business law

1. Business Law Chapter 19 Title and Risk of Loss

3. Objectives Discuss who bears the loss if goods are damaged, destroyed, or lost, or if the contract is breached Pinpoint who has an insurable interest in goods

4. Rights and Liabilities In most situations, not determined by title Three other concepts Identification Risk of loss Insurable interest

5. Identification Two conditions before any interest can pass from seller to the buyer Goods must be in existence They must be identified as the specific goods designated in the contract If either is missing, only a Contract to Sell �Future goods�

6. Identification A designation of goods as the subject matter of the sales contract Gives the buyer the right to obtain insurance on the goods and the right to recover from third parties who damage the goods

7. Purchasing Goods from a Larger Mass Identified when the goods are marked, shipped, or somehow designated Until separated, title and risk of loss stay with the seller Exception � fungible goods (goods that are alike naturally or by agreement)

8. When Identification Occurs At the time of contract, if goods already exist Animals to be born or crops to be harvested within 12 months, when conceived or planted Marked, shipped, or somehow designated

9. Passage of Title According to agreement If no agreement, when the goods are physically delivered Shipment contract � title passes at shipping point Destination contract � title passes when goods are tendered at destination

10. Delivery without Movement Document of title may be required Bill of lading Warehouse receipt Evidence of right to possession of goods Title passes when and where the document is delivered

11. Delivery without Movement When no document of title is required Title passes at the time and place the sales contract is made if goods are identified Otherwise, when goods are identified

12. Sales by Nonowners Passage of title when persons who acquire goods with imperfect titles attempt to sell Void title Voidable title Entrustment rule

13. Void Title Buyer acquires whatever title the seller has Stolen goods � no title

14. Voidable Title Goods obtained by fraud, hot check, from minor, or from insolvent seller Good faith purchaser � unaware of circumstances Actual owner cannot recover goods from a good faith purchaser

15. The Entrustment Rule Entrusting goods to a merchant who deals in goods of that kind gives the merchant the power to transfer all rights to a buyer in the ordinary course of business Good faith buyer obtains only those rights held by the person entrusting the goods

16. Risk of Loss Who suffers the loss if goods are damaged, destroyed, or lost Not necessarily determined by title May be by agreement Or if contract has been breached

17. Risk of Loss-Carrier Cases Shipment contract � risk passes to buyer when goods are delivered to carrier Destination contract � risk of loss passes to buyer when goods are tendered at that destination

18. Risk of Loss-Without Movement Held by seller Merchant � when buyer takes physical possession Nonmerchant � upon tender of delivery

19. Risk of Loss-Without Movement Bailee � a party who acknowledges possession of goods and contracts to deliver them Negotiable document of title Nonnegotiable document of title

20. Held by Bailee Risk of loss passes to buyer The buyer receives a negotiable document of title Bailee acknowledges buyer�s right to possess goods Buyer receives a nonnegotiable document of title and has had a reasonable time to present the document and demand the goods

21. Conditional Sales Sale on approval � title and risk pass when buyer approves Sale or return � title and risk pass to buyer, buyer may return goods during a specified time (consignments)

22. Risk of Loss-Breach Generally, party in breach bears the risk of loss Seller breach Remains with seller until acceptance by buyer Acceptance can be revoked and risk passes back to seller

23. Risk of Loss-Breach Buyer breach Generally, risk of loss passes immediately to buyer Limitations Seller must have identified the goods Buyers bears the risk for only a commercially reasonable time after seller learns of breach Buyer is liable only to the extent of any deficiency in the seller�s insurance coverage

24. Insurable Interest Buyers have an insurable interest in identified goods even before risk of loss passes Sellers have an insurable interest as long as title is retained Or if seller has a security interest after title has passed