2 Learning Objectives Contrast voidable title with void title. Discuss the rights of the parties when goods that are entrusted to merchants are sold to others in the ordinary course of business.Determine, in a given case, when title to goods passes from the seller to the buyer.Decide, in different situations, whether the buyer or the seller of goods must bear the risk of loss.Compare a sale on approval with a sale or return.Describe when buyers and sellers of goods have insurable interests in those goods.
3 Question? What is the right of ownership to goods? Bill of sale Title DesignationLienThe correct answer is “B” – title. See next slide.
4 Void and Voidable Title the right of ownership to goodsBill of salea written statement evidencing the transfer of personal property from one person to anotherTitle is the right of ownership to goods. People who own goods have title to them. Sellerssometimes give a bill of sale to a buyer as evidence that the sale took place. A bill of sale isa written statement evidencing the transfer of personal property from one person to another.It does not prove, however, that the seller had perfect title to the goods. The goods may havebeen stolen, obtained by fraud, purchased from a minor or incompetent person, or entrustedwith the seller by the true owner and sold by mistake. The question that arises in such casesis whether an innocent purchaser for value receives good title to the goods. The answer tothis question depends on whether the seller’s title to the goods was void or voidable andwhether the goods had been entrusted to a merchant.
5 Voidable Title Voidable title title that may be voided if the injured party elects to do soAlso received when goods are bought from a minor or a person who is mentally impairedTeaching Tips Clarify for students the difference between void and voidable title. A void title is no title.If Marco buys a car from Corinne, who has void title, Marco has no title to the car, even though he paid forit, because Corinne had no title to give. A voidable title is a title that can be voided.If Tran buys a mountain bike from Jaleel, who has a voidable title to the bike, Tran acquires good title tothe bike because, at the moment of sale, Jaleel’s title to the bike was voidable but not void.
6 Entrusting Goods to a Merchant People often entrust goods that belong to them to merchantsWhen this occurs, if the merchant sells the goods in the ordinary course of business to a third party who has no knowledge of the real owner’s rights, the third party receives good title to them.The reason for this rule of law is to give confidence to people who buy in the marketplace.People can be assured that they will receive good title to property (except stolen property)that they buy from a merchant who deals in goods of that kind in the ordinary course ofbusiness.
7 The Passage of Title and Risk of Loss Identified goodsspecific goods that have been selected as the subject matter of the contract.Once goods are identified, title passes to the buyer when the seller does whatever is required under the contract to deliver the goods.It is not unusual for goods to be stolen, damaged, or destroyed while they are awaitingshipment, are being shipped, or are awaiting pickup after a sales contract has been entered.When something happens to the goods, it becomes necessary to determine who must sufferthe loss: the seller or the buyer. The rules for determining the risk of loss are contained inthe UCC. Except when goods are to be picked up by the buyer andin a few other cases, whoever has title to the goods bears the riskof loss.
8 Shipment Contracts Shipment contract f.o.b. one in which the seller turns the goods over to a carrier for delivery to the buyerf.o.b.“free on board.”The seller has no responsibility for seeing that the goods reach their destination.In a shipment contract, both title and risk of loss pass to the buyer when the goodsare given to the carrier.
9 Shipment ContractsWhen goods are sent f.o.b. the place of shipment, they will be delivered free to the place of shipment.The buyer must pay all shipping charges from there to the place of destination.Getting Students InvolvedHave students work in teams to create lists of common situations in which property is transferred intothe temporary possession of another. Have students discuss each situation on their lists in light of title.Could title ever be transferred (e.g., in the case of the death in a hospital of a person with no will and norelatives)? In each situation, would title be void or voidable?
11 Question?___________ means an offer to turn the goods over to the buyer.TenderSalesmanshipVendingBarterThe correct answer is “A” – tender. See next slide.
12 Destination Contracts the contract requires the seller to deliver goods to a destinationTenderto offer to turn the goods over to the buyer.If the contract requires the seller to deliver goods to a destination, it is called a destinationcontract. Both title and risk of loss pass to the buyer when the seller tenders the goods atthe place of destination. Tender means to offer to turn the goods over to the buyer.Destination contracts are often designated by f.o.b. the place of destination (such asf.o.b. Tampa); goods shipped under such terms belong to the seller until they have beendelivered to the destination shown on the contract.
13 Destination Contracts With contracts designated by f.o.b. the place of destination goods shipped belong to the seller until they have been delivered to the destination shown on the contractSimilarly, the risk of loss remains with the seller until the goods are tendered at destination.Tender at destination requires that thegoods arrive at the place named in the contract, the buyer is given notice of their arrival,and a reasonable time is allowed for the buyer to pick up the goods from the carrier.When terms of shipment do not specify shipping point or destination, it is assumed tobe a shipment contract.
