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Business Law: Ch 14. Ownership and Risk of Loss in Sales. Who May Transfer Ownership?. Only the true owner of goods may legally transfer ownership of those goods Exceptions: Person’s authorized to do so may transfer another’s title

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Business Law: Ch 14

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Business Law: Ch 14

Ownership and Risk of Loss in Sales


Who May Transfer Ownership?

  • Only the true owner of goods may legally transfer ownership of those goods

  • Exceptions:

    • Person’s authorized to do so may transfer another’s title

    • Buyers in a sale induced by the fraud of the seller may transfer better title than they have to an innocent third-party purchaser


Who May Transfer Ownership?

  • Exceptions:

    • Holders of negotiable documents of title may transfer better title than they have

    • Merchants who keep possession of goods they have sold may transfer better title then they have


Who May Transfer Ownership?

  • Authorized Persons

    • Person may sell what they do not own if the owner has authorized then to do so

      • Salespeople

      • Auctioneers and Sheriffs under court order or when empowered by statute, stolen or repossessed goods or foreclosed property


Who May Transfer Ownership?

  • Buyers in a Sale Induced Fraud

    • If an owner of goods is induced by fraud to sell the goods, the transfer of title is voidable by the seller

    • Upon discovering the fraud, the seller may cancel the contracts and recover the goods unless an innocent third party already has given value and acquired rights in them

      • Good Faith Purchaser – Innocent Third Party


Who May Transfer Ownership?

  • Buyers in a Sale Induced Fraud

    • Buyer with voidable title resulting from a sale induced by fraud may transfer valid title to good faith purchaser

    • To act in good faith, the purchaser must not have reason to suspect the person who has the voidable title

    • A person who buys stolen goods from a thief receives possession, but no title


Who May Transfer Ownership?

  • Holders of Negotiable Documents of Title

    • In business, certain documents are used as a substitute for title to goods

      • Warehouse receipt – issued by public warehouses when goods are stored there

      • Bills of lading and Air bills – issued by common carriers when goods are shipped by them


Who May Transfer Ownership?

  • Holders of Negotiable Documents of Title

    • In business, certain documents are used as a substitute for title to goods

      • Documents may be negotiable or nonnegotiable

      • Negotiable – Goods are to be delivered to the bearer (Person in possession of the document, or to the order of a party named by the document)


Who May Transfer Ownership?

  • Holders of Negotiable Documents of Title

    • Holder – Person deemed to have title to the goods

      • May transfer title of the goods by merely transferring the document


Who May Transfer Ownership?

  • Merchants with Possession of Sold Goods

    • Buyers will allow the merchant seller to temporarily retain possession of the goods after the sale

      • If the merchant resells and delivers these goods to a good faith purchases, the latter receives good title

      • The merchant must replace the resold goods or be liable to the original owner


Requirements for Ownership Transfer

  • For ownership of goods to be transferred in a sale, the goods must be both existing and identical

  • Existing Goods – Physically in existence and owned by the seller

    • Need not be in a fully assembled and immediately deliverable condition


Requirement for Ownership Transfer

  • Identical Goods – Existing goods that have been designated specifically as the subject matter of a particular sales contract

    • The identification of such goods may be done by the buyer, the seller, both, or my mutually agreed-upon third party

    • The identified goods are marked, separated, or in some way made distinct from similar goods


Requirement for Ownership Transfer

  • Future Goods – Goods that are not both existing and identified

  • Any contract for the sale of future goods is a contract to sell


Requirement for Ownership Transfer

  • Exception to the process of identification

    • Fungible goods – Goods of homogeneous or essentially identical nature

      • By nature or trade usage, each unit is regarded as equal to every other unit


Requirement for Ownership Transfer

  • When Does Ownership Transfer?

    • Common Situations

      • Seller delivers goods to their destination

        • Title passes when the goods are tendered at their specified destination

        • Tender of Delivery – Means that the seller places the proper goods are the buyers disposal and notifies the buyer so that delivery can be received


Requirement for Ownership Transfer

  • When Does Ownership Transfer?

    • Common Situations

      • The time, manner, and place for tender are determined by the agreement and the UCC

      • When additional work is required – title does not pass until such work is completed


Requirement for Ownership Transfer

  • When Does Ownership Transfer?

    • Common Situations

      • Seller ships, but does not deliver goods to their destination

        • Title transfers to the buyer at the time and place of shipment (when possession is transferred to the carrier)


Requirement for Ownership Transfer

  • When Does Ownership Transfer?

    • Common Situations

      • Seller delivers document of title

      • Seller tenders goods at place of sale


Ch 13 Test

  • Reminder that tomorrow, Tuesday, May 15, we will be taking the Ch 13 test. Please look at your handouts for the chapter.


14-1 Assessment

  • Complete the 14-1 Assessment Questions on page 246.

