Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 16 Transfer of Title
LESSON OVERVIEW
The previous chapters dealt with the various kinds of contracts and the methods of discharge of
contracts. Chapter 16 discusses how title and certificates of title relate to the concept of ownership. A
distinction is made between the two main types of property indicating which one is subject to the law
of sales, how title passes, and how bills of sale, bills of lading, and warehouse receipts are involved in
the passing of title. The chapter also examines at length how title to goods passes. We also discuss
conditional sales, the laws governing title to lost or stolen goods, principle of estoppel, sales by persons
with possession of, but not title to, goods, and the passage of title to fungible goods. Finally, students’
understanding of the topics is evaluated through objective-type questions, discussion questions, and
case scenarios. Students are encouraged to conduct their own research through the use of the Internet
and other sources.
CHAPTER OUTLINE
A. TITLE (p. 252)
1. The Right of Ownership (p. 252)
B. KINDS OF PROPERTY (p. 252)
1. Real Property (p. 252)
2. Personal Property (p. 252)
C. HOW TITLE PASSES (p. 253)
1. Bill of Sale (p. 253)
2. Bill of Lading (p. 253)
3. Warehouse Receipt (p. 254)
D. WHEN TITLE PASSES (p. 254)
1. Intent (p. 254)
2. Specific Time (p. 254)
E. CONDITIONAL SALES (p. 255)
1. Conditions Precedent (p. 255)
2. Conditions Subsequent (p. 255)
F. LOST AND STOLEN GOODS (p. 255)
G. TRANSFER OF TITLE BY ESTOPPEL (p. 256)
1. Examples of Estoppel (pp. 256-257)
H. SALES BY PERSONS HAVING POSSESSION (p. 257)
1. Sales by Persons Having Rightful Possession (p. 257)
2. Sales by Persons Having Wrongful Possession (p. 257)
I. TRANSFER OF TITLE TO FUNGIBLE GOODS (p. 258)
J. CHAPTER SUMMARY (pp. 258-259)
K. CHAPTER ASSESSMENT (pp. 259-265)
1. Matching Key Terms (pp. 259-260)
2. True/False Quiz (pp. 260-261)
3. Discussion Questions (p. 261)
4. Thinking Critically About the Law (p. 262)
5. Case Questions (pp. 262-263)
6. Case Analysis (pp. 264-265)
7. Legal Research (p. 265)
KEY TERMS
Key terms are listed at the beginning of each chapter, posted in the student textbook margins, and
placed in bold in the copy. They are listed here for your quick reference.
§ title (p. 252)
§ bill of sale (p. 253)
§ bill of lading (p. 253)
§ straight bill of lading (p. 253)
§ order bill of lading (p. 253)
§ warehouse receipt (p. 254)
§ nonnegotiable warehouse receipt (p. 254)
§ negotiable warehouse receipt (p. 254)
§ conditional sale (p. 255)
§ conditions precedent (p. 255)
§ conditions subsequent (p. 255)
§ estoppel (p. 256)
§ remote party (p. 257)
§ wrongful possession (p. 257)
§ fungible goods (p. 258)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 16 when you begin the study of the chapter and discuss each Learning
Outcome. Each Learning Outcome will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 16. The corresponding
text page numbers and PPT slides are listed next to each outcome. These slides should be used to
reinforce the main points of the lecture.
After completing this chapter, the students will be able to:
1. Explain how title and certificates of title relate to the concept of ownership. (p. 252,, PPT slides
2-3)
2. Distinguish between the two main types of property, and indicate which one is subject to the law
of sales. (p. 252, PPT slide 4)
3. Describe how title passes and discuss how bills of sale, bills of lading, and warehouse receipts are
involved in the passing of title. (pp. 253-254, PPT slides 5-6)
4. Explain when title to goods passes. (pp. 254, PPT slides 7-9)
5. Define the term conditional sales and identify the two types of conditions found in contracts for
conditional sales. (p. 255, PPT slides 10-11)
6. Explain the law governing title to lost or stolen goods. (p. 255, PPT slide 12)
7. Define the principle of estoppel and provide examples of how this principle is applied in various
situations. (pp. 258-259, PPT slides 13-16)
8. Discuss sales by persons with possession of, but not title to, goods. (p. 256, PPT slides 17-18)
9. Describe the passage of title to fungible goods. (p. 258, PPT slide 19)
LECTURE OUTLINE
A. TITLE
Prior to the adoption of the Uniform Commercial Code (UCC), the concept of title was crucial in
making determinations of the rights and responsibilities of the parties to a contract and, perhaps even
more important, who bore the risk of loss. The UCC has reduced the significance of title.
1. The Right of Ownership
Title, as it relates to property, is intangible. The person who has title to property (the
owner) also has the right to possess it, unless, of course, the person has given up the
right to possess the property. When one sells something, one sells not only the property
but also the intangible right of ownership called title.
