Chapter 14

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Transcript Chapter 14

Chapter 14
Ownership & Risk of Loss of
Kate Matthews, Kyra Wortley
and Parker Taylor
Transfer of Ownerships
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
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
14.1 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
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
existing goods – physically in existence and owned by
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
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
-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
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.
Brad is correct, he has title
• Electrifying Electronics must replace the resold
goods or be liable to the original buyer
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?
Risk of Loss and Insurable Interest
in Sales
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
o CIF- cost, insurance, freight
 this is often used when dealing with shipments from foreign
 Buyer pays cost for adequate insurance and proper shipment to
 risk of loss transfers to buyer when seller delivers goods to the
carrier (ie: a ship)
Identifying When Risk of Loss Transfers
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.
o in general, risk of loss falls to buyer upon receipt of the goods
if the seller is a merchant
o if not a merchant, risk of loss transfers as soon as seller
makes a tender of delivery
The Rights of the Buyer and Insurable
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
Insurable interest gives the buyer the right to buy insurance
on the goods.
o even if the risk of loss still resides with the seller
o 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.
Transfer of Rights and Risk in Specific Sales
Cash-and-Carry Sales
Sales on Credit
COD Sales
Sales or Return
Sale on Approval
Bulk Transfer
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
o This does not affect timing of the transfer of title or risk of loss
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
COD Sales
COD- Collect on Delivery
carrier collects payment and transportation charges
upon delivery
o if the buyer does not pay, the goods are not delivered
o buyer loses the right to inspect goods before
ownership and risk of loss transfer upon delivery
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
o only the right to return defective products is
protected under law
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
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
Bulk Transfer
Transfer of all or a major part of the goods of a business
in one unit at a time.
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)
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.
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 handwoven 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
The person who is selling the rug retains risk of loss. Because...
The Perry's had never paid or taken possession of it.