Ownership and Risk of Loss in Sales Business Law: Ch 14 Ownership and Risk of Loss in Sales

Who May Transfer Ownership? Only the true owner of goods may legally transfer ownership of those goods Exceptions: Person’s authorized to do so may transfer another’s title Buyers in a sale induced by the fraud of the seller may transfer better title than they have to an innocent third-party purchaser

Who May Transfer Ownership? Exceptions: Holders of negotiable documents of title may transfer better title than they have Merchants who keep possession of goods they have sold may transfer better title then they have

Who May Transfer Ownership? Authorized Persons Person may sell what they do not own if the owner has authorized then to do so Salespeople Auctioneers and Sheriffs under court order or when empowered by statute, stolen or repossessed goods or foreclosed property

Who May Transfer Ownership? Buyers in a Sale Induced Fraud If an owner of goods is induced by fraud to sell the goods, the transfer of title is voidable by the seller Upon discovering the fraud, the seller may cancel the contracts and recover the goods unless an innocent third party already has given value and acquired rights in them Good Faith Purchaser – Innocent Third Party

Who May Transfer Ownership? Buyers in a Sale Induced Fraud Buyer with voidable title resulting from a sale induced by fraud may transfer valid title to good faith purchaser To act in good faith, the purchaser must not have reason to suspect the person who has the voidable title A person who buys stolen goods from a thief receives possession, but no title

Who May Transfer Ownership? Holders of Negotiable Documents of Title In business, certain documents are used as a substitute for title to goods Warehouse receipt – issued by public warehouses when goods are stored there Bills of lading and Air bills – issued by common carriers when goods are shipped by them

Who May Transfer Ownership? Holders of Negotiable Documents of Title In business, certain documents are used as a substitute for title to goods Documents may be negotiable or nonnegotiable Negotiable – Goods are to be delivered to the bearer (Person in possession of the document, or to the order of a party named by the document)

Who May Transfer Ownership? Holders of Negotiable Documents of Title Holder – Person deemed to have title to the goods May transfer title of the goods by merely transferring the document

Who May Transfer Ownership? Merchants with Possession of Sold Goods Buyers will allow the merchant seller to temporarily retain possession of the goods after the sale If the merchant resells and delivers these goods to a good faith purchases, the latter receives good title The merchant must replace the resold goods or be liable to the original owner

Requirements for Ownership Transfer For ownership of goods to be transferred in a sale, the goods must be both existing and identical Existing Goods – Physically in existence and owned by the seller Need not be in a fully assembled and immediately deliverable condition

Requirement for Ownership Transfer Identical Goods – Existing goods that have been designated specifically as the subject matter of a particular sales contract The identification of such goods may be done by the buyer, the seller, both, or my mutually agreed-upon third party The identified goods are marked, separated, or in some way made distinct from similar goods

Requirement for Ownership Transfer Future Goods – Goods that are not both existing and identified Any contract for the sale of future goods is a contract to sell

Requirement for Ownership Transfer Exception to the process of identification Fungible goods – Goods of homogeneous or essentially identical nature By nature or trade usage, each unit is regarded as equal to every other unit

Requirement for Ownership Transfer When Does Ownership Transfer? Common Situations Seller delivers goods to their destination Title passes when the goods are tendered at their specified destination Tender of Delivery – Means that the seller places the proper goods are the buyers disposal and notifies the buyer so that delivery can be received

Requirement for Ownership Transfer When Does Ownership Transfer? Common Situations The time, manner, and place for tender are determined by the agreement and the UCC When additional work is required – title does not pass until such work is completed

Requirement for Ownership Transfer When Does Ownership Transfer? Common Situations Seller ships, but does not deliver goods to their destination Title transfers to the buyer at the time and place of shipment (when possession is transferred to the carrier)

Requirement for Ownership Transfer When Does Ownership Transfer? Common Situations Seller delivers document of title Seller tenders goods at place of sale

Ch 13 Test Reminder that tomorrow, Tuesday, May 15, we will be taking the Ch 13 test. Please look at your handouts for the chapter.

