Chapter 21: Title, Risk and Insurable Interest

Question 1

UCC replaces title with

Answer 1

1. Identification
2. Risk of Loss
3. Insurable Interest

Question 2

For any interest to pass to buyer, goods must be

Answer 2

1. In existence
2. Future goods

Question 3

In existence

Answer 3

1. Must be identified as specific goods in the sales contract
2. If contract calls for ascertaining goods in existence, identification takes place at the time the contract is made

Question 4

Future goods

Answer 4

1. Animals born within 12 months of contract; identification
2. For crops harvested within 12 months of contracting, identification takes place at time of planting (or when crops begin to grow)
3. All others, identification occurs when goods are shipped, marked, or otherwise designated

Question 5

Fungible goods

Answer 5

Goods that are naturally alike, by agreement or trade usage
Seller-owner can pass title and risk of loss without separating the goods
EX: specific grades or types of wheat, oil and wine stored in large containers

Question 6

Identification

Answer 6

Gives the user the right
- To obtain insurance on the goods
- To recover from third parties who damage the goods

Question 7

Identification occurs:

Answer 7

1. If goods are designated when contract is made
2. If goods are not designated when contract is made, then identified at time of designation

Question 8

When can title pass?

Answer 8

Once goods exist and are identified

Question 9

Title can pass:

Answer 9

1. Time and place seller performs physical delivery
2. When agreed to by the parties

Question 10

Delivery Arrangements

Answer 10

1. Shipment Contract
2. Destination Contract

Question 11

Shipment Contract

Answer 11

Title passes at time and place of shipment
(Seller is only required to deliver goods to a carrier)

Question 12

Destination Contract

Answer 12

Title passes when goods are tendered at the destination
(Seller is required to deliver goods directly to buyer or another party designated by the buyer)

Question 13

Bill of lading

Answer 13

Receipt for goods that is signed by a carrier and serves as a contract for transportation of the goods

Question 14

Warehouse Receipt

Answer 14

Receipt issued by a warehouse for goods stored in the warehouse

Question 15

When a sales contract does not call for seller to ship the goods

Answer 15

Passage of title is dependent on whether seller must deliver a document of title

Question 16

Issues when persons acquire goods with imperfect title and attempt to sell or lease them

Answer 16

A buyer acquires whatever title the seller has in the goods sold. A lessee acquires whatever leasehold interest the lessor has the power to transfer subject to the lease contract

Question 17

When can titles be void (Void titles)

Answer 17

1.Buyer unknowingly purchases goods from seller who is not the owner
2. If seller is a thief, the seller’s title is void
3. Buyer gets no title (even in acts of good faith)
Owner can recover goods

Question 18

Voidable Title

Answer 18

Where goods seller is selling were
1. Obtained by fraud
2. Paid with a check which was dishonored
3. Purchased on credit when the seller was insolvent
Owner cannot recover goods

Question 19

Entrustment Rule

Answer 19

Entrusting goods to a merchant who deals in goods of that kind gives merchant the power to transfer all rights to a buyer in the ordinary course of business. Allows innocent buyer to obtain title to goods purchase from a merchant even if merchant does not have good title

Question 20

Buyer in the ordinary course of business

Answer 20

One who acts in good faith without knowledge the sale violates the rights of another

Question 21

Risk of Loss (ROL)

Answer 21

1. Does not necessarily pass with title
2. Important because of insurance concerns
3. Can be agreed to by parties
4. Passes to buyer depending on whether delivery is “with” or “without” movement of goods

Question 22

FOB (free on board)

Answer 22

Indicates that the selling price of goods includes transportation costs to specific FOB place named in contract. Seller pays expenses & carries risk of loss to FOB place

Question 23

FAS (free alongside)

Answer 23

Requires that the seller, at his or her own expense and risk, deliver the goods alongside the carrier before risk passes to the buyer

Question 24

CIF (Cost, Insurance, Freight)

Answer 24

Requires, among other things, that the seller “put the goods in possession of a carrier” before risk passes to buyer

Question 25

CIF (Cost, Insurance, Freight)

Answer 25

Requires, among other things, that the seller “put the goods in possession of a carrier” before risk passes to buyer

Question 26

Delivery ex-ship

Answer 26

The risk of loss does not pass to the buyer until the goods are properly unloaded from the ship or other carrier

Question 27

ROL Shipment Contracts

Answer 27

ROL passes to buyer when tendered to carrier. Any goods damaged in transit is buyer’s loss

Question 28

ROL Destination Contracts

Answer 28

ROL passes to buyer when goods tendered at particular destination

Question 29

Bailee

Answer 29

A party who, by a bill of lading, warehouse receipt, or other document of title, acknowledges possession of goods and/or contracts to deliver them

Question 30

Bailment

Answer 30

Temporary delivery or passage (possession) of personal property without passage of title to another

Question 31

ROL: If seller is not a merchant

Answer 31

Passes to buyer on tender of delivery

Question 32

ROL: If seller is a merchant

Answer 32

ROL passes when buyer actually takes physical possession of goods

Question 33

Goods Held by a Bailee: Negotiable document of title

Answer 33

The rights to the goods, free of any claims against the party that issued the document, pass with the document to the transferee

Question 34

Goods Held by a Bailee: Non-negotiable document of title

Answer 34

Transferee obtains only the rights that the party transferring it had, subject to any prior claims

Question 35

When goods are held by a bailee, ROL passes to buyer when:

Answer 35

1. The buyer receives a negotiable document of title for the goods
2. Bailee acknowledges the buyer’s right to possess the goods
3. The buyer receives a nonnegotiable document of title, and the buyer has had a reasonable time to present the document to the bailee and demand the goods
   (if the bailee refuses to honor the document, the risk of loss remains with the seller)

Question 36

Conditional Sales

Answer 36

1. Conditioned on the buyer’s approval of goods or on buyer’s resale of goods
2. Buyer is in possession
3. Disputes can arise as to party to bear ROL

Question 37

Types of Conditional Sales

Answer 37

1. Sale on Approval
2. Sale on Return

Question 38

Sale on Approval

Answer 38

1. Seller offers to sell goods to buyer (usually not a merchant) and sends the goods on a trial basis
2. Only an “offer to sell” has been made, along with a bailmentsince buyer has possession
3. Title and ROL remain with seller
4. ROL passes when buyer approves (accepts offer) expressly or implicitly

Question 39

Sale or Return

Answer 39

1. Buyer (usually a merchant) purchases goods primarily for resale
2. Buyer has right to return goods in lieu of payment if goods do not sell (Sale may be undone at buyer’s option)
3. Title/ROL passes to buyer with possession
4. Goods are subject to claims of buyer’s creditors while in buyer’s possession
5. Buyer bears expense of returning goods

Question 40

Seller’s Breach

Answer 40

1. Rejection by buyer (Risk stays with seller)
2. Buyer accepts, discovers defect and revokes acceptance (risk passes back to seller to the extent that buyer’s insurance does not cover the loss)

Question 41

Buyer’s Breach

Answer 41

Loss immediately shifts to buyer provided:
1. Goods are identified in contract
2. ROL passes to buyer for a commercially reasonable time after seller learns of the breach
3. Buyer is liable only to the extent that the seller’s insurance does not cover loss

Question 42

Insurable Interest: Buyer

Answer 42

Buyer has insurable interest in goods identified

Question 43

Insurable Interest: Seller

Answer 43

Seller has insurable interest in goods as long as they retain title or a security interest (after titles passes to buyer)

Question 44

Insurable Interest: Both buyers and sellers

Answer 44

Can have an insurable interest at the same time. Must sustain an actual loss to recover insurance proceeds