Ownership and Risk of Loss in Sales of Goods Section 13.2

Ownership and Risk of Lossin Sales of Goods


Section 13.2Section 13.2

Understanding Business and Personal Law

Ownership and Risk of Loss Ownership and Risk of Loss in Sales of Goodsin Sales of Goods


Contracts for the Sale of Goods

What You’ll Learn

How to differentiate between passage of How to differentiate between passage of title and risk of loss in a sales contract title and risk of loss in a sales contract (p. 277)(p. 277)

What you can do when someone What you can do when someone breaches a sales contract (p. 281)breaches a sales contract (p. 281)





Why It’s Important

Being informed about ownership and risk of Being informed about ownership and risk of loss when you make sales contracts will help loss when you make sales contracts will help you protect your investment when buying or you protect your investment when buying or selling products.selling products.





Legal Terms

title (p. 276)title (p. 276)bill of sale (p. 276)bill of sale (p. 276)voidable title (p. 276)voidable title (p. 276)risk of loss (p. 278)risk of loss (p. 278)identified goods (p. 278)identified goods (p. 278)future goods (p. 278)future goods (p. 278)





Legal Terms

carrier (p. 278)carrier (p. 278)f.o.b. (p.278)f.o.b. (p.278)destination contract (p. 279)destination contract (p. 279)bill of lading (p. 281)bill of lading (p. 281)warehouse receipt (p. 281)warehouse receipt (p. 281)





Title Voidable TitleBuying from a Merchant

Section OutlineSection Outline

Passage of Title and Risk of Loss Shipment ContractDestination ContractDocuments of Title





Remedies for Breach of Sales Contract

Seller’s RemediesBuyer’s Remedies

Section OutlineSection Outline





Pre-Learning Question Pre-Learning Question

What does it mean to “have title” to something?





The right of ownership to goods is The right of ownership to goods is known as known as titletitle. .

People who own goods have title to People who own goods have title to them.them.

Title Title





A A bill of salebill of sale is formal evidence of is formal evidence of ownership. ownership. You receive this document when You receive this document when you buy goods. you buy goods. It only proves that you once had It only proves that you once had title, not that you still own the title, not that you still own the goods.goods.

Title Title





PricePriceName and address of buyer and of Name and address of buyer and of sellersellerReceiptReceiptGoods soldGoods sold

Elements of a Bill of Sale Elements of a Bill of Sale





WarrantyWarrantyDateDateSignature of seller Signature of seller

Elements of a Bill of Sale Elements of a Bill of Sale





Anyone who obtains property as a Anyone who obtains property as a result of another’s fraud, mistake, result of another’s fraud, mistake, undue influence, or duress holds only undue influence, or duress holds only voidable title to the goods.voidable title to the goods.

Voidable Title Voidable Title





Voidable titleVoidable title means title that may be means title that may be voided if the injured party elects to do voided if the injured party elects to do so.so.

Voidable Title Voidable Title





The UCC has a special rule that The UCC has a special rule that allows merchants who have no title to allows merchants who have no title to goods to pass on good title to their goods to pass on good title to their consumers.consumers.

Buying from a Merchant Buying from a Merchant





This occurs when you entrust your This occurs when you entrust your own goods to a merchant who sells own goods to a merchant who sells them in the ordinary course of them in the ordinary course of business.business.






This gives consumers confidence This gives consumers confidence that they will receive good title when that they will receive good title when buying from a merchant.buying from a merchant.This rule does not apply to stolen This rule does not apply to stolen goods. Only the rightful owner has goods. Only the rightful owner has title to stolen property.title to stolen property.







How do you think title is passed from one to another?





Sometimes it is necessary to Sometimes it is necessary to determine who has title to goods—the determine who has title to goods—the seller or the buyer.seller or the buyer.

Passage of Title and Risk of Loss Passage of Title and Risk of Loss





Similarly, it is sometimes necessary to Similarly, it is sometimes necessary to determine who must bear the determine who must bear the risk of risk of lossloss, or the responsibility for loss or , or the responsibility for loss or damage to goods. damage to goods.






The reason is that goods may be The reason is that goods may be stolen, damaged, or destroyed after stolen, damaged, or destroyed after the sales contract has been entered the sales contract has been entered but before the transaction is but before the transaction is completed.completed.






Title to goods cannot be transferred Title to goods cannot be transferred under a sales contract until the under a sales contract until the goods have been identified.goods have been identified.Identified goodsIdentified goods are goods that are goods that presently exist and that have been presently exist and that have been set aside for a contract.set aside for a contract.






Goods that are not both existing Goods that are not both existing and selected are known as and selected are known as future future goodsgoods, such as crops not yet grown , such as crops not yet grown or items not yet manufactured. or items not yet manufactured. No one can have title to future No one can have title to future goods.goods.






Ed Johnson goes to the Buy-a-Heap car dealership and buys a used car. Later, the police pull him over and tell him that the car was stolen.





Assuming the police are correct, does Johnson have ownership of the car?





ANSWERANSWER

No. Only the rightful owner has title to stolen property.





A shipment contract is one in which A shipment contract is one in which the seller turns the goods over to a the seller turns the goods over to a carrier for delivery to a buyer. carrier for delivery to a buyer.

A A carriercarrier is a transportation company. is a transportation company.

Shipment Contract Shipment Contract





Both title and risk of loss pass to the Both title and risk of loss pass to the buyer when the goods are given to the buyer when the goods are given to the carrier.carrier.






The term The term f.o.b.f.o.b., or , or free on boardfree on board, , means that goods will be delivered means that goods will be delivered free to the designated place. free to the designated place.

