Ownership and Risk of Loss in Sales Transactions

1
Ownership and Risk of Loss in Sales Transactions

• Chapter 16

2
The Power to Transfer Ownership

• Lesson 16-1

3
Goals

• Describe various types of goods
• Discuss who may transfer ownership of goods
• Explain what is required for transfer of
  ownership of goods
• Identify when the ownership of goods has
  transferred

4
Who may transfer the ownership of goods?

• Brad stole a cassette player from Fullers car.
  He then sold it to Standon, who knew it was
  stolen.
• Did either Brad or Standon receive good title to
  the cassette player?
• No, neither received title and Standon is guilty
  of receiving stolen property because he know it
  was stolen

5
Power to Transfer Ownership

• Only the true owner of goods may legally transfer
• Stolen goods receive possession, but no title,
  because the thief did not have good title to give
• True whether the buyer is innocent or knows that
  the goods were stolen
• Stolen goods often are not clearly identified and
  therefore not returned to the owner
• Public Auction

6
Transfer of Ownership

• 4 exceptions to transfer of ownership
• Authorized persons
• Buyers in a sale induced by fraud
• Holders of negotiable documents of title
• Merchants with possession of sold goods

7
1. Authorized persons

• May validly sell what they do not own if the
  owner has authorized
• Salespeople, Auctioneers and Sheriffs

8
2. Buyers in a sale induced by fraud

• If an owner of goods is induced by fraud to sell
  the goods, the buyer obtains a voidable title
• The victimized seller may cancel the contract and
  recover the goods unless an innocent third party
  has given value and acquired rights in them
• Good faith purchaser
• The defrauded seller must seek damages from the
  original fraudulent buyer
• Case (page 247)

9
3. Holders of negotiable documents of title

• Certain documents are often used as a substitute
  for possession of goods
• Warehouse receipts, bills of lading, airbills
• Ownership transfers by transferring the document
  alone
• May be negotiable or nonnegotiable
• If negotiable, the goods are to be delivered to
  the bearer, who is the person in possession of
  the document (holder)
• Holders are deemed to have title to the goods

10
4. Merchants with possession of sold goods

• Sometimes a buyer will allow the merchant seller
  to temporarily retain possession of the goods
• Tort of conversion using property in a manner
  inconsistent with the owners rights
• Case (page 248)

11
Whats Your Verdict?

• ODell was preparing for a gala New Years Eve
  charity ball. He could not decide which of three
  tuxedos to buy from Signet Styles. At ODells
  request, the manager set all three aside until
  the next day so ODells friend could come in to
  help him decide. That night a fire destroyed the
  store and its contents.
• Must ODell pay for the tuxedos that were set
  aside?

12
Requirements for Transfer of Ownership

• For transfer of ownership goods must be BOTH
  existing and identified
• Existing goods
• Are physically in existence even though they may
  not be in a fully assembled and immediately
  deliverable condition
• Owned by the seller
• Identified goods
• Have been specifically designated as the subject
  matter of a particular sales contract
• Marked, separated, or made distinct

13
Requirements for Transfer of Ownership

• Future goods
• Is a contract to sell rather than a sale
• Neither ownership nor risk of loss passes at the
  time of the agreement
• Unless goods are BOTH existing and identified,
  they are future goods
• Fungible goods (exception to identification)
• Goods of a homogenous or essentially identical in
  nature (each unit is equal to every other unit)
• Corn, oil, canned fruits in a warehouse
• Buyer becomes owner at the time of agreement
• Goods pass without selection or identification

14
When Does Ownership Transfer?

• Page 249 Whats Your Verdict?
• Once goods are identified and existing, disputes
  arise over who has title
• Risk of loss if goods are damaged, stolen, or
  destroyed
• Courts will examine the sales agreement
• If no agreement, look to the UCC for a solution
• Neither the method of payment nor the time of
  payment governs the outcome of ownership

15
Seller delivers goods to the destination

• Title passes when goods are tendered at the
  specified destination
• Tender of delivery
• Means that the seller places (or authorizes a
  carrier to place) the proper goods at the buyers
  disposal and notifies the buyer so that delivery
  can be received

16
Seller ships, but does not deliver, goods to the
destination

• Authorized the seller to ship the goods buy does
  not obligate the seller to deliver them to the
  destination
• Title passes to the buyer at the time and place
  of shipment, when possession is transferred to
  the carrier

17
Seller delivers document of title

• Seller is to deliver a document of title
  (airbill)
• Title passes when and where the document is
  delivered
• Example-
• Degory bought 600 tons of oats from Delta. The
  oats were stored in a public grain elevator.
  Title passed when an authorized agent of Delta
  delivered a negotiable warehouse receipt for the
  oats to Degory

