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CHAPTER 19. TITLE TO GOODS AND RISK OF LOSS. © 2010 Pearson Education, Inc., publishing as Prentice-Hall. Identification of Goods. Goods named in contract distinguished from seller/lessor’s other goods E.g., carton marked with buyer’s name. Risk of loss cannot pass until goods identified.

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CHAPTER 19

TITLE TO GOODS AND RISK OF LOSS

© 2010 Pearson Education, Inc., publishing as Prentice-Hall


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Identification of Goods

Goods named in contract distinguished from seller/lessor’s other goods

E.g., carton marked with buyer’s name.

Risk of loss cannot pass until goods identified.

Title cannot pass until goods identified.


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Identification of Goods(continued)

Parties can agree to time and manner of identification.

Existing goods identified when specific goods named.

Future goods identified when born, planted, shipped, marked, or designated.


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Passage of Title

Title cannot pass until goods exist and have been identified.

Title passes upon terms agreed to in contract.

If no terms are stated, title passes when delivery is completed.


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Shipment and Destination Contracts

Shipment Contract

Seller should make proper shipping arrangements.

Deliver the goods into the carrier’s hands.

Destination Contract

Seller delivers goods either to buyer’s place of business or another destination specified in sales contract.


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Delivery of Goods Without Moving Them

Buyer is required to pick up goods from seller

If document of title or bill of lading is required, title passes when seller delivers the document.

If no document of title and goods are identified, title passes at time of contracting.


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Shipping Terms

Shipment Contracts

F.O.B. point of shipment.

F.A.S.

C.I.F. or C.&F.

Destination Contracts

F.O.B. place of destination.

Ex-ship.

No-arrival, no-sale.


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Risk of Loss: No Breach of Sales Contract

Carrier Cases: Movement of Goods

Shipment Contracts

- Risk of loss passes to buyer when seller delivers the conforming goods to the carrier.

Destination Contracts

- Risk of loss passes to buyer when seller delivers the conforming goods to the specified destination.


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Risk of Loss: No Breach

Noncarrier Cases: No Movement of Goods

Merchant Seller

- Risk of loss passes to buyer when buyer receives the goods.

Nonmerchant Seller

- Risk of loss passes to buyer upon tender of delivery.


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Risk of Loss: No Breach(continued)

Goods in Possession of a Bailee:

Buyer receives negotiable document of title or

Bailee acknowledges buyer’s right to possession, or

Buyer receives a nonnegotiable document of titleand has reasonable time to demand goods.


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Risk of Loss: Conditional Sales

Sale on Approval

No sale unless and until the buyer accepts the goods.

Risk of loss, title pass when goods are accepted.


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Sale or Return

Buyer may return goods unsold after a period of time.

Risk of loss and title pass to buyer when buyer has possession of goods.

Risk of Loss: Conditional Sales(continued)


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Risk of Loss: Conditional Sales(continued)

Consignment

Seller (consignor) delivers goods to buyer (consignee) to sell.

Consignor paid a fee if he/she sells the goods on behalf of the consignor.

Treated as sale or return.


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Risk of Loss: Breach

Seller in Breach

- If seller delivers nonconforming goods to the buyer, seller retains risk of loss.

Buyer in Breach

- If buyer refuses to take delivery of conforming goods, repudiates the contract or otherwise breaches the contract, buyer takes risk of loss of identified goods.


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Risk of Loss: Lease Contracts

In ordinary lease, risk of loss retained by lessor.

In case of finance lease, risk of loss passes to lessee.

If tendered goods nonconforming, risk of loss remains with lessor or supplier until cure or acceptance.


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Insurable Interest

Seller has insurable interest as long as seller retains title or has security interest.

Lessor has insurable interest during term of lease.

Buyer/lessee has insurable interest in identified goods.

Both parties may have insurable interest simultaneously.


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Sales by Nonowners

Void Title and Lease: Stolen Goods

Buyer does not obtain good title to stolen goods.

Lessee has no leasehold interest in stolen goods.

Rightful owner can reclaim.


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Sales by Nonowners(continued)

Seller/lessor has voidable titleif goods were obtained by fraud, if a check is later dishonored, or if he/she impersonates another person.

Can transfer good title to good faith purchaser for value or good faith subsequent lessee.


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Sales by Nonowners(continued)

Entrustment Rule

If owner entrusts the possession of his/her goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights/title in the goods to a buyer in the ordinary course of business.

The real owner cannot reclaim the goods from this buyer.


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Electronic Contracts and Signatures

E-signatures effective.

Electronic record or electronic signature is attributable to a person if it was act of that person or his or her electronic agent.

Electronic communication is effective even if no individual aware of its receipt.


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Letters of Credit

To manage risk of nonpayment or nonreceipt of goods in international transactions.

Substitutes credit of bank for that of buyer.

Issuing bank agrees to pay upon delivery of documents from beneficiary (seller).

Governed by Article 5 of UCC.


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