978-0134004006 Chapter 19 Lecture Note

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architect.” Sir Walter Scott

I. Teacher to Teacher Dialogue

that the law is not necessarily coined to protect the legally lazy. A third point is that all contract

obligations under the UCC come under the umbrella of good faith and conscionability. This

includes not only the performance obligations listed in this chapter’s materials, but also any

contractual modifications entered into by the parties.

common sense because it does work here.

II. Chapter Objectives

1. Identify when title to goods passes in shipment and destination contracts.

2. Define shipment and delivery terms.

III. Key Question Checklist

 When does title pass in sales contracts?

 When does the responsibility for loss of goods transfer from buyer to seller?

TITLE TO GOODS AND RISK OF LOSS

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 What are a sale on approval, a sale or return, and a contingency sale?

IV. Text Materials

Article 2 of the UCC establishes precise rules for the passage of title. While common law places

Identification of Goods and Passage of Title

Identification of goods is accomplished by distinguishing the goods named in a contract.

Identification of Goods – Identification can be made at any time and in any manner agreed upon

by the parties. If the goods are not identified in the contract, the UCC establishes when

Passage of Title – The title to goods passes in any method agreed to by the parties. Absent an

Shipment and Destination Contracts – Shipment contracts require that the seller ship goods via

a common carrier. The shipper is responsible for making the shipping arrangements and delivery

Delivery of Goods Without Moving Them – If the seller is expected to deliver a document of

Contemporary Environment: Commonly Used Shipping Terms

This section covers FOB, FOB place of destination, FAS, FAS port of shipment, CIF, C&F, Ex–

ship, and no-arrival no-sale contracts. FOB point of shipment requires that the seller arrange for

the shipment of goods and be responsible for them until they are received at the common carrier.

Although common law places the risk of loss on the party who had title, the UCC allows the

parties to agree who will bear the risk.

Title to Goods and Risk of Loss

destination.

Noncarrier Cases; No Movement of Goods – The UCC has two different rules for risk of loss

Nonmerchant-Seller – The risk of loss will transfer to the buyer when the seller gives notice that

he has placed the goods aside for the buyer.

Goods in Possession of a Bailee – The risk of loss for goods held by a bailee is transferred to the

Risk of Loss Where There is a Breach of the Sales Contract

Seller in Breach of a Sales Contract – The seller is considered in breach if he delivers

nonconforming goods. The buyer may reject the goods. The risk stays with the seller until he

Buyer in Breach of a Sales Contract – If the buyer refuses delivery of conforming goods,

Goods (CISG)

The CISG is a model act for international sales contracts. The CISG provides legal rules that

Risk of Loss in Conditional Sales

Sale on Approval – These are goods that a customer is allowed to take possession of for a set

period of time to see if it actually fits their needs. Acceptance may be expressed through the

delivery.

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transferred.

Risk of Loss in Lease Contracts

In an ordinary lease, the risk of loss is retained by the lessor; in a finance lease, the risk is with

or acceptance.

Critical Legal Thinking – Indemnification agreements, insurance, and specifically agreed to

loss.

Sale of Goods by Nonowners

Stolen Goods – If a buyer has purchased goods from a thief, the real owner can reclaim the goods

Fraudulently Obtained Goods – The seller has a voidable title if the goods are obtained by

Entrustment Rule – If an owner entrusts possession of goods to a merchant, they can transfer the

Case 19.1 Entrustment Rule: Lindholm v. Brandt

925 A.2d 1048, 2007 Conn. Lexis 264 (2007), Supreme Court of Connecticut

Facts: Lindholm had acquired an Andy Warhol canvas entitled Red Elvis, which he later agreed

to loan to the Guggenheim Museum in New York City for an exhibition. Lindholm was

was a buyer in the ordinary course of business, and had purchased the painting from a person who

had been entrusted with the painting by Lindholm, thus giving him a superior claim.

Issue: Was Brandt a buyer in the ordinary course of business who had a claim of ownership to

Red Elvis that was superior to that of the owner Lindholm?

ordinary course of business.

Reason: A person with a voidable title has power to transfer a good title to a good faith purchaser

for value. When you entrust goods to a merchant who deals in that type of goods, it gives him the

power to transfer all rights to a buyer in the ordinary course of business.

Hence, an innocent, good faith purchaser of goods that acquires them from a dealer in that

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for value.

 Good faith subsequent lessee—A person to whom a lease interest can be transferred from a

 Identification of goods—Distinguishing the goods named in the contract from the seller’s or

lessor’s other goods.

security interest in the goods.

 Lessee—The party who receives the goods.

 Lessor—The party who leases the goods.

 No-arrival, no-sale contract—Requires the seller to bear the expense and risk of loss of the

goods during transportation.

of title in sales contracts.

 Risk of loss—Common law placed the risk of loss to goods on the party who held title to the

goods.

 Risk of loss in a destination contract—The seller bears the risk of loss during transportation.

 Risk of loss in a shipment contract—The buyer bears the risk of loss during transportation.

accepts the goods.

 Sale or return contract—A contract that says that the seller delivers goods to a buyer with the

 Shipment contract—A contract that requires the seller to ship the goods to the buyer via a

common carrier.

meanings and consequences.

 Title—Legal, tangible evidence of ownership of goods.

 United Nations Convention on Contracts for the International Sale of Goods—A model act

for international sales contracts that provides legal rules that govern the formation,

performance, and enforcement of international sales contracts entered into between

international businesses.

steals.

 Voidable title—Title that a purchaser has if the goods were obtained by (1) fraud, (2) a check

that is later dishonored, or (3) impersonating another person.