18
Buyer takes possession at place of sale

• Title passes at the time and place where the
  sales contract is made

19
Risk of Loss and Insurable Interest

• 16-2

20
Goals

• Explain when the risk of loss from seller to
  buyer transfers in different situations
• Explain when insurable property interests
  transfer in different situations

21
Seller Ships Goods by Carrier

• If seller is to deliver the goods to a particular
  destination using a carrier (railroad)
• Risk of loss passes to the buyer at destination,
  upon tender of delivery
• If seller is NOT to deliver the goods to a
  particular destination using a carrier
• Risk of loss passes to the buyer when the goods
  are delivered to the carrier

22

• Whats Your Verdict? (Page 251)
• Case (Page 251)

23
FOB

• Free on Board
• FOB Atlanta
• Seller agrees to deliver the goods only to the
  carriers freight station in Atlanta
• FOB, Buyers warehouse, NYC
• Risk of loss remains with seller until the goods
  are delivered to the warehouse

Buyer NYC
Seller Atlanta
24
Foreign Shipments

• CIF Price
• Cost, Insurance, and freight
• Seller contracts for adequate insurance
• ROL transfers when the seller delivers the goods
  to the carrier
• Insurance provides protection

25
Goods Held by Bailee

• Bailee
• Has temporary possession of another persons
  goods, holding them in trust for a specified
  purpose (public warehouse)
• The goods may be sold by the owner, yet the
  contract may call for delivery to the buyer
  without the goods being moved
• ROL transfers to buyer in any of the following
  situations
• When the buyer receives a negotiable document of
  title (warehouse receipt)
• When the bailee acknowledges the buyers right to
  the possession of the goods
• After the buyer receives a non-negotiable
  document of title or other written direction to a
  bailee to deliver the goods

26
Breach After Goods Identified

• The seller sometimes breaches by providing goods
  so faulty that the buyer rightly rejects them
• ROL remains with the seller until the defects are
  corrected

27
Goods neither shipped by carrier nor held by
bailee

• If seller is a merchant, ROL falls on the buyer
• If the seller is NOT a merchant, the ROL
  transfers to the buyer as soon as the seller
  makes a tender of delivery
• Cases (Page 252)

28
Insurable Interest

• Buyer obtains a special property interest in
  goods at the time of their identification to the
  contract
• The special interest gives the buyer the right to
  buy insurance
• Identification
• Setting aside, marking, tagging, labeling,
  boxing, branding, or shipping
• Whats Your Verdict? (Page 252)

29
Insurable Interest

• 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

30
Specific Transactions

• Cash-and-Carry Sales
• Pay cash and take immediate delivery
• Title passes at time of transaction
• Checks are common but are not legal tender
• Check is not considered payment until the check
  is paid by the bank
• Does not affect the timing of the transfer or the
  ROL for the buyer

31
Specific Transactions

• Sales on Credit
• A sale that calls for payment for the goods at a
  later date
• Ownership and ROL may pass even though the time
  of payment or delivery is delayed
• COD Sale
• Collect on Delivery
• If the buyer does not pay, goods are not
  delivered
• Seller retains control over goods until paid

32
Specific Transactions

• Sale or Return
• Is a completed sale in which the buyer has an
  option of returning the goods
• Ownership and ROL pass to the buyer upon delivery
• If the goods are returned in a reasonable amount
  of time, ownership and ROL transfer back to the
  seller (goods must be in original condition)
• The good are subject to the buyers creditors
• Whats Your Verdict? (Page 253)

33
Specific Transactions

• Sale on Approval
• on trial or on satisfaction
• Ownership and ROL do not transfer until the buyer
  approves the goods
• Words, payment, any conduct indicating approval,
  or retention of goods
• Buyer is liable for any damage to them caused by
  his or her negligence
• Buyer may reject the goods for any cause
  (reasonable or not)

34
Specific Transactions

• Sale of an Undivided Interest
• A person who sells a fractional interest in a
  single good or in a number of goods that are to
  remain together
• Ownership and ROL pass to each buyer at the time
  of the sale
• Auction
• Public sale to the highest bidder
• The auctioneer accepts the highest bid on behalf
  of the owner of the goods
• Ownership passes at that time
• ROL passes upon tender of the goods in exchange
  for payment
• With Reserve and Without Reserve

35
Specific Transactions

• Bulk Transfer
• Transfer, generally by sale, of all or a major
  part of the goods of a business in one unit at
  one time
• Goods include materials, supplies, merchandise,
  and equipment if sold with the inventory
• Law protects dishonest merchants who sell out
  secretly, keep the proceeds, and disappear
• The UCC requires notice to the sellers creditors
  before the bulk transfer is made

36
Assignment

• Page 254-255 1-10
• Page 256 1-9
• Page 257 17-19