Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning

Chapter 24Title and Risk of

Loss

Twomey JenningsAnderson’s Business Law and the Legal Environment, Comprehensive 20e

Anderson’s Business Law and the Legal Environment, Standard 20eBusiness Law: Principles for Today’s Commercial Environment 2e

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Types of Potential Problems

• Damage to Goods: What if neither Buyer nor Seller is responsible?– What liability does a Carrier have?

• Creditors’ Claims or Seizure of Goods.• Insurable Interest.

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Determining Rights: Identification of Goods

• Existing Goods: physically present and owned by Seller at the time of contract.– When Seller or Buyer selects goods, they are

“identified.”• Future Goods: do not exist or not owned by

seller at the time of contract.• Fungible Goods: indistinguishable.• Identification Gives Buyer an Insurable

Interest.

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Determining Rights: Document of Title

• Document of Title: facilitates transfer of ownership without actually moving the goods.– A warehouser stores the goods of

others for compensation and has the rights and duties of a bailee in an ordinary mutual benefit bailment.

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Determining Rights: Document of Title

• Warehouse receipt given to the depositor (bailor) of the goods.

• Bill of Lading: carrier accepts goods for shipment.

• Now includes electronic documents of title.

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Passage of Title in Bailments

• Generally, a seller can only sell what he owns.

• Stolen Property: finder of stolen property (or a thief) cannot pass good title to a third party, even if the buyer purchased in good faith.

• Estoppel.• Voidable Title.

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• Unless otherwise agreed, the Seller is only required to make shipment to the Buyer, i.e., place the goods in a carrier’s possession.

• FOB Place of Shipment.• FOB Place of Destination.• FAS.• CF and CIF.• COD.

Delivery and Shipment Terms

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Passage of Title in Shipment Contracts

• FOB Place of Shipment Contract.– Title passes from S B when S places

goods with carrier.• FOB Place of Destination Contract.

– Title passes from S B when goods are tendered to the Buyer.

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Determining Rights: Risk of Loss

• ROL determines who must pay if the goods are damaged or destroyed.

• Non-Shipment Contracts.– Merchant Seller: ROL passes from S B

upon B’s actual receipt of goods.– Non-Merchant Seller: ROL passes from S B upon tender of goods.

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Determining Rights: Risk of Loss

• Shipment to Buyer: ROL passes from S B when tendered to carrier for shipment.

• Contract for Delivery: ROL passes from S B when goods tendered at destination by carrier.

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Determining Rights: Damage or Destruction of Goods

• Identified Goods Before ROL passes.– If total loss, contract is cancelled by law.– If partial loss, B has option to accept or reject.

• Identified Goods After ROL passes.– Buyer’s loss (insurable interest).

• Un-Identified Goods.– No ROL to Buyer, Seller’s loss.

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Risk of Loss in Shipment Contracts

• Rights of Common Carriers.– Security lien interest on goods that it

transports.– Right to compensation per agreement.

• Duties of Common Carriers.– Deliver the goods as agreed.

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Risk of Loss in Shipment Contracts

• A common carrier is absolutely liable for loss or damage to the goods.

• Exceptions:– Loss was caused solely by an act of God, – Act of a public enemy, – Act of a public authority, – Act of the shipper, or – Inherent nature of the goods.

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Risk of Loss in Shipment Contracts

• Seller is Liable for Damages from Delay.• Limitation of Carrier Liability.

– Unless prohibited by law, carriers can contractually limit their liability.

– Example: Airbills limit liability to $100, unless insurance is purchased.

• If Seller ships non-conforming goods and Buyer reject, ROL stays with Seller.

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Damage / Destruction of Goods

• Damage to Identified Goods before Risk of Loss Passes: Depends on facts.

• Damage to Identified Goods after the Risk of Loss Passes: Buyer sustains loss.

• Damage to Unidentified Goods: no risk to buyer.

• Effect of Seller’s Breach in ROL.

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Determining Rights: Special Situations

• Returnable Goods Transactions: Sale on Approval, Sale or Return.

• Consignments and Factors: A factor is a special type of bailee who has possession of someone else’s property for the purpose of selling it. – This arrangement is commonly called selling on

consignment, and the owner is called a consignor.– The factor, or consignee, receives a commission on the

sale.

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Determining Rights: Special Situations

• Self-Service.• Auction Sales.