1. Chapter 21: Title, Risk, and Insurable Interest
Clarkson  Miller  Cross
Chapter 21: Title, Risk, and Insurable Interest

2. Introduction
Sale of goods requires different rules than real property transactions: risk should not always pass with title.
UCC replaces title with identification, risk, and insurable interest.

3. §1: Identification For any interest to pass to buyer, goods must be:
(1) in existence and
(2) identified as specific goods in sales contract. 

4. Identification
Identification takes place when specific goods are designated as the subject matter of the contract.

5. Identification Identification gives buyer the right to:
Obtain insurance on the goods.
Recover from third parties who damage the goods.

6. Identification Existing Goods.
If contact calls for ascertainable goods in existence, identification takes place at the time contract is made. 

7. Identification Future Goods.
Animals born within 12 months of contract, identification takes place at conception. 

8. Identification Future Goods.
For crops harvested within 12 months of contracting, identification takes place at time of planting (or when crops begin to grow).

9. Identification Future Goods.
All others, when goods shipped, or marked or designated by seller.

10. Identification Goods Part of a Larger Mass.
Goods are identified when marked, shipped, or designated by seller.
Exception: fungible goods which are naturally alike (grades of wheat, oil, wine).

11. §2: When Title Passes
Contract between seller and buyer usually determines when title passes:
Upon physical delivery, or
When agreed to by the parties.
CASE United States. v Custom Motorcycle (2011).

12. When Title Passes
If no agreement, title passes based on whether contract is shipment or destination contract.
Shipment: title passes at time and place of shipment.
Destination: title passes when goods are tendered at the destination.

13. When Title Passes Delivery Without Movement.
With document of title (bill of lading): title passes when and where document delivered.
Without document: title passes when sales contract is made, if goods have been identified, or when identification occurs if they have not been identified.

14. When Title Passes Sales or Leases by Nonowners.
Void Title: true owner gets goods back.
Voidable Title.
Good Faith Purchaser keeps goods.
Voidable Title and Leases: good faith lessee retains possession. 

15. When Title Passes Sales or Leases by Nonowners. Entrustment Rule.
Merchant must deal in goods of that kind.
Gives power to transfer valid title to good faith purchaser in ordinary course of business.
CASE Lindholm v. Brant (2007).

16. Void and Voidable Title

17. §3: Risk of Loss ROL does not necessarily pass with title.
ROL is important because of insurance concerns.

18. Risk of Loss
Unless agreed otherwise, ROL passes to Buyer depending on whether delivery is with or without movement of the goods.
CASE Person v. Bowman (2013).

19. Risk of Loss Delivery With Movement of Goods – Carrier Cases.
Shipment Contracts: Risk of loss passes to Buyer when goods tendered to Carrier.
If goods damaged in transit, Buyer bears risk of loss.

20. Risk of Loss Delivery With Movement of Goods – Carrier Cases.
Destination Contracts.
ROL passes to Buyer when goods tendered at contractually specified destination.

21. Risk of Loss Delivery Without Movement of Goods.
Often goods are held by a bailee on behalf of the seller in a bailment.
Documents of title give bailee possession of goods and/or contracts to deliver them. Examples: warehouse, trucking company.

22. Risk of Loss Delivery Without Movement of Goods. Goods Held by Seller:
If Seller is a merchant, ROL passes when buyer takes physical possession of goods.
ROL remains with seller until buyer takes physical possession.

23. Risk of Loss Delivery Without Movement of Goods.
Goods Held by a Bailee:
Document of Title is either negotiable or non-negotiable. 

24. Risk of Loss Delivery Without Movement of Goods.
Goods Held by a Bailee:
ROL passes when: Buyer receives document of title; bailee acknowledges Buyer’s right to goods and buyer receives title and has reasonable time to pick up.

25. Risk of Loss Conditional Sales.
Sale on Approval: ROL passes when buyer approves – express or implied.
Sale or Return: ROL passes to buyer when she possesses goods.

26. Risk of Loss ROL When Sales (or Lease) Contract is Breached.
Generally breaching party bears risk of loss. 

27. Risk of Loss ROL When Sales (or Lease) Contract is Breached.
When Seller-Lessor Breaches.
Rejection - risk stays with seller.
Revocation of acceptance - risk passes back to seller to the extent that buyer’s insurance does not cover the loss.

28. Risk of Loss ROL When Sales (or Lease) Contract is Breached.
When Buyer or Lessee Breaches.
If goods identified, ROL passes to buyer for reasonable amount of time after seller learns of breach, to extent that seller’s insurance does not cover loss.

29. §4: Insurable Interest
Buyer has an insurable interest in goods that have been identified. 

30. Insurable Interest
Seller has an insurable interest in goods as long as they retain title or a security interest.
Both buyers and sellers can have an insurable interest at the same time.

31. Shipping Terms