Chapter 19 - The Identification of goods and the passage of title

Shipment and Destination Contracts

A 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 [UCC 2-401(2)(a)].

Common Law and the UCC

Common law placed the risk of loss to goods on the party who held title to the goods. Article 2 of the UCC rejects this notion and adopts concise rules for risk of loss that are not tied to title. It also gives the parties to a sales contract the right to insure the goods against loss if they have an "insurable interest" in the goods.

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.

Already existing goods are identified when a contract is made and names the specific goods sold or leased.

Examples A piece of farm machinery, a car, or a boat is identified when its serial number is listed on a sales or lease contract.

Future goods are goods not yet in existence.

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. Future goods other than crops and unborn young are identified when the goods are shipped, marked, or otherwise designated by the seller or lessor as the goods to which the contract refers.

The identification of goods is rather simple.

It means distinguishing the goods named in a contract from the seller's or lessor's other goods. 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, UCC 2-401(1) and 2-501 prevent 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.

A 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 [UCC 2-401(2)(b)].

The common law

Under common law, the rights and obligations of the buyer, the seller, and third parties are determined based on who held technical title to the goods.

Article 2 of the Uniform Commercial Code (UCC)

establishes precise rules for determining the passage of title in sales contracts. Other provisions of Article 2 apply, irrespective of title, except as otherwise provided [UCC 2-401].

Article 2A (Leases) of the UCC

establishes rules regarding title and risk of loss for leased goods. It also gives the parties to the lease contract the right to insure the goods against loss if they have an "insurable interest" in the goods. Title, risk of loss, and insurable interest for the sale and lease of goods are discussed in this chapter.