Chapter 14: Ownership and Risk of Loss in Sales. Law in Society Mrs. Ingram 2013-2014. Section 14-1: Transfer of Goods. Discuss who may transfer ownership of goods. Explain what is required for transfer of ownership of goods and when it occurs. Question:.
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Law in Society
Discuss who may transfer ownership of goods.
Explain what is required for transfer of ownership of goods and when it occurs.
Have you ever been approached to buy a tv, stereo system, or other items by someone selling merchandise under suspicious circumstance or at a very low price? Tell me about your experience and how you responded or how you should have responded.
Persons may sell what they do not own if the owner has authorized them to do so.
Auctioneers and sheriffs also are authorized when they sell, under court order or when empowered by statute, stolen or repossessed goods or foreclosed property.
If an owner of goods induced by fraud to sell the goods, the transfer of the title is voidable by the seller.
Upon discovering the fraud, the victimized seller may cancel the contract and recover the goods unless an innocent third party (good faith purchaser) already has given value and acquired rights in them.
Brad was walking through a part of town near the docks for ocean going cargo vessels when he came upon an electronic goods store. Attracted by the goods and prices in the window, Brad went inside and eventually haggled Standon, the owner and only sales clerk, into selling a surround-sound system to him. Brad bought the system, available even in discount stores for more than $600, for $110. Standon turned out to be a dock worker who stocked his store with stolen goods. When police showed up to take back the surround-sound system, which had been stolen by Standon, Brad protested that he had paid for it in good faith and didn’t know it was stolen property. Who has title to the surround sound?
At the Consumer Electronics Show in Las Vegas, Millicent become convinced that an innovative new gaming system that allowed gamers to duel with one another using holograms that followed their body movements would be the hit of the Christmas season. As a consequence, she placed an order for one thousand of the systems, paying for them in full so as to receive one of the first shipments. In early November, she received by overnight mail a negotiable bill of landing indicating the systems had been loaded on a delivery truck in California and were on the way to a local warehouse. Once they arrived she could obtain the warehouse keeper and paying any shipping or storage fee that be due.
Create a chart of the exceptions to the rule that only the true owner has the authority to transfer title to goods. Across the top, write authorized persons, fraudulent buyers, holders of negotiable documents, and merchants with possession of goods. Add key phrases.
Documents may be negotiable or nonnegotiable.
Negotiable- goods are to be delivered to the bearer, who is the person (holder) in possession of the document, or to the order of a party named by the document.
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?
Reminder: Ownership of goods brings with it duties and burdens as well as rights and benefits. When ownership of goods is transferred, the owner also takes on the responsibility of the goods.
Why is it important to know when the title transfers in the case of goods that are lost or damaged?
Explain the general rules for identifying when risk of loss transfers.
Identify the point at which insurable interest of goods transfers.
Identify when risk of loss and insurable interest transfer in specific situation.
Knowing that streaming video cell phones, extremely popular in Japan, would soon hit the American market, Correlone ordered 250 of each of the best-selling cell phone models with the streaming video feature for his high-end electronics store. He ordered them form a wholesaler in Osaka, Japan, to be shipped directly to his location by a carrier that the seller would select. Two weeks later the goods arrived and the carrier notified Correlone that they would be picked up at its local warehouse. When Correlone arrived at the warehouse’s address the next day, he found the building a smoldering ruin. It had been hit by lighting and caught fire the previous evening destroying all of its contents. Who has the risk of loss for the goods, Correlone or the wholesaler?
Galaxy Furniture Company shipped a truckload of chairs and sofas to Brenda’s Bargain Basement. Without unloading the tractor-trailer, inspection disclosed that Galaxy had mistakenly shipped sofas and chairs upholstered in costly Italian leather. Brenda had ordered the durable but much cheaper vinyl upholstery models. Brenda promptly notified Galaxy of the error and asked for instructions on what to do with them. After a week, the loaded trailer was still parked in back of Brenda’s warehouse. Then a fire of undisclosed origin destroyed the trailer and its contents (along with the vehicles). Galaxy suffers the loss as the goods were faulty and risk of loss therefore remained with it. Do you think the that the cost of the loss should have been borne by the carrier? If so, why?
Frosty-Frolic Company was a fresh-food packer and processor. In a sales contract with Goodman, Frosty-Frolic 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, place in the special cartons, and stacked on pallets in Frosty-Frolic sheds for daily shipment as ordered by Goodman. At what point did Goodman obtain the right to insure the goods against possible loss?
Prepare a chart showing along the left-hand side the various specific sales transactions covered and on top three categories: transfer of title, transfer of risk of loss, and transfer of insurable interest. Fill in the chart.
Create small groups and role-play cash-and-carry sales, sales on credit, COD sales, and sale or return transactions. Identify when transfer of ownership and risk of loss occur.
Dorothy owned her own plumbing business. She bought her tools from a nationwide retailer that offered an unconditional guarantee that tools sold under its trademark could be returned and exchanged for new ones any time the customer was dissatisfied for any reason. Dorothy made it a policy to use the retailer’s tools until they were worn out and then return them, demanding and receiving a new replacement. She did this even though the retailer’s tools outlasted comparable tools by a wide margin. Are her actions legal? Ethical?
With a high bid of $145, Angelina and Tom bought a king-sized mattress at an auction held outside the house of a neighbor who had died the previous month. Before they could pay for and receive their goods, a sudden storm dumped an inch of rain on the mattress ruining it. Who had the risk of loss at the time the mattress was ruined? Who might be liable for the loss of the mattress, as Angelina and Tom or not because they didn’t pay for it?
Prepare a chart that details when title, risk of loss, and insurable interest transfer in a sale of approval, sale of undivided interest, and an auction.
The main reason for the benefits stemming form common currency use was the ease by which trade can be accomplished utilizing one currency instead of many. Another significant factor is the lack of the uncertainties introduced into trade transactions by the fluctuating exchange rates between national currencies.