14 Destination Contracts c.o.d. (collect on delivery)instructs the carrier to retain possession until the carrier has collected the cost of the goodsc.i.f. (cost, insurance, and freight)instructs the carrier to collect all charges and fees in one lump sumf.a.s. vessel (free alongside vessel)requires sellers to deliver the goods, at their own risk, alongside the vessel or at a dock designated by the buyerc.f. - insurance is not included in the sumTeaching Tips Help students remember the meanings of c.f., c.i.f., c.o.d., f.a.s. vessel, f.o.b. theplace of destination, and f.o.b. the place of shipment by having them work in pairs to come up with waysto communicate the meaning of one term to the other students. The pairs might, for example, draw cartoonsillustrating the meaning of a term, act out the meaning of a term, or come up with a play on words for aterm’s abbreviation to help classmates remember what the term means.
16 Question?What are “goods of which any unit is, by nature or usage of trade, the equivalent of any like unit”?Tangible goodsIntangible goodsDynamic goodsFungible goodsThe correct answer is “D” – Fungible goods. See next slide.
17 Fungible Goods Fungible Goods “goods of which any unit is, by nature or usage of trade, the equivalent of any like unit.”Terms The root word fungi refers to function, which relates to the broader definition of fungibleas interchangeable. One unit of something fungible can function the same as any other unit.
18 Question?A _____________ is a paper giving the person who possesses it the right to receive the goods named in the document.Document of ownershipDocument of titleVendor documentDocument of possessionThe correct answer is “B” – Document of title. See next slide.
19 Documents of Title Document of title A paper giving the person who possesses it the right to receive the goods named in the documentBills of lading, warehouse receiptsSometimes, when people buy goods, they receive a document of title to the goodsrather than the goods themselves. They then give the document of title to the warehouse orcarrier that is holding the goods and receive possession of them.When a document of title is used in a sales transaction, both title and risk of loss passto the buyer when the document is delivered to the buyer.
20 Agreement of the Parties The parties may, if they wish, enter into an agreement setting forth the time that title and risk of loss pass from the seller to the buyerWith one exception, title and risk of loss will pass at the time and place agreed uponIf the agreement allows the seller to retain title afterthe goods are shipped, title will pass to the buyer at the time of shipment, regardless of theagreement, and the seller will have a security interest in the goods rather than title. A securityinterest gives the seller a right to have the property sold in the event that the buyer failsto pay money owed to the seller
21 Revesting of Title in Seller Buyers, after entering into sales contracts, sometimes refuse to accept the goods that are delivered or are otherwise made available to themIn all such cases, title to the goods returns to the sellerThis reversion is true whether or not the buyer’s rejection of the goods is justified.Similarly, title to goods returns to the seller when the buyer accepts the goods and then for ajustifiable reason decides to revoke the acceptance. A justifiable reason for revoking an acceptancewould be the discovery of a defect in the goods after having inspected them.
22 Question?What type of sale allows goods to be returned even though they conform to the contract when the goods are primarily for the buyer’s use?Sale on returnSale on arrivalSale on disprovalSale on approvalThe correct answer is “D” – sale on approval. See next slide.
23 Sales with Right of Return Sale on approvalsale that allows goods to be returned even though they conform to the contract when the goods are primarily for the buyer’s use.When goods are sold on approval, they remain the property of the seller until the buyer’s approval has been expressed.The approval may be indicated by the oral or written consent of the buyer or bythe buyer’s act of retaining the goods for more than a reasonable time. Using the goods ina reasonable and expected manner on a trial basis does not imply an acceptance.
24 Sale or Return Sale or return sale that allows goods to be returned even though they conform to the contract when the goods are delivered primarily for resaleTeaching Tips Ask students if they ever returned merchandise that they ordered from a catalog. Have any students who had thisexperience explain what the seller required him or her to do to return the merchandise.Next ask students what would have happened if the merchandise had been lost in the mail on its way back to the seller.
25 Question?What is the financial interest that an insured party has in the insured property?Insurable interestLien interestFactored interestQuantum interestThe correct answer is “A” – insurable interest. See next slide.
26 Insurable Interest Insurable interest the financial interest that an insured party has in the insured propertyBuyers may place insurance on goods the moment a contract is made and the goods areidentified to the contract. At this point, buyers receive an insurable interest in the goodsthey buy. They obtain an insurable interest even though they might later reject or return thegoods to the seller. Notwithstanding the buyer’s right to insure the goods, sellers retain aninsurable interest in the goods as long as they have title to them.