Chapter 14

1. Chapter 14 Ownership & Risk of Loss of Sales Kate Matthews, Kyra Wortley and Parker Taylor

2. 14.1 Transfer of Ownerships

3. 14.1 Transfer of Ownerships Who May Transfer Ownership • Generally only the owner may legally transfer ownership of a good Exceptions to the Rule: • Persons authorized -salespeople, auctioneers, anyone with permission from owner • Innocent third-party purchaser anyone acting in good faith when they make a purchase

4. 14.1 cont. • holders of negotiable documents of title -warehouse receipt - title to goods in storage and/or transit airbills, ship’s bills, and bills of lading – items in transit by air, sea, and land -nonnegotiable – name only party to whom good may be delivered -negotiable – once goods are delivered safely title is transferred to • Buyer, even if that person(s) is there to accept delivery of goods • merchants with possession of sold goods hold until pick up

5. 14.1 cont.er of Ownership • Buyers in a sale induced by fraud -good faith purchaser: party who buys without notice that would put an ordinary purchaser on guard -most recovered goods are not returned to seller if they are stripped of parts, damaged, or unrecognizable

6. Transfer of Ownership • Ownership transfers when: - creditors of either buyer or seller may retain possession of an item in order to collect any monies due - generally person with title will bear any losses - if not specified, courts will determine if there is any applicable custom in that type of trade - if not possible they look at UCC guidelines

7. Definitions: existing goods – physically in existence and owned by seller identified goods – existing goods designated specifically for a particular sales contract future goods – contract to sell, ownership nor risk of loss passes at time of agreement fungible goods – unit of goods that are the equivalent of any like unitie: oil, boxes of canned fruit, etc no special selection or identification of the item is needed for agreement

8. Common Situations -Seller Delivers Goods to Their Destination Tender of delivery – seller places (or authorizes carrier to place) goods at the buyer's disposal, title then passes to buyer. -Seller Ships, but Does Not Deliver Goods to Their Destination, buyer receives title when goods are transferred to the carrier. -Seller Delivers Document of Title title passes when and where document is delivered -Seller Tenders Goods at Place of Sale title passes at time and place where sale is made

9. Examples Brad wanted to buy a new high-definition digital projector that just hit the market. He walked into Electrifying Electronics and asked if they had any in stock. Beverly, a salesperson, checked the inventory and replied that the last one of the three received in their initial shipment had been sold earlier in the day. Another salesperson cut into the conversation to say he had just seen one in the storeroom. Beverly checked. Upon returning, she said the inventory must have been wrong and that she would sell the one in the storeroom to Brad. Brad completed the purchase and left the store with the projector. Minutes later, Victor returned to pick up the projector he had purchased earlier in the day. Beverly realized that another salesperson must have been storing it temporarily for Victor, so she ran to the parking lot to catch Brad. Beverly demanded the projector back and told Brad she would return the purchase price. Brad refused, saying that he now had title to the good.

10. Answer Brad is correct, he has title • Electrifying Electronics must replace the resold goods or be liable to the original buyer

11. Example 2 Chien Huang ordered electronic equipment worth more than $3 million from InterContinental Traders, a Seattle exporter. The equipment was to be shipped to a company in the People’s Republic of China. The sales agreement, signed by both parties, stated that title and risk of loss would pass “when all necessary governmental permits are obtained.” The Chinese government granted an import permit and necessary clearance to allow the exchange of Chinese currency into dollars to pay for the order. However, the U.S. State Department refused to grant an export permit because of the classified nature of some of the equipment. Did a sale take place?

12. Answer

13. 14.2 Risk of Loss and Insurable Interest in Sales

14. Identifying When Risk of Loss Transfers • Goods are shipped by Carrier • transfers upon the tender of delivery • transfers when the goods are transferred to the carrier • FOB- free on board • often used by commercial buyers • Risk of Loss transfers when • goods delivered to carrier's freight station -OR- • when goods are delivered to the buyers wearhouse • risk of loss and title remain with seller until delivery takes place • CIF- cost, insurance, freight • this is often used when dealing with shipments from foreign countries • Buyer pays cost for adequate insurance and proper shipment to destination • risk of loss transfers to buyer when seller delivers goods to the carrier (ie: a ship)

