owner ship & risk
DESCRIPTION
Owner ship & riskTRANSCRIPT
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Quote of the Day
“Great deeds are usually wrought at great risk.”Herodotus,
Greek historian
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Who Owns It??
The Code must sometimes determine the rightful owner when more than one person claims to own something.
Existence and Identification Goods must exist before title can pass. Goods must be identified to the contract before
title can pass. The parties may agree in their contract how and
when they will identify the goods.
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Who Owns It??
Passing of Title Title may pass in any manner on which the parties
agree.
Insurable Interest: a legal right in something A buyer obtains an insurable interest when the
goods are identified to the contract. The seller retains an insurable interest in goods as
long as she has either title to the goods or a security interest in them.
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When the Seller Has Imperfect Title
Bona Fide Purchaser A void title is no title at all. A voidable title gives limited rights in the goods,
inferior to those of the owner. A person with voidable title has power to transfer
valid title for value to a good faith purchaser, generally called a bona fide purchaser or BFP.
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Entrustment
Entrusting means delivering goods to a merchant or permitting the merchant to retain them. Entrusting to a merchant who deals in goods of
that kind gives him power to transfer all rights to a buyer in the ordinary course of business.
The entrusting provision protects the innocent buyer, who buys goods ONLY of the type normally sold by that merchant, not knowing that they belong to someone else.
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Creditor’s Rights
Ordinary Sales A buyer in the ordinary course of business may take
the goods free and clear of the security interest. Bulk Sales: one that includes most or all of the
inventory in a store Article 6 requires that:
The seller supply the buyer with a complete list of his creditors, and
the buyer notify all creditors of the bulk sale before it takes place, so that the creditors may protect their security interest.
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Returnable Goods
Sale on Approval When a buyer takes goods intending to use them
herself but has the right to return. In a sale on approval, the goods are not subject to the
buyer’s creditors until the buyer accepts them.
Sale or Return When a buyer takes goods intending to resell them,
but has the right to return them. The goods are subject to the claims of the buyer’s
creditors.
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Risk of Loss
The parties may allocate the risk of loss any way they wish.
Many merchants specify who bears the risk of loss by using common shipping terms such as those on the next slide.
If parties fail to allocate the risk: When neither party has breached, the risk of loss generally
passes from seller to buyer when the seller has transported the goods as far as he is obligated to.
When a party has breached, the risk of loss generally lies with that party.
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Shipping Terms
FOB place of shipment (seller is at risk until goods are in carrier’s hands)
FOB place of destination (seller is at risk until goods are at the destination)
FAS a named vessel (seller is at risk until goods are delivered to that vessel)
CIF (cost includes insurance and shipping) C&F (cost does not include insurance)
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Bailment
Bailment means that one person or company is legally holding goods for the benefit of another.
If the contract requires a bailee to hold the goods for the buyer, the risk passes when the buyer obtains documents entitling her to possession, or when the bailee acknowledges her right to the goods.
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When One Party Breaches
Seller Breaches and Buyer Rejects The risk remains with the seller until he cures the defect or
the buyer accepts the goods.
Seller Breaches and Buyer Accepts, but Then Revokes Acceptance The risk remains with the seller to the extent the buyer’s
insurance will not cover the loss.
Buyer Breaches Buyer assumes the risk of loss to the extent the seller’s
insurance is deficient.
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“The Code has reduced the importance of abstract terms, such as title, and replaced them with
practical rules designed to enable business people to anticipate risk and protect against it.”