 2A-220(1)(a)).

If the seller sends nonconforming goods to the buyer...

...the buyer has the right to reject the goods.

The bailee has a duty to exercise ordinary care and if they ____ to then the bailee is ____ and can be held for the loss or damages of the product (tort law).

fail; negligent

Conforming goods:

goods called for in the contract with no defects or deviation from the contract.

The risk of loss ____ from the seller to the buyer when the seller has performed ____ of his ____ obligations.

passes; all; contractual

Risk of loss:

the possibility that between the making of the contract and the time the buyer actually receives the goods, in that time window, something happens to those goods, whether lost damaged, or destroyed.

Delivery K/Buyer's Plant/ Point of delivery:

the risk of loss passes to the buyer or lessee when the goods are tendered to the buyer or lessee at the specified destination.

When the goods not to be moved:

the seller has performed when the goods are identified, then the buyer now has the risk of loss.

When the goods are moved:

the seller makes a commercial reasonably contract of carriage. The seller has completely performed when the seller has delivered to the shipment.

In finance lease...

...risk of loss passes to lessee (UCC Sec.2A-219).

There are 2 ways that the buyer can accept the product:

(1) write a check to the publisher. (2) by keeping it beyond the 30 day approval, but during the 30 day approval the buyer can package it back up and send it back with no obligation.

In ordinary lease...

... risk of loss is retained by lessor (UCC Sec. 2A-219).

If the contract calls for the sale or lease of goods that already exist in their final form, then...

...identification occurs at the time the contract is made.

If the contract calls for the sale or lease of goods that have yet to be completed or modified in accordance with the contract, or for the sale of fungible goods...

...identification occurs when the goods are shipped, marked, or otherwise designated by the seller or lessor for delivery to the buyer or lessee.

If the buyer breaches a contract (anticipatory breach of contract) before the goods are shipped by the seller, within a reasonable amount of time...

...if anything happens to those goods, the seller can rely on the buyer's risk of loss due to the buyer's breach of contract, and the buyer will owe the seller the contract price of the goods.

Risk of loss passes to the buyer when...

...the buyer receives the title document from the seller, the bailee (warehouseman) acknowledges the buyer's right of possession, or the buyer receives a nonnegotiable title document and has had a reasonable period of time to demand the goods from the bailee.

Buyer going to collect goods from the seller - at their building.

45 lazy boy chairs. The seller tells buyer that it's okay to pick up. Seller identifies the goods are good. There is a time window - reasonable time had gone by. Seller performance their duty. There is a fire in the warehouse - the goods are destroyed. The risk of loss pass over the buyer, which means the buyer owes contract price.

Sale on approval example:

Brad orders a Bowflex Tread Climber over the Internet, and the manufacturer allows him to try it risk-free for thirty days. If Brad decides to keep the Tread Climber, then the sale is complete, but if he returns it within thirty days, there will be no sale and he will not be charged. If Brad files for bankruptcy within the thirty-day period and still has the Tread Climber in his possession, his creditors may not attach (seize) the Tread Climber, because he has not accepted it yet.

Entrustment Rule (Example 2)

General Motors come out with the compact pickup truck - the chevy luv. All the pickup trucks have been bubba size. S is driving a small pickup truck. S pulls into O's dealer. O only had bubba size camper --. S bought them. S wrote a check $1200 and put the camper - on the small truck. S pulls into P's campertop and offered to sell P's campertop for $500. The check bounced. O contacts the law. They get to P's store - the campertop matches. O sues P to get the campertop back. P's defense is bona fided purchase - good faith.

But before the buyer can return the nonconforming goods, something happened to the goods, and the buyer can treat it as the risk of loss has shifted back to the seller due to the seller's breach.

If the seller breaches the buyer doesn't have to pay the contract price of the goods.

Party has made the contract - lazy boy chairs. It's a shipment contract. The seller has identified the goods of the contract - shipping with UPS. It's going to send tomorrow. Buyer is backing out of the contract. He has breached the contract. Has the risk of loss pass to the buyer?