The buyer must pay the freight The buyer must pay the freight charges from the shipping point to the charges from the shipping point to the destination.destination.






When a contract requires the seller to When a contract requires the seller to deliver the goods to a destination, it is deliver the goods to a destination, it is a a destination contractdestination contract. .

Destination Contract Destination Contract





Both title and risk of loss pass to the Both title and risk of loss pass to the buyer when the seller leaves the buyer when the seller leaves the goods at the place of destination.goods at the place of destination.

Destination Contract Destination Contract





When no delivery is required and the When no delivery is required and the contract calls for the buyer to pick up contract calls for the buyer to pick up the goods, title passes to the buyer the goods, title passes to the buyer when the contract is made.when the contract is made.

No Delivery No Delivery





When goods are not to be shipped by When goods are not to be shipped by carrier, the passage of risk of loss carrier, the passage of risk of loss depends on whether the seller is a depends on whether the seller is a merchant.merchant.

No Carrier No Carrier





If the seller is a not a merchant, the If the seller is a not a merchant, the risk of loss passes to the buyer when risk of loss passes to the buyer when the seller delivers the product, or the the seller delivers the product, or the seller offers to turn the goods over to seller offers to turn the goods over to the buyer.the buyer.






If the seller is a merchant, the risk of If the seller is a merchant, the risk of loss is transferred from the seller to loss is transferred from the seller to the buyer when the buyer receives the the buyer when the buyer receives the goods.goods.






Sometimes when you buy goods you Sometimes when you buy goods you receive a document of title, rather than receive a document of title, rather than the actual goods. the actual goods.

Documents of Title Documents of Title





A A bill of ladingbill of lading is a receipt for is a receipt for shipment of goods given by a shipment of goods given by a transportation company, or carrier, to transportation company, or carrier, to a shipper when the carrier accepts a shipper when the carrier accepts goods for shipment.goods for shipment.






A A warehouse receiptwarehouse receipt is a document is a document given to a customer by the warehouse given to a customer by the warehouse that is storing his or her goods.that is storing his or her goods.







What remedies do buyers and sellers have in the event of a breach of a sales contract?





The UCC prescribes specific remedies The UCC prescribes specific remedies for both the buyer and the seller when for both the buyer and the seller when there is a breach of a sales contract.there is a breach of a sales contract.

Remedies for Breach Remedies for Breach of Sales Contract of Sales Contract





1.1. Cancel the contract.Cancel the contract.2.2. Withhold delivery of goods.Withhold delivery of goods.

Seller’s Remedies Seller’s Remedies





3.3. Stop delivery of any goods that are Stop delivery of any goods that are still in the possession of the carrier.still in the possession of the carrier.

4.4. Resell any goods that have been Resell any goods that have been rightfully withheld.rightfully withheld.






5.5. Bring a claim against the buyer for Bring a claim against the buyer for the difference between the agreed the difference between the agreed price and the market price or for the price and the market price or for the price of any goods that were price of any goods that were accepted by the buyer.accepted by the buyer.






1.1. Cancel the contract.Cancel the contract.2.2. Bring a claim against the seller for Bring a claim against the seller for

the return of any money that has the return of any money that has been paid or for the difference been paid or for the difference between the agreed price and the between the agreed price and the market price.market price.

Buyer’s Remedies Buyer’s Remedies





3.3. Refuse to accept the goods if they Refuse to accept the goods if they do not conform to the contract. do not conform to the contract.

4.4. Cover the sale.Cover the sale.






5.5. Give notice to the seller that the Give notice to the seller that the goods have been accepted but that goods have been accepted but that they do not conform to the contract. they do not conform to the contract.

6.6. Revoke the acceptance and return Revoke the acceptance and return the goods.the goods.






Reviewing What You Learned

1. When does title pass from the seller to the buyer in a sales contract? When does the risk of loss pass?

Section 13.2 Assessment






Shipping contract: title and risk of loss pass to buyer when goods are given to carrier. Destination contract: title and risk of loss pass to buyer when goods reach destination.


Answer






If buyer must pick up goods, title passes when contract is made. If seller is a merchant, risk of loss passes when buyer receives goods. If not, risk passes to buyer when seller tenders goods.


Answer






2. What remedies are available when a seller breaches a sales contract? When a buyer breaches a contract?







When buyer breaches, seller may cancel contract, withhold delivery, stop delivery, resell goods and bring claim for difference between agreed prices and market price, or bring claim for any goods that were accepted by buyer.


Answer






When seller breaches, buyer may cancel contract, bring claim against seller for return of money paid or for difference between agreed and market price,


Answer






reject nonconforming goods, cover the sale, accept nonconforming goods and bring claim against seller if no adjustment is made, or revoke acceptance.


Answer






Critical Thinking ActivityFairness Suppose you leave your ring at a jewelry store to be appraised and the store sells it by mistake to an innocent purchaser. Under the UCC, the innocent purchaser receives good title to your ring.






Critical Thinking ActivityFairness Is this rule fair? Support your argument.






Critical Thinking Activity AnswerFairness Answers may vary. This law gives consumers confidence that they will receive title to goods bought from a merchant.






Legal Skills in ActionContracts Involving Minors If you are under the age of eighteen when you buy goods, you can return the goods and get your money back. You lose this right when you become eighteen.






Legal Skills in ActionContracts Involving Minors Present a point of view to the class regarding whether this rule is reasonable.






Legal Skills in Action AnswerContracts Involving Minors Presentations will vary, but should recall a minor’s capacity to contract.



End of Section 13.2End of Section 13.2