19 Business Law: Title to Goods and Risk of Loss in Sales and Lease Contracts

What does Article 2 of the UCC establish regarding risk of loss?

It establishes concise rules for risk of loss that are not tied to title.

What is required for parties to insure against loss of goods?

They must have an 'insurable interest' in the goods or lease.

When does title to goods pass in a sales contract if no specific time is agreed upon?

Title passes to the buyer when and where the seller's performance with reference to physical delivery is completed.

What is a shipment contract?

A contract that requires the seller to ship goods to the buyer via a common carrier.

When does the buyer receive title in a shipment contract?

At the time and place of shipment.

What is a destination contract?

A contract that requires the seller to deliver goods to the buyer's place of business or another specified destination.

When does title pass in a destination contract?

When the seller tenders delivery to the specified destination.

What happens if a document of title is required for delivery?

Title passes when the seller delivers the document to the buyer.

What is F.O.B. in shipping terms?

Free on board; indicates the point at which the seller's responsibility ends.

Who bears the risk of loss in a shipment contract?

The buyer bears the risk of loss during transportation once the seller delivers the conforming goods to the carrier.

Who bears the risk of loss in a destination contract?

The seller bears the risk of loss during transportation.

What is the risk of loss for a merchant seller?

The merchant seller bears the risk of loss from the time of contracting until the buyer picks up the goods.

When does risk of loss pass to the buyer from a nonmerchant seller?

Upon tender of delivery of the goods.

What is a bailee in the context of risk of loss?

A holder of goods who is not a seller or a buyer, such as a warehouse.

When does risk of loss pass to the buyer if goods are in possession of a bailee?

When the buyer receives a negotiable document of title or the bailee acknowledges the buyer's right to possession.

What special rules apply when there is a breach of a sales contract?

Special risk of loss rules apply that may alter who bears the risk.

What is the significance of identifying goods in a sales contract?

Identification distinguishes specific goods from the seller's or lessor's other goods.

When are already existing goods identified in a contract?

When a contract is made that names the specific goods sold or leased.

How are future goods identified in a sales contract?

They are identified when they are conceived (for animals) or planted (for crops).

What happens if no document of title is required and goods are identified?

Title passes at the time of contracting.

What does C.I.F. stand for in shipping terms?

Cost, insurance, and freight.

What is an ex-ship contract?

A contract that specifies delivery from the carrying vessel.

What is a no-arrival, no-sale contract?

A contract where the seller is not liable for goods that do not arrive.

What happens when a seller delivers nonconforming goods to the buyer?

The buyer has the right to reject them.

When does the risk of loss remain on the seller?

Until the defect or nonconformity is cured or the buyer accepts the nonconforming goods.

What constitutes a breach of a sales contract by the buyer?

Refusing to take delivery of conforming goods, repudiating the contract, or breaching the contract.

What is a conditional sales contract?

An agreement where the seller entrusts possession of goods to a buyer on a trial basis.

When does the risk of loss and title pass in a conditional sale?

When the goods are accepted by the buyer.

How can a buyer indicate acceptance of goods in a conditional sale?

By expressly indicating acceptance, failing to notify the seller of rejection, or using the goods inconsistently with the purpose of a trial period.

What is a sale or return contract?

A contract where the seller delivers goods for resale, and the buyer may return unsold goods within a stated period.

When does the risk of loss and title pass to the buyer in a sale or return contract?

When the buyer has possession of the goods.

What is a consignment in terms of sales contracts?

An arrangement where a seller delivers goods to a buyer to sell on their behalf, without transferring title.

Who retains the title and risk of loss during a consignment period?

The consignor (seller).

When does the risk of loss pass to the lessee in lease contracts?

On receipt of the goods in an ordinary lease, if the lessor is a merchant.

What must a party have to purchase insurance against risk of loss?

An insurable interest in the goods.

Who has an insurable interest in goods?

The seller retains interest as long as they hold title or security interest; the buyer or lessee has interest when goods are identified in the contract.

What happens when a buyer purchases stolen goods?

The purchaser does not acquire title, and the rightful owner can reclaim the goods.

What is a voidable title?

Title that a purchaser has on goods obtained through fraud, dishonored checks, or impersonation.

What is the entrustment rule?

A merchant can transfer all rights in goods to a buyer in the ordinary course of business if the owner entrusted the goods to the merchant.

What happens if the entrustee is not a merchant?

The entrustment rule does not apply, and the real owner can reclaim the goods.

In the case of Regal Jewelry and Gift Shop v. B L C E, what was the main issue?

Whether the defendants were good faith purchasers for value who received good title to the jewelry.

What is the significance of the case Lindholm v. Brant?

It addresses whether Brant has a superior claim of ownership to the art piece sold by a dealer.

What was the issue in the case Prewitt v. Numismatic Funding Corporation?

Determining who wins in a dispute over the conditional sale.

What was questioned in Big Knob Volunteer Fire Co. v. Lowe and Meyer Garage?

Whether any goods had ever been identified in the contract for the fire truck.

What ethical question arose in United States v. Michaels Jewelers, Inc.?

Whether any party acted unethically in the case.

What was the ethical issue in Executive Financial Services, Inc. v. Pagel?

Determining ownership of tractors between EFS and the farmers.