Issues with title of passage and risk of loss Flashcards
Identification—Prerequisite to passage of title and risk of loss
Before any interest in goods (title or risk of loss) can pass from a seller to a buyer, the goods must be in existence and identified to the contract—UCC 2-105(2).
fungible goods
Fungible goods are those that either cannot be distinguished because of homogenous qualities or are so mixed together that they cannot be distinguished by individual units (e.g., grains, fruit, cases of canned goods). Identification occurs when the goods are shipped, marked, or otherwise designated for the buyer
future goods
For goods to be manufactured, such as when a company is manufacturing rocking chairs for a furniture store, identification occurs when those rocking chairs are shipped, marked, or otherwise designated for the buyer.
Free on Board (FOB)
Place of shipment (seller’s city, business, or warehouse, or “ship point.”). Title and risk of loss pass upon delivery (possession) of conforming goods to the carrier—UCC 2-319(1)(a), 2-509(1)(a).
Free alongside vessel (FAV)
Place of shipment. Title and risk of loss pass on seller’s delivery of conforming goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer—UCC 2-319(2).
Cost, Insurance, Freight (CIF)
Title and risk of loss pass from seller to buyer when the seller delivers (possession) identified conforming goods to the carrier, obtains a negotiable bill(s) of lading covering transportation to a named destination, procures an insurance policy, and forwards to buyer all documents—UCC 2-320(2)(a).
Cost and Freight (C&F)
This follows the same rule as in CIF, except procurement of an insurance policy is not required on seller’s part.
Cash on delivery (COD)
This term requires the buyer to pay cash upon tender of the goods. If goods are shipped COD, then the timing of the buyer’s right to inspection is affected
Passage of Title in Nondelivery (Nonshipment) Contracts
Determine whether there is a document of title involved with the goods and the contract.
If there is no document of title, title passes at the moment the contract is made. Note that in nonshipment contracts for goods, identification and passage of title occur at the same time.
If there is a document of title, and the document of title is nonnegotiable, then title passes to buyer upon buyer’s receipt of the document—UCC 2-401(3)(a).
If there is a document of title, and the document of title is negotiable, then title passes to the buyer upon the buyer’s receipt of the document—UCC 2-401(3)(a), 2-509(2)(a).
Passage of Title in Delivery (Shipment) Contracts
If delivery is FOB place of shipment or FOB seller’s place of business, warehouse, or residence, then title passes at the time and place of shipments or when the goods are delivered to the carrier.
If delivery is FOB place of destination or FOB buyer’s city, business, warehouse, or residence, then title passes upon the seller’s tender of conforming goods at place of contract destination—UCC 2-509(1)(b).
Tender is the key—A proper tender is the seller’s holding out to the buyer the goods in a reasonable manner, for a reasonable time, to allow the buyer to take possession of the goods—UCC 2-503(1). “Tender” means the goods have arrived, they are available for the buyer to pick up, and the buyer has been notified that the goods are there and available for pickup.
Passage of Risk of Loss when There is Delivery (Shipment Contract)
If delivery is FOB place of shipment (or ship point) or FOB seller’s place of business, warehouse, or residence, then the risk of loss passes at the time the goods are delivered to the carrier.
If delivery is FOB place of destination or FOB buyer’s place of business, warehouse, or residence, then the risk of loss passes at the time of tender.
Sale on approval
Until the buyer accepts the goods, title and risk of loss remain with seller. Cost of proper return (rejection of offer) falls on the seller—UCC 2-327 (1). Buyer can accept by:
Due notification (“I accept”)
Failure to reject within the time of trial period (keeps goods beyond trial period)
Doing any act inconsistent with seller’s ownership.
Stone engaged Parker to perform personal services for $1,000 a month for a period of 3 months. The contract was entered into orally on August 1, year 1, and performance was to commence on January 1, year 2. On September 15, year 1, Parker anticipatorily repudiated the contract. As a result, Stone can
Immediately sue for breach of contract.
This answer is correct because when Parker anticipatorily repudiated a contract, Stone could immediately sue for breach of contract or wait for performance on the appointed date, and then sue for breach if performance was not rendered.
When there has been no performance by either party, which of the following events generally will result in the discharge of a party’s obligation to perform as required under the original contract?
Accord and satisfaction; mutual rescission
This answer is correct. The requirement is to identify factors that will discharge a party’s obligation to perform under a contract. A contract may be discharged by either an accord and satisfaction or a mutual decision. In an accord and satisfaction both parties to the contract have agreed to satisfy the contract in a different manner. Mutual rescission means that both parties have mutually agreed to rescind or not go through with the contract. Thus both answers are correct.
Ketchum Builders, Inc. contracted with Samson to construct a high-rise office building for $800,000. Ketchum inadvertently used materials which were not in accordance with the contract specifications. Although the breach resulted in minor damages, Samson has refused to pay Ketchum the $100,000 balance due on the contract. Ketchum
Is entitled to the $100,000 less damages.
This answer is correct because, under the doctrine of substantial performance, if it can be shown that the defect in the performance was only minor in nature, that a good-faith effort was made to conform completely with the terms of the agreement, and that the price is decreased by the value of the defect, the contractual obligation will be discharged.
