© 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 TITLE TO GOODS AND RISK OF LOSS © 2010 Pearson Education, Inc., publishing as Prentice-Hall CHAPTER 13

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 2 Identification of Goods Goods named in contract distinguished from seller/lessor’s other goods –E.g., carton marked with buyer’s name. Risk of loss cannot pass until goods identified. Title cannot pass until goods identified.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 3 Identification of Goods (continued) Parties can agree to time and manner of identification. Existing goods identified when specific goods named. Future goods identified when born, planted, shipped, marked, or designated.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 4 Passage of Title Title cannot pass until goods exist and have been identified. Title passes upon terms agreed to in contract. If no terms are stated, title passes when delivery is completed.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 5 Shipment and Destination Contracts Shipment Contract –Seller should make proper shipping arrangements. –Deliver the goods into the carrier’s hands. Destination Contract –Seller delivers goods either to buyer’s place of business or another destination specified in sales contract.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 6 Delivery of Goods Without Moving Them –Buyer is required to pick up goods from seller –If document of title or bill of lading is required, title passes when seller delivers the document. –If no document of title and goods are identified, title passes at time of contracting.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 7 Shipping Terms Shipment Contracts F.O.B. point of shipment. F.A.S. C.I.F. or C.&F. Destination Contracts F.O.B. place of destination. Ex-ship. No-arrival, no-sale.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 8 Risk of Loss: No Breach of Sales Contract Carrier Cases: Movement of Goods –Shipment Contracts - Risk of loss passes to buyer when seller delivers the conforming goods to the carrier. –Destination Contracts - Risk of loss passes to buyer when seller delivers the conforming goods to the specified destination.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 9 Risk of Loss: No Breach Noncarrier Cases: No Movement of Goods –Merchant Seller - Risk of loss passes to buyer when buyer receives the goods. –Nonmerchant Seller - Risk of loss passes to buyer upon tender of delivery.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 10 Risk of Loss: No Breach (continued) Goods in Possession of a Bailee: –Buyer receives negotiable document of title or –Bailee acknowledges buyer’s right to possession, or –Buyer receives a nonnegotiable document of title and has reasonable time to demand goods.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 11 Risk of Loss: Conditional Sales Sale on Approval No sale unless and until the buyer accepts the goods. Risk of loss, title pass when goods are accepted.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 12 Sale or Return Buyer may return goods unsold after a period of time. Risk of loss and title pass to buyer when buyer has possession of goods. Risk of Loss: Conditional Sales (continued)

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 13 Risk of Loss: Conditional Sales (continued) Consignment Seller (consignor) delivers goods to buyer (consignee) to sell. –Consignor paid a fee if he/she sells the goods on behalf of the consignor. Treated as sale or return.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 14 Risk of Loss: Breach Seller in Breach - If seller delivers nonconforming goods to the buyer, seller retains risk of loss. Buyer in Breach - If buyer refuses to take delivery of conforming goods, repudiates the contract or otherwise breaches the contract, buyer takes risk of loss of identified goods.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 15 Risk of Loss: Lease Contracts In ordinary lease, risk of loss retained by lessor. In case of finance lease, risk of loss passes to lessee. If tendered goods nonconforming, risk of loss remains with lessor or supplier until cure or acceptance.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 16 Insurable Interest Seller has insurable interest as long as seller retains title or has security interest. Lessor has insurable interest during term of lease. Buyer/lessee has insurable interest in identified goods. Both parties may have insurable interest simultaneously.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 17 Sales by Nonowners Void Title and Lease: Stolen Goods Buyer does not obtain good title to stolen goods. Lessee has no leasehold interest in stolen goods. Rightful owner can reclaim.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 18 Sales by Nonowners (continued) Seller/lessor has voidable title if goods were obtained by fraud, if a check is later dishonored, or if he/she impersonates another person. Can transfer good title to good faith purchaser for value or good faith subsequent lessee.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 19 Sales by Nonowners (continued) Entrustment Rule –If owner entrusts the possession of his/her goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights/title in the goods to a buyer in the ordinary course of business. –The real owner cannot reclaim the goods from this buyer.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 20 Electronic Contracts and Signatures E-signatures effective. Electronic record or electronic signature is attributable to a person if it was act of that person or his or her electronic agent. Electronic communication is effective even if no individual aware of its receipt.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 21 Letters of Credit To manage risk of nonpayment or nonreceipt of goods in international transactions. Substitutes credit of bank for that of buyer. Issuing bank agrees to pay upon delivery of documents from beneficiary (seller). Governed by Article 5 of UCC.