Comprehensive Volume, 18 th Edition Chapter 26: Passage of Title and Risk of Loss: Rights of...
-
Upload
dorcas-nash -
Category
Documents
-
view
215 -
download
0
Transcript of Comprehensive Volume, 18 th Edition Chapter 26: Passage of Title and Risk of Loss: Rights of...
Comprehensive Volume, 18th Edition
Chapter 26: Passage of Title and Risk of Loss: Rights of Parties
ChapterChapter
2626
Potential Problems
Problems in sales transactions often involve damage to the goods, the claims of creditors, and insurance.
In the absence of an agreement, the solution to these problems depends on the type of the transaction and its terms.
ChapterChapter
2626
Nature of Goods
Sales transactions may be classified according to the nature of the goods and the terms of the transactions.
Existing goods are physically in existence and owned by the seller. Future goods are not yet owned by the seller or are not yet in existence. Fungible goods are those which, when mixed with other same-type goods, are indistiguishable (such as corn or wheat).
ChapterChapter
2626
Existing GoodsThe title to existing goods identified at the time of the contract passes to the buyer at the time the parties agree to the transaction. Once the goods are identified, both buyer and seller have an insurable interest in the goods. A merchant seller bears any loss occurring after the agreement, up until the time the buyer receives the goods. If the seller is not a merchant, the risk of loss passes to the buyer when the goods are tendered or made available to the buyer.
ChapterChapter
2626
Future and Fungible GoodsFuture goods cannot be identified until they are in existence.Future goods are identified when they are shipped, marked or otherwise designated for that particular buyer.Upon identification, the buyer has an insurable interest and holds the title to the goods.Fungible goods are identified when the specified quantity has been set apart and designated for the particular buyer.
ChapterChapter
2626
Passage of Title Under Article 2At time ofcontract
When Shipped,
Marked; orOtherwise Designed
Existing
Future
Fungible
Goods Identified?
Yes
FOB Destination FOB Shipment
Title passesupon tender
Title Passes upon Delivery of Goods
to Carrier
No
Document of Title?
Yes No
Title Passes at Time of Contracting
Title Passes upon Delivery of Title
Document
Yes
Title Cannot PassDelivery?
No
ChapterChapter
2626
Passage of TitleIn a contract for goods represented by a document of title, the buyer has an insurable interest and title when the buyer has the negotiable document in hand.In a non-shipment contract (seller only has to make goods available, does not deliver), title and risk of loss pass when contract is entered.In a shipment contract, title and risk of loss pass at the time and place of shipment.
In a destination contract, title and risk pass when the goods are made available at the destination.
ChapterChapter
2626
Shipment TermsA contract that requires delivery may use acronyms and abbreviations for the various options in shipping.
CF Lump sum, price includes cost and freightRisk-buyer upon delivery to carrierTitle-buyer upon delivery to carrierExpense-seller includes cost of freight in contract price
CIF Lump sum, price includes cost, insurance, and freightRisk-buyer upon delivery to carrierTitle-buyer upon delivery to carrierExpense-included in contract price (seller buys
insurance in buyer’s name, and pays freight)
FOB Free on Board – indicates that the seller will ship the goods.
FAS Free Alongside Ship (FOB for boats)
ChapterChapter
2626
Delivery TermsA contract may specify a delivery term which will affect the passage of title.Place of Shipment
A contract might read “FOB Place of Shipment,” meaning that the seller will ship the item and title will pass to the buyer as soon as the item is delivered to a carrier.
Place of DeliveryA contract might read “FOB Place of Delivery,” meaning that the seller will ship the item and title will pass to the buyer when the item is delivered to the destination and tendered to the buyer.
ChapterChapter
2626
Duties Under Particular Terms
Buyer pays the seller costs of goodsand freight to a specified location.
Risk of loss and title pass to buyerafter goods delivered to the carrier.
Buyer pays the seller for costs of goods, insurance, and freight.
Risk of loss and title pass to buyerafter goods delivered to the carrier.
C.I.F.Cost,
Insurance,Freight
C.F.Cost,
Freight
F.O.B.Free on Board F.A.S.
FreeAlongside
NamedVessel
Seller obligated to put the goods onboard named vessel, truck, or carrier
ormake tender at a named point (place).
Risk of loss and title pass to buyerat the F.O.B. point. Seller pays coststo point, buyer from point.
Seller must deliver goods alongsidevessel at own expense and risk.
Risk of loss and title pass to buyer at the shipping point.
ChapterChapter
2626
Special SituationsIn cases where the risk of loss would ordinarily pass to the buyer, the risk remains with the seller if the goods do not conform to the contract. Even when the goods do conform to the contract, the buyer and seller could have agreed in their contract that the goods may be returned.
The nature of the agreement, such as a sale on approval, sale or return, or consignment sale, determines who has title and bears risk of loss.
ChapterChapter
2626
Security Interests and Title
The reservation of a security interest in goods does not affect the question of whether title or risk of loss has passed to the buyer.Ordinarily, sellers cannot pass any better title than they possess. In some cases, however, the law permits a greater title to be transferred. These exceptions protect good-faith purchasers.
ChapterChapter
2626
Risk of LossIdentification
Shipment
FOBShipment
FOBDestination
Passes toBuyeruponDeliveryto Carrier
Passes toBuyerupon
Tender
Non-Shipment
MerchantNon-
Merchant
Passes toBuyerupon
Receipt
Passes toBuyerupon
Tender
Warehouse(Third Party)
NoDocument
Documentof Title
OtherDocument
Passes toBuyerupon
Receipt ofDocument
Passes toBuyerWhen
Buyer isNotifiedGoods
AreAvailable
Sale on Approval
Passes toBuyerwhen Buyer
Accepts Goods
Sale or Return
Passes toBuyerUnder Same
Rule asOrdinary
Sale