Business Law and the Regulation of Business Chapter 21: Transfer of Title and Risk of Loss

1. Business Law and the Regulation of BusinessChapter 21: Transfer of Title and Risk of Loss By Richard A. Mann & Barry S. Roberts

2. Topics Covered in this Chapter A. Transfer of Title B. Risk of Loss C. Bulk Sales

3. Transfer of Title • Identification– designation of specific goods as goods to which the contract of sale refers. • Insurable Interest– buyer obtains an insurable interest and specific remedies in the goods by the identification of existing goods as goods to which the contract of sale refers. • Security Interest– an interest in personal property or fixtures that ensures payment or performance of an obligation.

4. Passage of Title • Title passes when the parties intend it to pass; when the parties do not specifically agree, the Code provides rules to determine when title passes. • Physical Movement of the Goods– when delivery is to be made by moving the goods, title passes at the time and place where the seller completes his performance with reference to delivery. • No Movement of the Goods

5. Power to Transfer Title • The purchaser of goods obtains such title as her transferor either has or had the power to transfer; however, to encourage and secure good faith acquisitions of goods, it is necessary to protect third parties in certain circumstances. • Void Title– no title can be transferred. • Voidable Title– the good faith purchaser acquires good title. • Entrusting of Goods to a Merchant– buyers in the ordinary course of business acquire good title when buying from merchants.

6. Void Title Transferor Transferee A void transfer of goods B goods $ may recover goods C Good faith purchaser

7. Voidable Title Transferor Transferee A voidable transfer of goods B goods $ may not recover goods C Good faith purchaser

8. Entrusting of Goods to a Merchant Merchant Entruster A B entrusts stereo stereo $ may not recover goods C Buyer in ordinary course of business

9. Risk of Loss • Definition– allocation of loss between seller & buyer where goods are damaged, destroyed, or lost without the fault of either party. • Risk of Loss Where There Is a Breach • Breach by the Seller– if the seller ships to the buyer goods that do not conform, the risk of loss remains on the seller until the buyer has accepted the goods or until seller has remedied the defect. • Breach by the Buyer– the seller may treat the risk of loss as resting on the buyer for a commercially reasonable time to the extent of any deficiency in the seller's effective insurance coverage.

10. Risk of Loss • Risk of Loss in Absence of a Breach • Agreement of the Parties– the parties may by agreement allocate the risk of loss. • Trial Sales– unless otherwise agreed, if the goods are delivered primarily for the buyer's use, the transaction is a sale on approval (risk of loss remains with the seller until “approval” or acceptance of the goods by the buyer); if they are delivered primarily for resale by the buyer, it is a sale or return (the risk of loss is on the buyer until she returns the goods).

11. Risk of Loss • Risk of Loss in Absence of a Breach • Contracts Involving Carriers– in shipment contracts, the seller bears the risk of loss and expense until the goods are delivered to the carrier for shipment; in destination contracts, the seller bears the risk of loss and expense until tender of the goods at a particular destination. • Goods in Possession of Bailee • All Other Sales– for merchant seller, risk of loss passes to buyer on the buyer's receipt of the goods; for nonmerchant seller, risk of loss passes to buyer upon tender of goods.

12. Passage of Risk of Loss in Absence of Breach Agreement by parties? As allocated by agreement Yes No Goods in possession of bailee Contract involving carrier Goods in possession of buyer All other sales Trial sale Risk of loss passes to buyer at time of contract Seller is not a merchant Seller is a merchant Negotiable document of title? Sale on approval? Shipment contract? Yes No Yes No Yes No 1 2 3 4 5 Continued on next slide… (match arrow numbers)

13. Passage of Risk of Loss in Absence of Breach (cont.) 1 2 3 4 5 No No Yes Yes Yes No Risk passes to buyer upon tender of goods Risk passes to buyer upon receipt of goods Non-negotiable document of title? Sale or return Destination contract No Yes Risk on seller until approved Risk shifts upon buyer’s receipt of document Risk on seller until delivered to carrier Risk shifts to buyer upon tender of document No document of title Risk on seller until goods tendered at destination Risk on buyer until returned Risk shifts to buyer upon written acknowledgment by seller or bailee

14. Bulk Sales • Definition– a transfer, not in the ordinary course of the transferor's business, of a major part of his inventory. • Requirements of Article 6– transfer is ineffective against any creditor of the transferor, unless certain requirements are met.