Chapter 19 Flashcards
Passage of Title to Goods
Under UCC 2-401: title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed upon by the parties.
*if the parties do not agree to a specific time, title passes to the buyer when and where the seller’s performance with reference to the physical delivery is completed.
Shipment contract
requires the seller to ship the goods to the buyer via a common carrier. seller is required to
1) make proper shipping arrangements and
2) deliver the goods into the carrier’s hands.
* title passes to the buyer at the time and place of shipment
Destination Contract
requires the seller to deliver the goods either to the buyer’s place of business or to another destination specified in the sales contract.
*title passes to the buyer when the seller tenders delivery of the goods at the specified destination.
Risk of loss when there is no breach of the sales contract
UCC provides the following rules regarding title and risk of loss:
1) carrier cases: movement of goods
2) noncarrier cases: no movement of goods
3) goods in the possession of a bailee
Carrier cases: movement of goods
unless otherwise agreed, goods that are shipped via carrier (e.g., railroad, ship, truck) are considered to be pursuant to a shipment contract or a destination contract.
- absent any indication the contrary, sales contracts are presumed to be shipment contracts rather than destination contracts.
- risk of loss in a shipment contract passes to the buyer when the seller delivers the conforming goods to the carrier-buyer bears the risk of loss of the goods during transportation (can also be called F.O.B. point of shipment)
- risk of loss in a destination contract is on the seller while the goods are in transport. thus, except in the case of a no-arrival, no-sale contract, the seller is required to replace any goods lost in transit. the buyer does not have to pay for the destroyed goods. risk of loss does not pass until the goods are tendered to the buyer at the specified destination.
Noncarrrier cases: no movement of goods
Who bears the risk of loss if the goods are destroyed or stolen after the contract date but before the buyer picks up the goods from the seller? The UCC provides two different rules for this situation: one applies to merchant-sellers and the other to non merchant-sellers.
Merchant-seller: the risk of loss does not pass to the buyer until the goods are received. a merchant-seller bears the risk of loss between the time of contracting and the time the buyer picks up the goods.
nonmerchant-seller: pass the risk of loss to the buyer upon “tender of delivery” of the goods. tender of delivery occurs when the seller
1) places or holds the goods available for the buyer to take delivery and
2) notifies the buyer of this fact.
Goods in the possession of a bailee
goods sold by a seller to a buyer are sometimes in the possession of a bailee (e.g., a warehouse).
- if such goods are to be delivered to the buyer without the seller moving them, the risk of loss passes to the buyer when
1) the buyer receives a negotiable document of title (e.g., warehouse receipt, bill of lading) covering the goods, or
2) the bailee acknowledges the buyer’s right to possession of the goods, or
3) the buyer receives a nonnegotiable document of title or other written direction to deliver and has a reasonable time to present the document or direction to the bailee and demand the goods. - if the bailee refuses to honor the document or direction, the risk of loss remains on the seller.
Risk of Loss in Lease Contracts
UCC provides the following risk of loss rules:
1) in the case of an ordinary lease, if the lessor is a merchant, the risk of loss passes to the lessee on the receipt of the goods
2) if the lease is a finance lease and the supplier is a merchant, the risk of loss passes to the lessee on the receipt of the goods. a finance lease is a three-party transaction consisting of a lessor, a lessee, and a supplier (or vendor).
3) if a tender of delivery of goods fails to conform to the lease contract, the risk of loss remains with the lessor or supplier until cure or acceptance.
Sale on approval
a type of sale in which there is no actual sale unless and until the buyer accepts the goods.
acceptance of the goods occurs if the buyer
1) expressly indicates acceptance,
2) fails to notify the seller of rejection of the goods within the agreed-upon trial period.
3) uses the goods inconsistently with the purpose of the trial.
*risk of loss and title to the goods remain with seller and do not pass to the buyer until acceptance.
Sale or Return
the seller delivers goods to a buyer with the understanding that the buyer may return them if they are not used or resold within a stated period of time (or within a reasonable time, if no specific time is stated).
- the sale is considered final if the buyer fails to return the goods within the specified time or within a reasonable time, if no time is specified.
- risk of loss and title to the goods pass to the buyer when the buyer takes possession of the goods.
Consignment
a seller (the consignor) delivers goods to a buyer (the consignee) to sell on his or her behalf. the consignee is paid a fee if he or she sells the good on behalf of the consignor.
- treated as a sale or return under the UCC; that is, title and risk of loss of the goods pass to the consignee when the consignee takes possession of the goods.
- if the seller files a financing statement, the goods are subject to the claims of the seller’s creditors. if the seller fails to file such a statement, the goods are subject to the claims of the buyer’s creditors.
Good faith purchaser for value
a person to whom good title can be transferred form a person with voidable title. the real owner cannot reclaim goods from a good faith purchaser for value.
Voidable title
a title that a purchaser has on goods obtained by
1) fraud
2) a check that is later dishonored, or
3) impersonation of another person.
Good faith subsequent lease
a person to whom a lease interest can be transferred from a person with voidable title. the real owner cannot reclaim the goods from the subsequent lessee until the lease expires.
Buyer in the ordinary course of business
a person who, in good faith and without knowledge that the sale violates the ownership or security interests of a third party, buys goods in the ordinary course of business from a person in the business of selling goods of that kind. a buyer in the ordinary course of business takes the goods free of any third-party security interest in the goods.
Entrustment rule
if an owner entrusts the possession of his or her goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights (including title) in the goods to a buyer in the ordinary course of business. the real owner cannot reclaim the goods from this buyer.
*also applies to leases. *if a lessor entrusts the possession of his or her goods to a lessee who is a merchant who deals in goods of that kind, the merchant-lessee has the power to transfer all the lessor’s and lessee’s rights in the goods to a buyer or sublessee in the ordinary course of business.
