Chapter 21: Title, Risk and Insurable Interest

Entrustment Rule

Allows an innocent buyer to obtain title to goods purchased from a merchant even if merchant does not have good title (accidently sells jewelry to another buyer when it belonged to someone else)

Void Title in Sales/Leases from Nonowners

Buyer unknowingly buys goods from seller who is not the owner; buyer acquires no title; original owner reclaims gods

F.O.B seller's place

Shipment contract; seller carries title, ROL and expenses to destination named (so shipping not included in cost for FOB seller's place; ROL passes when given to carrier)

Fungible Goods

goods that are naturally alike; cannot be physically separated (silo of wheat)

In Existence

Must be identified as specific goods in the sales contract (by serial numbers/physically separated from others - except for fungible goods); takes place at time contract is made if goods need to be ascertained

Identification Gives Buyer the Right:

1). To obtain insurance on goods 2). To recover from third parties who damage the goods

Future Goods

1). Animals born within 12 months of contract - conception = identification 2). Crops harvested within 12 months of contracting, identification = time of planting 3). All others, identification occurs when goods are shipped, marked, or otherwise designated

Sale or Return

1). Buyer (a merchant) purchases goods primarily for resale 2). Buyer has right to return goods in lieu of payment if goods do not sell 3). Title/ROL passes to buyer with possession 4). Goods are subject to claims of buyer's creditors while in buyer's possession 5). Buyer bears expense of returning goods

Conditional Sales

1). Contracts that are conditioned on the buyer's approval of goods or on buyer's resale of goods 2). Buyer is in possession 3). Sale on Approval or Sale or Return

UCC replaces title with:

1). Identification 2). Risk of Loss 3). Insurable Interest

ROL: Delivery Without Movement of Goods

1). If Seller is not a merchant, ROL passes to buyer on tender of delivery (seller says goods are ready for pickup) 2). If Seller is a merchant, ROL passes when buyer actually takes physical possession of goods

Identification Occurs

1). If goods are designated when contract is made (specifically designated in contract) 2). If goods are not designated when contract is made, then identified at time of designation

When Title Passes

1). Once goods exist and are identified 2). Time and place seller performs physical delivery 3). When agreed to by parties

Seller's Breach

1). Rejection by Buyer - risk stays with seller 2). Buyer accepts, discovers defect and revokes acceptance - risk passes back to seller to the extent that buyer's insurance does not cover loss

Sale on Approval

1). Seller offers to sell goods to buyer (usually not a merchant) and sends the goods on a trial basis 2). Only an "offer to sell" has been made, along with a bailment since buyer has possession 3). Title and ROL remains with seller 4). ROL passes when buyer approves

Insurable Interest

A party purchasing insurance must have a sufficient interest in the insured item to obtain a valid policy

Bailee

A party who, by bill of lading, warehouse receipt, or other document of title, acknowledges possession of goods and/or contracts to deliver them

ROL: Breach of Contract

Breaching party bears ROL

Consignment

Consignee does not have title to goods (middleman selling goods for consignor); If goods are sold, title passes to buyer, and consignor must be paid

F.O.B Buyer's place

Destination contract; seller carries title, ROL and expenses until goods reach buyer (shipping included in contract; ROL passes when given to buyer)

Risk on Loss (ROL)

Does not necessarily pass with title; can be agreed to by parties; if not ROL passes to buyer depending on whether delivery is with or without movement of goods

Identification of Goods

For any interest to pass to buyer, goods must be: 1). In Existence 2). Future Goods

Goods Part of a Larger Mass

Goods are identified when marked, shipped, or designated by seller (10,000 jeans)

Seller's Insurable Interest

Has interest in goods as long as they retain title/security interest; both buyer and seller can have an insurable interest at the same time

Buyer's Breach

Loss immediately shifts to buyer provided: 1). Goods are identified 2). ROL passes to buyer for a commercially reasonable time after seller learns of the breach 3). Buyer is liable only to the extent that seller's insurance does not cover loss

Baliment

Temporary delivery or passage of personal property without passage of title to another called a bailee

Shipment Contract

Title passes at time and place of shipment; seller is only required to deliver goods to a carrier; all contracts presumed to be shipment contract unless stated otherwise

Destination Contract

Title passes when goods are tendered at the destination; seller is required to deliver goods directly to buyer or another party designated by the buyer (seller has title/risk of loss during shipping)

Delivery Without Movement of Goods

Title passes: 1). When agreed by the parties 2). With document of title - when and where document delivered to buyer 3). Without document: when sales contract is made, if goods have been identified; or when identification occurs, if goods have not been identified

Voidable Title in Sales/Leases from Nonowners

Where goods seller is selling were obtained through fraud, a good faith purchaser keeps goods; original owner cannot reclaim goods