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Chapter 17 Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Page 1: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

Chapter 17Chapter 17

Title and Risk of Loss in

Sales of Goods

Title and Risk of Loss in

Sales of Goods

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-2

Learning Objectives

1. Contrast voidable title with void title.2. Discuss the rights of the parties when goods that

are entrusted to merchants are sold to others in the ordinary course of business.

3. Determine, in a given case, when title to goods passes from the seller to the buyer.

4. Decide, in different situations, whether the buyer or the seller of goods must bear the risk of loss.

5. Compare a sale on approval with a sale or return.6. Describe when buyers and sellers of goods have

insurable interests in those goods.

Page 3: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-3

Question?

What is the right of ownership to goods?

A. Bill of sale

B. Title

C. Designation

D. Lien

Page 4: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-4

Void and Voidable Title

• Title – the right of ownership to goods

• Bill of sale – a written statement evidencing the transfer of

personal property from one person to another

Page 5: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-5

Voidable Title

• Voidable title– title that may be voided if the injured party elects

to do so– Also received when goods are bought from a

minor or a person who is mentally impaired

Page 6: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-6

Entrusting Goods to a Merchant

• People often entrust goods that belong to them to merchants

• When this occurs, if the merchant sells the goods in the ordinary course of business to a third party who has no knowledge of the real owner’s rights, the third party receives good title to them.

Page 7: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-7

The Passage of Title and Risk of Loss

• Identified goods – specific goods that have been selected as the

subject matter of the contract.

• Once goods are identified, title passes to the buyer when the seller does whatever is required under the contract to deliver the goods.

Page 8: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-8

Shipment Contracts

• Shipment contract – one in which the seller turns the goods over to a

carrier for delivery to the buyer

• f.o.b.– “free on board.”

Page 9: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-9

Shipment Contracts

• When goods are sent f.o.b. the place of shipment, they will be delivered free to the place of shipment.

• The buyer must pay all shipping charges from there to the place of destination.

Page 10: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-10

Abbreviations

Page 11: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-11

Question?

___________ means an offer to turn the goods over to the buyer.

A. Tender

B. Salesmanship

C. Vending

D. Barter

Page 12: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-12

Destination Contracts

• Destination Contracts– the contract requires the seller to deliver goods to

a destination

• Tender – to offer to turn the goods over to the buyer.

Page 13: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-13

Destination Contracts

• With contracts designated by f.o.b. the place of destination goods shipped belong to the seller until they have been delivered to the destination shown on the contract

Page 14: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-14

Destination Contracts

• c.o.d. (collect on delivery) – instructs the carrier to retain possession until the

carrier has collected the cost of the goods

• c.i.f. (cost, insurance, and freight) – instructs the carrier to collect all charges and fees

in one lump sum

• f.a.s. vessel (free alongside vessel) – requires sellers to deliver the goods, at their own

risk, alongside the vessel or at a dock designated by the buyer

Page 15: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-15

Passage of Title and Risk of Loss

Page 16: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-16

Question?

What are “goods of which any unit is, by nature or usage of trade, the equivalent of any like unit”?

A. Tangible goods

B. Intangible goods

C. Dynamic goods

D. Fungible goods

Page 17: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-17

Fungible Goods

• Fungible Goods – “goods of which any unit is, by nature or usage of

trade, the equivalent of any like unit.”

Page 18: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-18

Question?

A _____________ is a paper giving the person who possesses it the right to receive the goods named in the document.

A. Document of ownership

B. Document of title

C. Vendor document

D. Document of possession

Page 19: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-19

Documents of Title

• Document of title – A paper giving the person who possesses it the

right to receive the goods named in the document– Bills of lading, warehouse receipts

Page 20: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-20

Agreement of the Parties

• The parties may, if they wish, enter into an agreement setting forth the time that title and risk of loss pass from the seller to the buyer

• With one exception, title and risk of loss will pass at the time and place agreed upon

Page 21: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-21

Revesting of Title in Seller

• Buyers, after entering into sales contracts, sometimes refuse to accept the goods that are delivered or are otherwise made available to them

• In all such cases, title to the goods returns to the seller

Page 22: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-22

Question?

What type of sale allows goods to be returned even though they conform to the contract when the goods are primarily for the buyer’s use?

A. Sale on return

B. Sale on arrival

C. Sale on disproval

D. Sale on approval

Page 23: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-23

Sales with Right of Return

• Sale on approval – sale that allows goods to be returned even though

they conform to the contract when the goods are primarily for the buyer’s use.

Page 24: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-24

Sale or Return

• Sale or return – sale that allows goods to be returned even though

they conform to the contract when the goods are delivered primarily for resale

Page 25: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-25

Question?

What is the financial interest that an insured party has in the insured property?

A. Insurable interest

B. Lien interest

C. Factored interest

D. Quantum interest

Page 26: Chapter 17 Title and Risk of Loss in Sales of Goods Title and Risk of Loss in Sales of Goods McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

17-26

Insurable Interest

• Insurable interest – the financial interest that an insured party has in

the insured property


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