Ch 19: Title to Goods and Risk of Loss

Common law:

placed the risk of loss to goods on the party who held title to the goods

Article 2 of the UCC:

adopts concise rules for risk of loss that are not tied to title

Title

• Legal, tangible evidence of ownership of goods. Parties have a right to insure against loss

Identification of Goods

• In the absence of an agreement, the UCC mandates when identification occurs

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

  • Future goods: Goods not yet in existence. ex.) Animals when they are conceived and corps when they are planted

Carrier Cases

Movement of goods

Risk of loss in a shipment contract:

• Buyer bears the risk of loss during transportation once the seller delivers the conforming goods to the carrier (F.O.B. point of shipment)

Risk of loss in a destination contract

• Seller bears the risk of loss during transportation. (F.O.B. place of destination). Seller is required to replace any goods lost, destroyed, or damaged in transit. Risk of loss not pass to buyer until conforming goods are tendered

Noncarrier Cases

no movement of goods buyer is to pick up the goods at seller’s place or business or other specified location

Merchant Seller:

Bears the risk of loss between the time of contracting and the time the buyer picks up the goods

Nonmerchant Seller:

• Risk of loss passes to buyer upon tender of delivery of the goods. Places or holds the goods available for buyer. Notifies the buyer of the fact

Bailee

• Holder of goods who is not a seller or a buyer (e.g., a warehouse)

• If goods are to be delivered to the buyer without the seller moving them, the risk of loss passes to the buyer when:

  • Buyer receives  nonnegotiable document of title and has reasonable time to demand goods

Seller in breach of a sales contract:

• Risk of loss remains on the seller. ex.) Seller delivers nonconforming goods to the buyer

Buyer breaches a sales contract:

• Risk of loss on buyer. ex.) Refuses to take delivery of conforming goods

Conditional Sales

Seller entrusts possession of goods to a buyer on a trial basis

Sale on approval:

• No actual sale occurs until the buyer accepts the goods. Risk of loss passes when the goods are accepted by the buyer

Acceptance of the goods occurs if the buyer:

• Expressly indicates acceptance

• Fails to notify the seller of rejection

• Uses the goods inconsistently with the purpose of a trial period

Sale or return contract:

• Seller delivers goods to a buyer primarily for resale. Buyer may return the goods if not sold within stated period of time and goods are in their original condition

  • Sale is considered final if the buyer fails to return the goods

  • Risk of loss passes to buyer when buyer has possession of goods

Consignment

•  Arrangement in which a seller (the consignor) delivers goods to a buyer (the consignee) to sell on their behalf. Not a sale (no seller and no buyer)

  • Risk of loss passes to consignee once goods are delivered

Stolen Goods

• When a buyer purchases goods or a lessee leases goods that were stolen, the purchaser does not acquire title of goods → void title.

• Rightful owner can reclaim

Fraudulently Obtained Goods

• Voidable title: Title that a purchaser has on goods obtained by fraud, check that is later dishonored

• Good faith purchaser for value: Person to whom good title can be transferred from a person with voidable title

  • Pays sufficient consideration for goods and honestly believes they have good title

  • Original owner’s only recourse it to recover from original purchaser

Entrustment Rule

• Merchant has the power to transfer all rights in the goods to a buyer in the ordinary course of business

• If owner entrusts possession of their goods to a merchant who deals in goods of that kind

  • Real owner cannot reclaim the goods from the buyer

• Entrustment rule does not apply if the entrustee is not a merchant