BUAD Chapter 14
Delivery without movement of goods - when does risk of loss pass: if the seller is a merchant?
Risk passes when buyer takes possession of goods.
Issues related to title transfers
- The parties may specify in their contract how and when title will pass to the buyer.
Risk of Loss
-Determined by the parties' contract. -If K does not address look at UCC.
In cases where the parties do not specify when title will pass, UCC Section 2-401 provides the following three default-rule possibilities:
1. If the goods are to be shipped, title passes to the buyer once the seller meets its obligation to ship the goods as specified in the contract. Note that the contract may only require the seller to deliver the goods to a common freight carrier, such as the U.S. Postal Service, FedEx, or a rail company, who will then transport the goods to the buyer's location. In this case, title passes when the seller delivers the goods to the common freight carrier. 2. If the contract does not require shipment, the goods will remain stored, for example in a warehouse. In this case, the contract may require the seller to deliver documents of title, such as a warehouse receipt or a bill of lading (documents of title) to the seller. Title passes to the buyer when the seller delivers these documents of title to the buyer as required in the contract. 3. If the contract does not require shipping or the delivery of documents of title, title passes to the buyer when the contract is made effective and the goods are identified to the contract.
Elements of Good Faith Purchaser:
1. Purchaser for Value; 2. The presence of Good Faith; 3. Absent any notice.
Sales or Leases by Non-owners:
A buyer/lessee acquires whatever title the seller/lessor has to the goods sold/leased. UCC 2-402, 2-403.
Sale on Approval
A seller offers to sell goods and buyer takes them on trial basis.
Return of Goods:
At seller's expense and risk.
Which Section of the Uniform Commercial Code (UCC) recognizes that a good faith buyer in the ordinary course of business may acquire valid title to goods that were entrusted to a merchant seller?
Section 1-201
When Title Passes
Based on K: OR UCC - title passes on delivery. UCC 2-401 (2).
void title
Seller/Lessor stole the goods, the buyer or lessee acquires nothing.
Free on Board (FOB)
Delivery is at seller's expense to a specific location. Risk passes at the location. UCC 2-319 (1).
If the parties do not specify - the goods are identified as follows:
Existing Goods: When K is made. Future Goods: When the goods are conceived, planted, or begin to grow.
Free Alongside Ship (FAS)
Means that the seller fulfills his duty to deliver when the goods have been placed on vessel at the named port of shipment.
Destination Contract
Require the seller to deliver the goods to a specified destination. Typically, the destination is the buyer's place of business or home. If the seller is required to deliver the goods, title passes when the goods are tendered there. UCC2-401 (2)(b). Contract has to say destination. The seller bears the risk of loss until the goods arrive at the buyer's destination.
Shipment Contract
Requires the seller to use a carrier (a delivery company such as U.S. Postal Service, FedEx, or UPS) to deliver the goods. If the seller is to ship, title passes at time and place of shipment. Shipment K is the default. UCC 2-401 (2) (a). The buyer bears the risk of loss once the seller delivers the goods to the carrier.
When can parties have an insurable interest?
Party buying insurance must have "sufficient" interest in the item. they will want to insure that product against loss
Delivery without movement of Goods: when does the risk of loss pass: if seller is not a merchant?
risk passes on tender of delivery
good faith buyer
someone who acts honestly and provides reasonable value for the goods. The UCC rule is that a good faith buyer acquires valid title so long as the seller obtained a voidable title. In contrast, a good faith buyer does not acquire valid title if the seller obtained a void title.
identified to the contract
the parties have specifically identified which goods will be sold to the buyer. When does identification occur: according to the parties agreement.
When does risk of loss pass in destination contracts?
the risk of loss is on the seller until the truck is delivered
When does risk of loss pass in a shipment contract?
when the product is shipped to the buyer the moment the product leaves the seller in route to the buyer,
Which of the following is true regarding whether the Uniform Commercial Code (UCC) will allow a buyer to obtain an insurable interest in goods without title?
The UCC allows the buyer to obtain an insurable interest in the goods without title so long as the goods are identified to the contract.
What is the significance of identifying goods?
The buyer has the right to obtain insurance and the right to obtain goods from the seller.
The UCC requires two things to occur before title to the goods can pass from the seller to the buyer. What are they?
The goods must exist and be identified in the contract.
When does risk of loss pass in a sale on approval?
Title and Risk remain with seller until buyer accepts goods.
buyer in the ordinary course of business
Under Section 1-201 of the UCC, a good faith buyer may acquire valid title to goods that were entrusted to a merchant seller. A person who buys goods from a merchant in the business of selling the good without knowledge that the sale violates the rights of another person.
tendered
When the seller delivers conforming goods to a destination that allows the buyer to take delivery. Normally, so long as the goods are properly tendered as agreed, the risk of loss is allocated to the buyer at the time of tender.
If the property was acquired through fraud or deceit, however,
a purchaser may keep the property and retain valid title as long as he was a good faith buyer.
The acquisition of stolen property, even by a good faith purchaser,
always results in the stolen property being returned to its rightful owner.
Who can have an insurable interest?
buyer and seller may have overlapping insurable interests in the goods since title has not yet passed.
Shipment contracts require the seller to use a __________ to deliver the goods.
carrier
A(n) __________ contract requires the seller to deliver the goods to a specified destination.
destination
Entrustment Rule
entrusting goods to a merchant who deals in goods of that kind gives the merchant the power to transfer all rights to a buyer in the ordinary course of business. UCC2-403 (2), 2A -305 (2).
Insurable Interest
exists when loss or damage to something or someone causes a person to suffer a financial or other kind of loss. Title to property is one way to obtain an insurable interest; however, the UCC recognizes that the buyer may want to insure the goods before acquiring title.
An insurable interest exists when loss or damage to something or someone causes a person to suffer a(n) __________ loss.
financial
voidable title
involves a purchase of goods through fraud or deceit
title
legal term for a claim of ownership to property.