15. Identifying When Risk of Loss Transfers Cont. • Goods are held by a bailee bailee – has possession and control of the goods of another in agreement to return the goods or deliver them to a third party, ie: parking lot attendant • Contract is breached after goods are identified if the goods delivered are so faulty that the buyer rejects them the risk of loss will remain with the seller. • Other • in general, risk of loss falls to buyer upon receipt of the goods if the seller is a merchant • if not a merchant, risk of loss transfers as soon as seller makes a tender of delivery

16. The Rights of the Buyer and Insurable Interest Buyer has right to: • Inspect goods at a reasonable hour • Compel delivery if seller wrongfully withholds delivery • Collect damages from third persons who take or injure the goods Insurable interest gives the buyer the right to buy insurance on the goods. • even if the risk of loss still resides with the seller • buyer could lose money if goods are destroyed and they cannot be found anywhere else. • physical act of identifying is usually setting goods aside, marking, tagging, labeling, boxing, branding, etc.

17. Transfer of Rights and Risk in Specific Sales • Cash-and-Carry Sales • Sales on Credit • COD Sales • Sales or Return • Sale on Approval • Auction • Bulk Transfer

18. Cash-and-Carry Sales • pays cash and takes immediate delivery, title passes to the buyer at the time of the transaction • seller may insist on legal tender, ie: cash • a check is not cash, it is a promise to pay and is not considered payment until the check is paid at the bank • This does not affect timing of the transfer of title or risk of loss

19. Sales on Credit Credit Sale - a sale that, by agreement of the parties, calls for the payment for the goods on a later date. • transfer of title and risk of loss may pass even though time of payment is delayed

20. COD Sales COD- Collect on Delivery • carrier collects payment and transportation charges upon delivery • if the buyer does not pay, the goods are not delivered • buyer loses the right to inspect goods before payment • ownership and risk of loss transfer upon delivery

21. Sale or Return Sale or Return- a completed sale in which the buyer has an option of returning the goods. • within a fixed or reasonable time period • if returned, title and risk of loss returns to seller • only the right to return defective products is protected under law

22. Sale on Approval • "on trial" or "on approval" • ownership and risk of loss do not pass until buyer approves the goods • prospective buyer is liable for any damage caused by his/her negligence

23. Auction • Public sale to the highest bidder • Auctioneer accepts the bid on behalf of the owner • Risk of loss transfers to buyer upon tender of delivery

24. Bulk Transfer • Transfer of all or a major part of the goods of a business in one unit at a time.

25. At what point did Smith obtain the right to insure the goods against possible loss? Fun Food Company was a fresh-food packer and processor. In a sales contract with Smith, Fun Food agreed to pack a quantity of head lettuce grown near Salinas, California in specially marked "Soaring Eagle" brand cartons. The lettuce was routinely dehydrated, cooled, packaged, placed in the special cartons, and stacked on pallets in Fun Food sheds for daily shipment as ordered by Smith. Smith obtained an insurable interest when the lettuce was identified as his (when they were labeled as his)

26. Would Albert win? Albert's foods contracted to sell 34,000 lbs of ribs to Rightway. The ribs were housed in a storage warehouse, and the sale was to be consummated by a transfer of the ribs from Albert's Foods account to Rightway's account between May 1 and May 5. On May 4, Albert phoned the warehouse and requested that the ribs be transferred to Rightway's. A clerk at the warehouse noted the transfer immediately but did not mail a warehouse receipt to Rightway until May 9, and Rightway did not receive the notice until May 15, when it received the notice in the mail. In the meantime, on May 9, the warehouse caught fire and the ribs were destroyed. Albert's Foods sued Rightway for the cost of the ribs. No, Albert's Foods would not win. When goods are transferred without being moved the risk of loss transfers to the buyer on acknowledgment by the bailee of the buyers right to possess the goods, even though title passes when the warehouse made the notation. Therefore, judgement was made for Rightway, since it had not yet acknowledged the transfer.

27. Who had the risk of loss at the time of the mysterious disappearance? Mary and Harry Perry were antique hunters. One day they attended an auction held in the yard of a Victorian house in rural Ohio. There the Perry's spotted a rare hand-woven rug from the early 1800s. Although the rug was valued at more than $1,000 in many places, the Perry's won the bidding war at $300. However, before they could pay and receive possession the rug mysteriously disappeared.......... The person who is selling the rug retains risk of loss. Because... The Perry's had never paid or taken possession of it.

28. THE END