Fundamentals of Business Law
Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.
ROGER LeROY MILLER Institute for University Studies Arlington, Texas
GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin
Learning Objectives • What is the significance of identifying goods to a contract? • If parties do not expressly agree on when title passes, what determines when title passes? • Risk of loss does not necessarily pass with title. If the parties to a contract do not expressly agree when risk passes and the goods are to be delivered without movement by the seller, when does risk 2 pass? Copyright © 2010 South-Western
Learning Objectives • Under what circumstances will the seller’s title to goods being sold be void? When does a seller have voidable title? • At what point does the buyer acquire an insurable interest in goods subject to a sales contract? Can both the buyer and the seller have an insurable interest in the goods simultaneously?
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Introduction • Sale of goods requires different rules than real property transactions: risk should not always pass with title. • UCC replaces title with identification, risk, and insurable interest.
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Identification • For any interest to pass to buyer, goods must be: – In existence, AND – Identified as specific goods in the sales contract (by serial numbers and/or physically separated from others. Except for fungible goods which do not need separation).
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Identification • Gives the buyer the right: – To obtain insurance on the goods. – To recover from third parties who damage the good.
• Identification occurs: – If goods are designated when contract is made. If goods are not designated when contract is made, then identified at time of designation. Copyright © 2010 South-Western
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Passage of Title • Unless there is an agreement to the contrary, title passes to the Buyer at the time and place the Seller physically delivers the goods.
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Shipment and Destination Contracts • Title passes when agreed to by the parties. • If no agreement, depends on whether the contract is a shipment or destination contract: – Shipment: title passes at time and place of shipment. – Destination: title passes when goods are tendered at the destination. Copyright © 2010 South-Western
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Delivery Without Movement of the Goods • Title passes when agreed by the parties. • If no agreement, title passes: – With document of title: when and where document delivered. – Without document: when sales contract is made, if goods have been identified or when identification occurs if they have not been identified. Copyright © 2010 South-Western
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Sales or Leases by Nonowners • Void Title: true owner gets goods back. • Voidable Title: good faith purchaser keeps goods. – CASE 15.1 Empire Fire and Marine Insurance Co v. Banc Auto, Inc. (Pennsylvania, 2006).
• Entrustment rule: good faith purchaser keeps goods. – CASE 15.2 Lindholm v. Brant (Connecticut, 2007). Copyright © 2010 South-Western
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Risk of Loss • In a shipment contract, ROL passes when seller tenders goods to carrier. – CASE 15.3 Spray-Tek, Inc. v. Robbins Motor Transportation (Wisconsin, 2006).
• In a destination contract, ROL passes when goods tendered at destination.
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Risk of Loss: Delivery Without Movement of Goods • Goods Held by Seller: – Document of Title is generally not used. – If Seller is a merchant, ROL passes when buyer takes physical possession of goods.
• Goods Held by Bailee (Warehouse). ROL passes when: – Buyer receives document of title; bailee acknowledges Buyer’s right to goods and buyer receives title and has reasonable time to pick up.
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Conditional Sales • Sale on Approval. – ROL passes when buyer approves expressly or implicitly.
• Sale or Return. (Consignment is sale or return unless it complies with Article 9.) – ROL passes to buyer with possession.
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ROL When Sales or Lease Contract is Breached • Generally breaching party bears ROL. – Seller’s Breach. • Rejection - risk stays with seller. • Revocation of acceptance - risk passes back to seller to the extent that buyer’s insurance does not cover the loss. – Buyer’s Breach. When goods are identified, risk passes to buyer for a reasonable amount of time after seller learns of the breach, to the extent that seller’s insurance does not cover loss.
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Insurable Interest • Buyer has an insurable interest in goods that have been identified. • Seller has an insurable interest in goods as long as they retain title or a security interest. • Both buyers and sellers can have an insurable interest at the same time.
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