Twomey & Jennings BUSINESS LAW

1. Twomey & JenningsBUSINESS LAW Chapter 23 Legal Aspects of Supply Chain Management:Title and Risk of Loss

2. Types of Potential Problems • Damage to Goods: What if neither Buyer nor Seller is responsible? • What liability does a Carrier have? • Creditors’ Claims or Seizure of Goods. • Insurable Interest.

3. Identification of Goods • Existing Goods: physically present and owned by Seller at the time of contract. • When Seller or Buyer selects goods, they are “identified.” • Future Goods: do not exist or not owned by seller at the time of contract. • Fungible Goods: indistinguishable. • Identification Gives Buyer an Insurable Interest.

4. Passage of Title • Document of Title: facilitates transfer of ownership without actually moving the goods. • A warehouser stores the goods of others for compensation and has the rights and duties of a bailee in an ordinary mutual benefit bailment. • Warehouse receipt given to the depositor (bailor) of the goods. • Bill of Lading: carrier accepts goods for shipment.

5. Warehouse Receipts Nonnegotiable Negotiable To whom goods are delivered Deliver to Jane Doe Deliver to the bearer as stated on receipt or Deliver to the order of John Doe Purposes of receipt 1. Contract for storage 1. Contract for storage 2. Receipt for goods 2. Receipt for goods 3. Document of title 3. Document of title Is receipt required for delivery Yes Yes of goods? If receipt says “Deliver to the order of John Doe,” It must be indorsed by John Doe for holder of receipt to receive goods.

6. Negotiability of Documents of Title • In some cases, a warehouse receipt can be bought, sold, or used as security to obtain a loan. • A nonnegotiable warehouse receipt states that the goods received will be delivered to a specified person. • A negotiable warehouse receipt states that the goods will be delivered “to the bearer” or “to the order of” a named person.

7. At time of contract Existing Goods Identified? When Shipped, Marked; or Otherwise Designed Future Yes No Fungible Delivery? Title Cannot Pass No Yes Document of Title? FOB Destination FOB Shipment Yes No Title passes upon tender Title Passes upon Delivery of Goods to Carrier Title Passes upon Delivery of Title Document Title Passes at Time of Contracting Passage of Title Under Article 2

8. SELLER (Depositor) (Bailee) WAREHOUSER (Issuer) (Bailee) GOODS WAREHOUSE RECEIPT BUYER Indorsement and delivery WAREHOUSE RECEIPT value/good faith due negotiation PURCHASER OF WAREHOUSE RECEIPT right to goods or right to negotiate further Negotiation of Documents

9. Limitation of Liability • A warehouser may limit its liability for loss or damage to goods due to its own negligence to an agreed valuation of the property stated in the receipt. • The depositor must be given the right to store the goods without the limitation at a higher storage rate.

10. Alamo Rent-A-Car v Mendenhall (1997) Does the Buyer Have Good Title? Passage of Title in Bailments • Generally, a seller can only sell what he owns. • Stolen Property: finder of stolen property (or a thief) cannot pass good title to a third party, even if the buyer purchased in good faith. • Estoppel.

11. Delivery and Shipment Terms • Unless otherwise agreed, the Seller is only required to make shipment to the Buyer, i.e., place the goods in a carrier’s possession. • FOB Place of Shipment. • FOB Place of Destination. • FAS. • CF and CIF. • COD.

12. Future Tech Int’l, Inc. v TaeII Media, Ltd. (1996) Who has the right to the Goods? Passage of Title in Shipment Contracts • FOB Place of Shipment Contract. • Title passes from S B when S places goods with carrier. • FOB Place of Destination Contract. • Title passes from S B when goods are tendered to the Buyer.

13. Risk of Loss • ROL determines who must pay if the goods are damaged or destroyed. • Non-Shipment Contracts. • Merchant Seller: ROL passes from S B upon B’s actual receipt of goods. • Non-Merchant Seller: ROL passes from S B upon tender of goods.

14. Risk of Loss • Shipment to Buyer: ROL passes from S B when tendered to carrier for shipment. • Contract for Delivery: ROL passes from S B when goods tendered at destination by carrier.

15. Damage or Destruction of Goods • Identified Goods Before ROL passes. • If total loss, contract is cancelled by law. • If partial loss, B has option to accept or reject. • Identified Goods After ROL passes. • Buyer’s loss (insurable interest). • Un-Identified Goods. • No ROL to Buyer, Seller’s loss.

16. Bottoms & Tops Int’l Inc. v UPS (1994) Who is liable for failure to deliver the jewelry to Dwek? Common Carriers, ROL and Liability • Rights of Common Carriers. • Security lien interest on goods that it transports. • Right to compensation per agreement. • Duties of Common Carriers. • Deliver the goods as agreed.

17. Liability of Common Carrier • A common carrier is absolutely liable for loss or damage to the goods. • Exceptions: • Loss was caused solely by an act of God, • Act of a public enemy, • Act of a public authority, • Act of the shipper, or • Inherent nature of the goods.

18. Liability of Common Carrier • Seller is Liable for Damages from Delay. • Limitation of Carrier Liability. • Unless prohibited by law, carriers can contractually limit their liability. • Example: Airbills limit liability to $100, unless insurance is purchased.

19. Graff v Bakker Brothers of Idaho, Inc. (1997) Peeling Back the Layers of the Great Onion Contract Breach: Who is Really Liable? Seller’s Breach and ROL • If Seller ships non-conforming goods and Buyer reject, ROL stays with Seller.

20. Houghton Wood Products v Badger Wood Products. (1995) Can the Defendant return the goods to Seller after transforming the products? Special Situations • Returnable Goods Transactions. • Sale on Approval. • Sale or Return.

21. Consignment and Factors • A factor is a special type of bailee who has possession of someone else’s property for the purpose of selling it. • This arrangement is commonly called selling on consignment, and the owner is called a consignor. • The factor, or consignee, receives a commission on the sale.