Unit 4 (Chapter 21): Title, Risk, and Insurable Interest

Document of Title:

An actual piece of paper, such as a bill of lading or a warehouse receipt, to the buyer.

Sale on Approval:

When a seller offers to sell goods to a buyer and permits the buyer to take the goods on a trial basis.

Leased Goods Held by a Bailee:

- If leased goods held by a bailee are to be delivered without being moved, the risk of loss passes to the lessee on acknowledgement by the bailee of the lessee's right to possession of the goods.

When the Seller or Lessor Breaches the Contract:

- If the seller or lessor breaches by tendering nonconforming goods that the buyer or lessee has a right to reject, the risk of loss does not pass to the buyer or lessee until the defects are cured or the buyer accepts the goods (thus waiving the right to reject).

Goods Represented by a Document of Title:

- The buyer receives a negotiable document of title for the goods - The bailee acknowledges the buyer's right to possess the goods. - The buyer receives a non negotiable document of title or a writing (record) directing the bailee to hand over the goods, and the buyer has had a reasonable time to present the document to the bailee and demand the goods.

Goods Not Represented by a Document of Title:

- Title passes on the formation of the contract. - Risk of loss passes to the buyer or lessee: (a)If the seller or lessor is a merchant, risk apsses on the buyer's or lessee's recipt of the goods, or (b) If the seller or lessor is a nonmerchant, risk passes to the buyer or lessee on the seller's or lessor's tender of delivery of the goods.

Under the UCC, a person is a buyer in the ordinary course of business if:

1. She or he buys goods in good faith (honestly) 2. The goods are purchased without knowledge that the sale violates the rights of another person in the goods. 3. The goods are purchased in the ordinary course from a merchant (other than a pawnbroker) in the business of selling goods of that kind. 4. The sale to that person comports with the usual or customary practices in the kind of business in which the seller is engaged.

Shipment Contract:

A contract in which the seller is required or authorized to ship goods by carrier, such as a trucking company.

Destination Contract:

A contract in which the seller is required to deliver the goods to a particular destination, usually directly to the buyer, but sometimes to another party designated by the buyer.

Good Faith Purchaser:

Any party who buys without knowledge of circumstances that would make an ordinary person inquire about the validity of the seller's title to the goods.

Fungible Goods:

Are goods that are alike naturally, by agreement, or by trade usage.

When the Buyer or Lessee Breaches the Contract:

If the buyer or lessee breaches the contract, the risk of loss to identified goods immediately shifts the buyer or lessee. Limitations to this rule are as follows: - The seller or lessor must have already identified the contract goods. - The buyer or lessee bears the risk for only a commercially reasonable time after the seller or lessor has learned of the breach. - The buyer or lessee is liable only to the extent of any deficiency in the seller's or lessor's insurance coverage.

F.O.B (free on board):

Indicates that the selling price of goods includes transportation costs to the specific F.O.B. place named in the contract. The seller pays the expenses and carries therisk of loss to the F.O.B. place named [UCC 2-319(1)]. If the named place is the place from which the goods are shipped (for example, the seller's city or place of business), the contract is a shipment contract. If the named place is the place to which the goods are to be shipped (for example, the buyer's city or place of business), the contract is a destination contract.

Insurable Interest:

Insurance coverage to protect against damage, loss, or destruction of goods.

Bailment:

Is a temporary delivery of personal property, without passage of title, into the care of another, called a bailee.

Delivery ex-ship (delivery from the carrying vessel):

Means that risk of loss does not pass to the buyer until the good are properly unloaded from the ship or other carrier.

F.A.S. (free alongside):

Requires that the seller, at his or her own expense and risk, deliver the goods alongside the carrier before risk passes to the buyer [UCC 2-319(2)]. An F.A.S. contract is essentially an F.O.B. contract for ships.

C.I.F. or C.&F. (cost, insurance, and freight or just cost and freight):

Requires, among other things, that the seller "put the goods in possession of a carrier" before risk passes to the buyer [UCC 2-320(2)]. (These are basically pricing terms, and the contracts remain shipment contracts, not destination contracts.)

Sale or Return:

The buyer has an option to return the goods and undo the sale.

Entrustment Rule:

The entrusting of 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.

Contract Terms:

They are used to help to determine which party will bear the costs of delivery and when risk of loss will pass from seller to the buyer.

Insolvent:

When a person ceases to pay debts in the ordinary course of business, cannot pay debts as they become due, or is insolvent under federal bankruptcy law.

Identification:

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