No. Because the buyer breached the contract - is it a material breach - essences of the contract. Seller is discharge. What is he going to do with the goods? One of the remedies that we will talk about - remedy of resell.

A thief passing full title:

O has computers, S comes in and steals it (a warehouse receipt is a form of title and negotiable in form, is transferrable), and does a contract for the sale of goods with P. S forges the receipt with O's name and is able to pass full title. And O can't get it back, he has to find P to get it back. The court will put the loss between O and P on O.

Entrustment Rule (Example 1)

O takes the watch into S, the watch gets repaired and either on purpose or accidentally winds up in the retail display case with a price tag, and P purchases it (bonafide purchaser). S who had no title was able to pass a full title because in this case you are talking about a bailee who is a merchant dealing with goods in that kind. O can't get it back from P, his recourse would be to go against the store, S. If P wasn't a bonafide purchaser sees that the watch is personalized and knows it's not a new watch and that it belongs to someone so now a case could be made against P. Entrusting includes both turning over the goods to the merchant and leaving purchased goods with the merchant for later delivery or pickup.

Voidable title:

Sale or lease of goods to bona fide purchaser, if the goods were obtained by fraud, paid for a check that was later dishonored, purchased from a minor, or purchased on credit when the seller was insolvent.

Void title and lease:

Stolen goods (no title or not full title), from thief or buys leased goods.

O:

The rightful owner.

Seller who has less than full title - no title:

The sell to P is going to cut off the owner's rights of O. O is the superior title - he can get the product from Purchaser.

There are 45 lazy boy chairs are in there - defective. It's nonconforming.

The seller has breach the contract. Buyer has rights to reject goods. Buyer has rejected the goods. Buyer has the rights to treat the risk of loss shifted to the seller - even though under ordinary rules it is buyers. The seller has the risk of loss.

Shipment K/ Seller's Plant/ Point of shipment:

The seller or lessor is required or authorized to ship goods by carrier, but is not required to deliver them to a particular destination. The risk of loss in a shipment K passes to the buyer or lessee when the goods are delivered to the carrier.

S:

The seller who actually sells the property who has no title or less than full title.

Sale on approval:

There are no purchases until the buyer pays for it.

Bailment

Transfer of possession only, no transfer of title.

Insolvent:

When a person ceases to pay his/her debts as they become due, or is insolvent within the meaning of federal bankruptcy law.

The buyer is in possession of the subject matter for the purpose to resell it.

While the buyer is in possession the buyer has risk of loss and title, doesn't matter if the buyer is at fault or not and because the buyer has title that means the subject matter is fair game for that buyers creditors and levy of execution.

The buyer is in possession of the subject matter for the purpose to test it on a trial basis.

While the product is in the possession of the buyer, the seller has the risk of loss until the buyer accepts (approves) the offer by any act inconsistent with the trial purpose or the seller's ownership (such as retaining the goods beyond the trial period).

Insurable Interest:

a special property interest that allows the buyer or lessee to obtain the necessary insurance coverage for those goods even before the risk of loss has passed.

We don't have a sale/contract until buyer ____ the product.

accepts

The entrustment rule ____ innocent buyers to obtain legitimate title to goods purchased from merchants event if the merchants do not have a good title.

allows

During the period of the approval is a ____.

bailment

If the buyer has the risk of loss, then the ____ has to pay for the goods.

buyer

Title and risk of loss ____ pass to the buyer from the seller unless the goods are ____ to the contract.

cannot; identified

Identification is significant because it gives the buyer or lessee the right to ____ (or to have an insurable interest in) the goods and the right to ____ from third parties who damage the goods and special property interest.

insure; recover

If the seller has the risk of loss, then the ____ has to pay for the goods.

seller

If the buyer does not wish to accept, the buyer may notify the seller of the fact within the trial period and the return is made at the ____ expense and risk.

seller's

During the period of approval the ____ has title because there is no ____ yet.

seller; sale

Identification of the goods of a contract:

takes place when specific goods are designated as the subject matter of a sales or lease contract.