B. KINDS OF PROPERTY
The two main classifications of property are real property and personal property.
1. Real Property
Real property, sometimes referred to as real estate, is land and all articles
permanently attached to it, such as buildings and trees.
2. Personal Property
Personal property is all property other than real property, such as automobiles,
clothing, computers, and so on. Personal property can be tangible.
C. HOW TITLE PASSES
There are a variety of ways in which title can pass. Involved in the passage of title are the legal
concepts of bill of sale, bill of lading, and warehouse receipt.
1. Bill of Sale
A bill of sale is simply a written statement that the seller is passing ownership to
the buyer. The bill of sale need not be an elaborate legal document—a
handwritten note is just as effective. The description of the goods should be as
complete as possible.
2. Bill of Lading
A bill of lading is a receipt for goods to be shipped, acknowledging that such
goods have been received and indicating agreement that the goods will be
transported to the destination specified. The bill of lading is prepared by the
common carrier.
There are two kinds of bills of lading. The most common is a straight bill of
lading, which is simply a receipt but is not negotiable. An order bill of lading,
in addition to being a receipt, is negotiable; that is, the order bill of lading is
proof of title and can be used to transfer title from one person to another.
3. Warehouse Receipt
A warehouse receipt is much like a bill of lading except that the goods involved
are not being transported but merely stored. There are two kinds of warehouse
receipts. A nonnegotiable warehouse receipt is like a straight bill of lading—it
is simply a receipt for the goods to be stored. A negotiable warehouse receipt
requires that the original copy be presented to the warehouser before the goods
will be surrendered to someone claiming them.
D. WHEN TITLE PASSES
Title to goods passes when the parties intend for it to pass. In the event that the intent of the parties is
not clear, title passes at the moment when they unconditionally agree to sell specific goods that are in a
deliverable state.
1. Intent
Since, in the eyes of the law, title passes when the parties intend it to pass, how
does a party prove what he or she intended? To minimize the number of
disagreements, certain rules for determining the intent of the parties have been
established.
2. Specific Time
Although it may take some time to complete the documents that signify the
passing of title, title itself passes in a single instant. The law provides guidelines
to determine the exact time at which title passes.
E. CONDITIONAL SALES
A conditional sale is one with contract provisions that specify conditions that must be met by one of
the parties. The two types of conditions found in contracts for conditional sales are conditions
precedent and conditions subsequent.
1. Conditions Precedent
When a sales contract provides that specific conditions must be met before title
passes, the agreement contains conditions precedent.
2. Conditions Subsequent
When a sales contract provides that specific conditions must be met after title
has passed, it is said to contain conditions subsequent. A right-of-return
provision in a sales contract is an example of a condition subsequent that gives
the buyer the right to revest, or transfer back, title to the seller if the buyer is not
satisfied after making the purchase.
F. LOST AND STOLEN GOODS
When a person possesses an item, ownership is presumed, but it is possible to have possession of goods
without having title, just as it is possible to have title without having possession. A person who finds an
article has good title against anyone except the true owner. Anyone who buys an article from someone
who has found it must be prepared to surrender the article to the true owner. A thief has no title to
goods he or she has stolen, and therefore cannot pass title to anyone else.
G. TRANSFER OF TITLE BY ESTOPPEL
Under certain circumstances, it is possible for title to goods to be passed by a nonowner who does not
have title. In these cases, title is said to pass by estoppel. Estoppel is a legal bar to the use of
contradictory words or acts in asserting a claim against another.
For title to pass by estoppel, the purchaser must be able to prove the following:
i. The purchase was made in good faith. That is, the buyer believed the seller to be
the real owner or one appointed to act for the real owner.
ii. The purchase was made from one in rightful possession.
iii. Value was given by the buyer for that which he or she now claims ownership
under the principle of estoppel.
1. Examples of Estoppel
a) Transfer of Money or Commercial Paper Made Out to Bearer
When the owner of cash or commercial paper, such as a check, makes it payable
to bearer, who then gives it to a third person, the original owner cannot demand
the return of the money from a third party to whom it was given in exchange for
something of value.
b) Transfer of Property to a Seller Dealing in the Same Type of Goods
When the owner of goods entrusts property to a person who sells the same type
of goods and that person sells the property to an innocent third party, the owner
is estopped from recovering the goods from the third party.
c) Transfer of Property to a Seller Permitted to Appear as the Real
Owner
If the owner of property gives possession of it to a second party and allows that
person to act as the real owner, the rightful owner cannot recover the property
if the second party sells the property to an innocent third party.
d) Transfer of Proof of Ownership to an Unauthorized Seller
If the owner of goods entrusts proof of ownership to someone in possession of
the goods, the goods cannot be recovered by the true owner from an innocent
purchaser.
H. SALES BY PERSONS HAVING POSSESSION
There are instances when individuals have possession of goods, but not title to them, and sell these
goods to third persons.