14-1 Assessment Complete the 14-1 Assessment Questions on page 246. Complete the 14-1 Handout Turn in your answer with the handout

When Does Risk of Loss Transfer If Seller Ships Goods by Carrier Seller is required to deliver goods to a particular destination Risk of loss passes to the buyer at the destination, upon tender of delivery To place the goods at the buyers disposal or to give notice to the buyer that delivery can be received Seller not required to deliver goods to a particular destination Risk of loss passes to the buyer when the goods are delivered to the carrier

When Does Risk of Loss Transfer Commercial buyers FOB – means “free on board” Seller agrees to delivery the goods no further then destination Title and risk of loss transfers at that point

When Does Risk of Loss Transfer Shipments from foreign countries Seller quotes a CIF (cost, insurance, freight) Seller contracts for adequate insurance and for proper shipment Adds these costs to the price or cost of the goods Risk of loss transfers to the buyer when the seller delivers goods to the carrier

When Does Risk of Loss Transfer If the goods are held by a bailee Bailee – Temporary possession of another persons goods, holding them in trust for a specified purpose Risk of loss transfers to the buyer When the buyer receives a negotiable document of title covering the goods (warehouse receipts) When the bailee acknowledges the buyers rights to possession of the goods After the buyer receives a non-negotiable document of title or other written directions to a bailee to deliver goods

When Does Insurable Interest Transfers Buyers obtain certain rights in goods at the time of their identification to a sales contract. One right is Insurable Interest – Gives the buyer the rights to buy insurance on the goods Necessary because the buyer may lose money should be goods be destroyed and the buyer cannot find then elsewhere.

When Does Insurable Interest Transfers In addition to the insurable interest, the buyer has the following rights: To inspect the identified goods at a reasonable hour To compel delivery if the seller wrongfully withholds delivery To collect damages from third persons who take or injure the goods

Transfer of Rights and Risks in Specific Sales Cash-and-Carry Sales The buyers in a sales contract is a consumer who pays cash and takes immediate delivery, title passes to the buyer at the time of the transaction Risk of loss passes upon the buyer’s receipt of the goods from a merchant and on tender of goods by a casual seller

Transfer of Rights and Risks in Specific Sales Cash-and-Carry Sales Seller may insist on payment in legal tender Checks are commonly used but are not legal tender. Acceptance of checks by the seller is not considered payment until the check is paid at the bank Acceptance of the check does not affect the risk of loss

Transfer of Rights and Risks in Specific Sales Sales on Credit Sale that, by agreement of the parties, calls for payment for the goods at a later date. Ownership and risk of loss transfers even though payment is delayed.

Transfer of Rights and Risks in Specific Sales COD Sales COD – Collect on Delivery Carrier collects the price and transportation charges upon delivery and transmits this amount to the seller. If buyer does not pay, the goods are not delivered Buyer loses right to inspect the goods before payment Ownership and risk of loss transfers as though there was not provisions

Transfer of Rights and Risks in Specific Sales Sale or Return Completed sale in which the buyer has an option of returning the goods When goods are delivered to a merchant buyer, the ownership and risk of loss passes to the buyer upon delivery If the buyer returns the goods (original condition) within the fixed or a reasonable amount of time, ownership and risk of loss passes back to the seller Not the same as a return privilege granted to customers of retail stores

Transfer of Rights and Risks in Specific Sales Sale on Approval Goods delivered to the buyer “on trial” or “on satisfaction” Ownership and risk of loss does not pass until the prospective buyer approves the goods When in possession of the goods, the prospective buyer is liable for any damages to them caused by their negligence

Transfer of Rights and Risks in Specific Sales Sale of an Undivided Interest A person sells a fractional interest in a single good or in a number of goods that are to remain together Ownership and risk of loss pass to each buyer at the time of the sale of each undivided interest

Transfer of Rights and Risks in Specific Sales Auction Public sale to the highest bidder Auctioneer accepts the bid on behalf of the owner of the goods Ownership passes to the buyer at that time Risk of loss passes when payment is received Auction sales “With Reserve” – Auctioneer may withdrawal the good at anytime before completion “Without Reserve” – Item must be sold to the highest bidder

Transfer of Rights and Risks in Specific Sales Bulk Transfer Transfer of all or a major part of the goods of a business in one unit at a time UCC requires that notification to the sellers creditors is made before the bulk transfer is made The buyer is required to notify those creditors of the forthcoming transfer of ownership and to pay their claims or to make other arrangement with them

14-2 Assessment and Handouts 14-2 Assessment on page 253 14-2 Handout