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Chapter 20 Title, Risk and Insurable Interest

Chapter 20 Title, Risk and Insurable Interest . 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. §1: Identification.

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Chapter 20 Title, Risk and Insurable Interest

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  1. Chapter 20 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: • In existence. • Identified as specific goods in the sales contract (by serial numbers and/or physically separated from others. Except for fungible goods which do not need separation).

  4. Identification [2] • Gives the buyer the right: • To obtain insurance on the goods. • To recover from third parties who damage the good. • Identification occurs: • If goods are designated when contract is made. If goods are not designated when contract is made, then identified at time of designation.

  5. §2: When Title Passes • Title can pass: • Upon physical delivery, or • When agreed to by the parties, or • If no agreement, depends 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. • Case 20.1:In re Stewart (2002).

  6. Delivery Without Movement of Goods • Title passes when agreed by the parties, or • With document of title: when and where document delivered. • Without document: when sales contract is made, if goods have been identified or when identification occurs if they have not been identified.

  7. Sales or Leases By Non-Owners • Void Title: true owner gets goods back. • Voidable Title: good faith purchaser keeps goods. • Case 20.2:Memphis Hardwood v. Daniel (2000). • Entrustment rule: good faith purchaser keeps goods. • Seller’s Retention of Sold Goods: good faith purchaser wins. • Sham transactions or preferential transfers.

  8. §3: Risk of Loss • ROL does not necessarily pass with title. ROL is important because of insurance concerns. • Unless agreed otherwise, ROL passes to Buyer depending on whether delivery is with or without movement of the goods.

  9. ROL: Delivery With Movement • Shipment Contracts. • ROL passes to Buyer when tendered to Carrier. If goods damaged in transit, Buyer’s loss. • Destination Contracts. • ROL passes to Buyer when goods tendered at particular Destination. • Case 20.3:Windows Inc. v. Jordan Panel System Corp. (1999).

  10. ROL: Shipping Terms

  11. ROL: Delivery Without Movement of Goods • Goods Held by Seller: • Document of Title is generally not used. • If Seller is a merchant, ROL passes when buyer takes physical possession of goods. • Goods Held by Bailee (Warehouse). 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.

  12. ROL: Conditional Sales • Sale on Approval. • ROL passes when buyer approves expressly or implicitly. • Sale or Return. (Consignment is sale or return unless it complies with Art. 9.) • ROL passes to buyer with possession.

  13. ROL: Breach of Contract • Generally breaching party bears ROL. • Seller’s Breach. • 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. • Buyer’s Breach. Goods are identified, risk passes to buyer for a reasonable amount of time after seller learns of the breach, to the extent that seller’s insurance does not cover loss.

  14. §4: Insurable Interest • Buyer has an insurable interest in goods that have been identified. • 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.

  15. §5: Bulk Transfers • Covered by Article 6 of the Uniform. Commercial Code. • A bulk transfer is defined as: • Major part of seller’s inventory. • Not made in the usual course of business. • UCC 6 is becoming obsolete and has been repealed by many states.

  16. Law on the Web • Information on Commercial Law topics at the Hale Dorr Law Firm. • Sample Bills of Lading. • Legal Research Exercises on the Web.

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