1. Sales by Persons Having Rightful Possession
A salesperson in a retail store, service station, restaurant, and so on is known as a
remote party. Such individuals have the right to make legitimate sales as
representatives of the owner of the goods, although they themselves are not titleholders.
A salesperson has the express or implied permission of the titleholder of the
merchandise to sell it. Agents acting on behalf of principals can pass title without
holding title themselves.
2. Sales by Persons Having Wrongful Possession
Unlike the situations described previously, in which possession of goods was transferred
with the permission of the owner, situations of wrongful possession occur when
property, such as stolen goods, is transferred without permission of the owner. The
titleholder, or rightful owner, of stolen goods is never estopped.
I. TRANSFER OF TITLE TO FUNGIBLE GOODS
Fungible goods are those that are generally sold by weight or measure. It is important to determine
when title to such fungible goods passes. Generally, the following rules apply.
1. If goods are ordered and the building, tank, storage yard, or grain elevator from
which they are to come is not specified, this general rule of title passing applies: Title
passes when the goods become ascertained, that is, when they become clearly
identifiable.
2. If a buyer orders a specific quantity of fungible goods from a specific mass, the
buyer acquires immediate title to an undivided share of the specific mass.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcome in Chapter 16. Every
outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. Explain how title and certificates of title relate to the concept of ownership.
Title, as it relates to property, is intangible. It represents ownership and the right to possess something,
unless that right has been given up.
Text Pages: 252
PowerPoint: Slides 2-3
Discussion Questions: 29
Thinking Critically About the Law: 34
Case Questions: 42
LO2. Distinguish between the two main types of property, and indicate which one is subject to the
law of sales.
Real property is land and all articles permanently attached to it, such as buildings and trees. Personal
property is all kinds of property other than real property. Only personal property is governed by the law
of sales.
Text Pages: 252
PowerPoint: Slide 4
Discussion Questions: 28
LO3. Describe how title passes and discuss how bills of sale, bills of lading, and warehouse
receipts are involved in the passing of title.
There are a variety of ways in which title can pass. A bill of sale is a written statement that the seller is
passing ownership to the buyer. A bill of lading is a receipt for goods to be shipped, acknowledging that
such goods have been received and indicating agreement that the goods will be transported to the
destination specified. A warehouse receipt is like a bill of lading except that the goods involved are not
being transported but merely stored.
Text Pages: 253-254
PowerPoint: Slides 5-6
Discussion Questions: 30
LO4. Explain when title to goods passes.
Title to goods passes when the parties intend for it to pass. In the event that the intent of the parties is
not clear, title passes at the moment when they unconditionally agree to sell specific goods that are in a
deliverable state.
Text Pages: 254
PowerPoint: Slides 7-9
Case Questions: 39
Case Analysis: 45
LO5. Define conditional sales and identify the two types of conditions found in contracts for
conditional sales.
A conditional sale is one with contract provisions that specify conditions that must be met by one of the
parties. The two types of conditions found in contracts for conditional sales are conditions precedent
and conditions subsequent. Conditions precedent are those that must be met before title passes.
Conditions subsequent are those that must be met after title passes.
Text Pages: 255
PowerPoint: Slides 10-11
Thinking Critically About the Law: 35
Case Questions: 41
LO6. Explain the law governing title to lost or stolen goods.
A person without good title to goods cannot transfer title, except in cases of transfer of title by estoppel.
Someone who finds lost goods has title to them against anyone but the true owner. A thief has no title to
goods that he or she has stolen, and consequently cannot pass title, even to innocent purchasers.
Text Pages: 255
PowerPoint: Slide 12
Discussion Questions: 31
Case Analysis: 43
LO7. Define the principle of estoppel and provide examples of how this principle is applied in
various situations.
Estoppel is a legal bar to using contradictory words or acts in asserting a claim against another.
Examples of estoppel include transfer of money or commercial paper made out to the bearer, transfer of
property to a seller dealing in the same type of goods, transfer of property to a seller permitted to
appear as the real owner, and transfer of proof of ownership to an unauthorized seller.
Text Pages: 256-257
PowerPoint: Slides 13-16
Discussion Questions: 32
Thinking Critically About the Law: 36
Case Questions: 40
LO8. Discuss sales by persons with possession of, but not title to, goods.
Person having rightful possession of goods have the right to make legitimate sales as representatives of
the owners of the goods, although they are not titleholders. Persons having wrongful possession of
goods have no right to make sales and the titleholders of these goods are never estopped.
Text Pages: 257
PowerPoint: Slides 17-18
Thinking Critically About the Law: 37-38
Case Analysis: 44
LO9. Describe the passage of title to fungible goods.
Title to fungible goods passes when the goods become clearly identifiable. In cases in which a specific
quantity is ordered from a specific mass, title passes at once, even before the portion ordered is
separated.
Text Pages: 258
PowerPoint: Slide 19
Discussion Questions: 33