CHAPTER 17 TITLE AND RISK OF LOSS

1. CHAPTER 17TITLE AND RISK OF LOSS DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8th Ed.)

2. TITLE TO GOODS UNDER ARTICLE 2 • Title refers to legal ownership. • When goods are sold, title passes from the seller to the buyer • Historic Importance • Under common law, title was of paramount importance.

3. TITLE TO GOODS • Modern Rule. • All rights, duties, and remedies of any party apply without regard to title unless title is specifically required. • Title passes from seller to buyer when seller completes performance of delivery. • Type of delivery contract important in determining which party has title. • Goods identified to contract when shipped, marked, or otherwise designated by the seller.

4. SELLERS WITH VOIDABLE TITLE • Fraudulent Retention. • Problem arise when seller “sells” goods but retains possession. • Seller’s creditors can treat the sale as void if retention by the seller is fraudulent. • Treat fraudulent retention: • Seller is treated as a conclusive presumption of fraud. • Seller retains possession of goods for any reason other than a commercial one. • Prima Facie, seller is presumed to be guilty of fraud if goods retained.

5. SELLERS WITH VOIDABLE TITLE • Entrustment. • Delivery of goods to a merchant who regularly deals in goods of the type delivered. • Addresses problems regarding voidable title and the passage of valid title.

6. INSURABLE INTEREST • Insurable Interest. • The right to purchase insurance on goods to protect one’s property rights and interests in the goods.

7. RISK OF LOSS UNDER ARTICLE 2 • Refers to financial responsibility between the parties if the goods are lost, damaged, or destroyed before the buyer accepted them. • Refers to relationship between buyer and seller. • Allocation of risk of loss depends on method of performance.

8. ROL: BREACH OF CONTRACT • Breach of Contract. • Seller breaches contract by sending nonconforming goods. • Seller retains risk of loss until cures the defect or buyer accepts goods despite nonconformity. • Buyer breaches contract by repudiation, after goods are identified but before delivery.

9. ROL: NO BREACH • No Breach of Contract. • Risk of loss is more technical. • Distinct contract possibilities to allocate risk of loss: • 1) Seller sends goods by means of a carrier. • 2) Goods are in the hands of a bailee and goods not to be physically delivered. • 3) Goods in possession of seller and carrier not used. • 4) Sale on approval. • 5) Parties can agree to allocate risk of loss in any way.

10. ROL: NO BREACH • Shipment contract: seller provides for carriage of goods and surrenders them to carrier, title and risk of loss belongs to buyer. • Destination contract: seller retains title and all risk of loss until carrier delivers goods to buyer and the seller has not performed until goods reach their destination.

11. SPECIAL PROBLEMS • Sale on Approval: buyer “purchases” goods primarily for personal use and knows can return goods, buyer given reasonable time to examine, inspect, try goods at seller’s risk. • Buyer accepts goods if: • 1) Signifies acceptance. • 2) Does not Return the goods. • 3) Subjects goods to unreasonable usage.

12. SPECIAL PROBLEMS • Sale or Return: goods bought for resale where unsold goods can be returned to seller, both title and risk of loss rest with the goods. • Consignment: owner of the goods allows a consignee to display and sell the goods for the owner/consignor. • Auctions: with or without reserve.

13. LEASES UNDER ARTICLE 2A • Article 2A specifically separates title and possession and states provisions governing leases. • Risk of loss in respect to leases depends on type of lease: • Finance lease risk of loss passes to lessee. • Other lease risk of loss is retained by lessor. • Leased goods in hands of bailee and risk of loss is to pass to lessee.

14. TITLE TO GOODS UNDER CISG • CISG governs only the sale of goods. • CISG does not concerned with title, but does imply how title should be treated.

15. ROL UNDER CISG • ROL under CISG is based on how Seller is to deliver goods. • If common carrier depends on carriage contract. • If no destination, ROL passes to buyer when tendered to carrier. • If a destination, ROL passes to buyer at location.

16. STANDARD SHIPPING TERMS • Law presumes shipment contract if not specified in contract. • Free On Board (FOB): seller quotes price to buyer, represents total cost to the buyer for goods at place named FOB point. • Free Along Side (FAS): standard shipping term for seagoing transportation and buyer is responsible for any costs incurred.

17. STANDARD SHIPPING TERMS • Ex-Ship: destination contract, seller responsible for getting goods to named vessel and port and unload them from vessel, seller shoulders the risk of loading, transportation, and unloading. • Cost, Insurance, Freight (CIF) and Cost and Freight (C & F): seller quotes a lump-sum price to buyer.

18. STANDARD SHIPPING TERMS • No Arrival, No Sale: seller faces the risk of loss if goods damaged/destroyed during transit, seller is released from duty to perform. • Collect on Deliver (COD): destination contract with special feature; buyer required to pay upon tender by carrier but not permitted to inspect the goods until payment has been made.