  • Complete the 14-1 Handout

  • Turn in your answer with the handout


When Does Risk of Loss Transfer

  • If Seller Ships Goods by Carrier

    • Seller is required to deliver goods to a particular destination

      • Risk of loss passes to the buyer at the destination, upon tender of delivery

        • To place the goods at the buyers disposal or to give notice to the buyer that delivery can be received

    • Seller not required to deliver goods to a particular destination

      • Risk of loss passes to the buyer when the goods are delivered to the carrier


When Does Risk of Loss Transfer

  • Commercial buyers

    • FOB – means “free on board”

      • Seller agrees to delivery the goods no further then destination

        • Title and risk of loss transfers at that point


When Does Risk of Loss Transfer

  • Shipments from foreign countries

    • Seller quotes a CIF (cost, insurance, freight)

    • Seller contracts for adequate insurance and for proper shipment

      • Adds these costs to the price or cost of the goods

    • Risk of loss transfers to the buyer when the seller delivers goods to the carrier


When Does Risk of Loss Transfer

  • If the goods are held by a bailee

    • Bailee – Temporary possession of another persons goods, holding them in trust for a specified purpose

    • Risk of loss transfers to the buyer

      • When the buyer receives a negotiable document of title covering the goods (warehouse receipts)

      • When the bailee acknowledges the buyers rights to possession of the goods

      • After the buyer receives a non-negotiable document of title or other written directions to a bailee to deliver goods


When Does Insurable Interest Transfers

  • Buyers obtain certain rights in goods at the time of their identification to a sales contract.

    • One right is Insurable Interest – Gives the buyer the rights to buy insurance on the goods

    • Necessary because the buyer may lose money should be goods be destroyed and the buyer cannot find then elsewhere.


When Does Insurable Interest Transfers

  • In addition to the insurable interest, the buyer has the following rights:

    • To inspect the identified goods at a reasonable hour

    • To compel delivery if the seller wrongfully withholds delivery

    • To collect damages from third persons who take or injure the goods


Transfer of Rights and Risks in Specific Sales

  • Cash-and-Carry Sales

    • The buyers in a sales contract is a consumer who pays cash and takes immediate delivery, title passes to the buyer at the time of the transaction

      • Risk of loss passes upon the buyer’s receipt of the goods from a merchant and on tender of goods by a casual seller


Transfer of Rights and Risks in Specific Sales

  • Cash-and-Carry Sales

    • Seller may insist on payment in legal tender

      • Checks are commonly used but are not legal tender.

      • Acceptance of checks by the seller is not considered payment until the check is paid at the bank

      • Acceptance of the check does not affect the risk of loss


Transfer of Rights and Risks in Specific Sales

  • Sales on Credit

    • Sale that, by agreement of the parties, calls for payment for the goods at a later date.

    • Ownership and risk of loss transfers even though payment is delayed.


Transfer of Rights and Risks in Specific Sales

  • COD Sales

    • COD – Collect on Delivery

    • Carrier collects the price and transportation charges upon delivery and transmits this amount to the seller.

    • If buyer does not pay, the goods are not delivered

    • Buyer loses right to inspect the goods before payment

    • Ownership and risk of loss transfers as though there was not provisions


Transfer of Rights and Risks in Specific Sales

  • Sale or Return

    • Completed sale in which the buyer has an option of returning the goods

    • When goods are delivered to a merchant buyer, the ownership and risk of loss passes to the buyer upon delivery

    • If the buyer returns the goods (original condition) within the fixed or a reasonable amount of time, ownership and risk of loss passes back to the seller

    • Not the same as a return privilege granted to customers of retail stores


Transfer of Rights and Risks in Specific Sales

  • Sale on Approval

    • Goods delivered to the buyer “on trial” or “on satisfaction”

    • Ownership and risk of loss does not pass until the prospective buyer approves the goods

    • When in possession of the goods, the prospective buyer is liable for any damages to them caused by their negligence


Transfer of Rights and Risks in Specific Sales

  • Sale of an Undivided Interest

    • A person sells a fractional interest in a single good or in a number of goods that are to remain together

    • Ownership and risk of loss pass to each buyer at the time of the sale of each undivided interest


Transfer of Rights and Risks in Specific Sales

  • Auction

    • Public sale to the highest bidder

    • Auctioneer accepts the bid on behalf of the owner of the goods

    • Ownership passes to the buyer at that time

    • Risk of loss passes when payment is received

    • Auction sales “With Reserve” – Auctioneer may withdrawal the good at anytime before completion

    • “Without Reserve” – Item must be sold to the highest bidder


Transfer of Rights and Risks in Specific Sales

  • Bulk Transfer

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

    • UCC requires that notification to the sellers creditors is made before the bulk transfer is made

    • The buyer is required to notify those creditors of the forthcoming transfer of ownership and to pay their claims or to make other arrangement with them


14-2 Assessment and Handouts

  • 14-2 Assessment on page 253

  • 14-2 Handout


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