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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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)

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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)

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

19. 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.

20. 14-1 Assessment Complete the 14-1 Assessment Questions on page 246.
Complete the 14-1 Handout
Turn in your answer with the handout

21. 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

22. 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

23. 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

24. 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

25. 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.

26. 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

27. 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

28. 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

29. 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.

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 14-2 Assessment and Handouts
14-2 Assessment on page 253
14-2 Handout