Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 24 Title and Risk of Loss Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Types of Potential Problems Damage to Goods: What if neither Buyer nor Seller is responsible? –What liability does a Carrier have? Creditors’ Claims or Seizure of Goods. Insurable Interest.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 3 Determining Rights: Identification of Goods Existing Goods: physically present and owned by Seller at the time of contract. –When Seller or Buyer selects goods, they are “identified.” Future Goods: do not exist or not owned by seller at the time of contract. Fungible Goods: indistinguishable. Identification Gives Buyer an Insurable Interest.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 Determining Rights: Document of Title Document of Title: facilitates transfer of ownership without actually moving the goods. –A warehouser stores the goods of others for compensation and has the rights and duties of a bailee in an ordinary mutual benefit bailment.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 Determining Rights: Document of Title Warehouse receipt given to the depositor (bailor) of the goods. Bill of Lading: carrier accepts goods for shipment. Now includes electronic documents of title.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Passage of Title in Bailments Generally, a seller can only sell what he owns. Stolen Property: finder of stolen property (or a thief) cannot pass good title to a third party, even if the buyer purchased in good faith. Estoppel. Voidable Title.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Unless otherwise agreed, the Seller is only required to make shipment to the Buyer, i.e., place the goods in a carrier’s possession. FOB Place of Shipment. FOB Place of Destination. FAS. CF and CIF. COD. Delivery and Shipment Terms

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 Passage of Title in Shipment Contracts FOB Place of Shipment Contract. –Title passes from S  B when S places goods with carrier. FOB Place of Destination Contract. –Title passes from S  B when goods are tendered to the Buyer.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 9 Determining Rights: Risk of Loss ROL determines who must pay if the goods are damaged or destroyed. Non-Shipment Contracts. –Merchant Seller: ROL passes from S  B upon B’s actual receipt of goods. –Non-Merchant Seller: ROL passes from S  B upon tender of goods.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 10 Determining Rights: Risk of Loss Shipment to Buyer: ROL passes from S  B when tendered to carrier for shipment. Contract for Delivery: ROL passes from S  B when goods tendered at destination by carrier.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 11 Determining Rights: Damage or Destruction of Goods Identified Goods Before ROL passes. –If total loss, contract is cancelled by law. –If partial loss, B has option to accept or reject. Identified Goods After ROL passes. –Buyer’s loss (insurable interest). Un-Identified Goods. –No ROL to Buyer, Seller’s loss.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 12 Risk of Loss in Shipment Contracts Rights of Common Carriers. –Security lien interest on goods that it transports. –Right to compensation per agreement. Duties of Common Carriers. –Deliver the goods as agreed.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 13 Risk of Loss in Shipment Contracts A common carrier is absolutely liable for loss or damage to the goods. Exceptions: –Loss was caused solely by an act of God, –Act of a public enemy, –Act of a public authority, –Act of the shipper, or –Inherent nature of the goods.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 14 Risk of Loss in Shipment Contracts Seller is Liable for Damages from Delay. Limitation of Carrier Liability. –Unless prohibited by law, carriers can contractually limit their liability. –Example: Airbills limit liability to $100, unless insurance is purchased. If Seller ships non-conforming goods and Buyer reject, ROL stays with Seller.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 15 Damage / Destruction of Goods Damage to Identified Goods before Risk of Loss Passes: Depends on facts. Damage to Identified Goods after the Risk of Loss Passes: Buyer sustains loss. Damage to Unidentified Goods: no risk to buyer. Effect of Seller’s Breach in ROL.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 16 Determining Rights: Special Situations Returnable Goods Transactions: Sale on Approval, Sale or Return. Consignments and Factors: A factor is a special type of bailee who has possession of someone else’s property for the purpose of selling it. –This arrangement is commonly called selling on consignment, and the owner is called a consignor. –The factor, or consignee, receives a commission on the sale.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 17 Determining Rights: Special Situations Self-Service. Auction Sales.