Business Law Chapter 23 Homework The Question Then Becomes what Right Should The

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Chapter 23

TRANSFER OF TITLE AND RISK OF LOSS

A. Transfer of Title

1. Identification

a. Insurable Interest

b. Security Interest

2. Passage of Title

a. Physical Movement of the Goods

b. No Movement of the Goods

3. Power to Transfer Title

a. Void and Voidable Title to Goods

b. Entrusting of Goods to a Merchant

B. Risk of Loss

1. Risk of Loss Where There is a Breach

a. Breach by the Seller

b. Breach by the Buyer

2. Risk of Loss in Absence of a Breach

a. Agreement of the Parties

b. Trial Sales

c. Contracts Involving Carriers

3. Goods in Possession of Bailee

4. All Other Sales

C. Sales of Goods in Bulk

1. Article 6

a. Requirements

b. Failure to Comply

2. Revised Article 6

Cases in This Chapter

Robinson v. Durham

Heinrich v. Titus-Will Sales, Inc.

Windows, Inc. v. Jordan Panel Systems Corp.

Martin v. Melland’s Inc.

Chapter Outcomes

After reading and studying this chapter, the student should be able to:

Explain the relative importance of title under the common law and Article

Explain when the seller has a right or power to transfer title and when the

transfer is void or voidable.

Distinguish between a shipment contract and a destination contract and

explain when title and risk of loss pass under each.

TEACHING NOTES

A sale of goods is the transfer of title from the seller to the buyer for a

consideration known as the price. A contract for sale of goods requires each

party to perform some obligation and gives each party the right to expect

performance by the other party. Performance by each party, transfer of title, and

allocation of risk of loss are all important to a sale of goods.

A. TRANSFER OF TITLE

Title cannot pass under a contract for sale until existing goods have been

identi’ed as those to which the contract refers. Future goods (goods that are not

2A-103(1)(j).

Identification

At some point the seller obtains, manufactures, prepares, or selects existing

goods which she intends to deliver to or hold for the buyer. Identi’cation may

be made by either the seller or the buyer, at any time, and in any manner

agreed upon. If not otherwise speci’ed, identi’cation takes place:

1. when the contract is made, if it is for goods already existing and

identi’ed;

*** Chapter Outcome ***

Explain the relative importance of title under the common law and Article 2.

Insurable Interest — At common law, only a person with title or a lien (a legal

claim of a creditor on property) could insure his interest in speci’c goods. The

Code extends an insurable interest to a buyer’s interest in goods that have been

identi’ed as the goods in a contract. The seller also has an insurable interest in

the goods as long as he has title to them or any security interest in them. In a

lease, the lessor retains an insurable interest in the goods until an option

to buy, if included in the lease, has been exercised by the lessee.

2A–218(3).

Security Interest — A security interest is de’ned as an interest in personal

property or ‘xtures that ensures payment or performance of an obligation. Any

reservation by the seller of title to goods delivered to the buyer is considered a

security interest.

Passage of Title

Title passes when the parties intend it to pass, provided the goods exist and

have been identi’ed. If the parties have no explicit agreement as to when title is

transferred, the Code provides rules that determine when title passes to the

buyer.

*** Chapter Outcome ***

Distinguish between a shipment contract and a destination contract and

explain when title and risk of loss pass under each.

Physical Movement of the Goods — When delivery is to be made by moving

the goods, title passes at the time and place the seller completes his delivery of

the goods. When and where delivery occurs depends upon the type of contract.

• A destination contract speci’es the destination; title is transferred upon

tender of goods at the destination.

No Movement of the Goods — When delivery is to be made without moving

the goods, unless otherwise agreed, title passes (a) on delivery of a document of

*** Chapter Outcome ***

Explain when the seller has a right or power to transfer title and when the transfer is void or

voidable.

Power to Transfer Title

If the seller is the rightful owner of goods or is authorized to sell the goods for

the rightful owner, the seller has the right to transfer title. In some situations,

however, unauthorized sellers may have the power to transfer title to certain

buyers. This section pertains to such sales by a person in possession of goods

that he neither owns nor has authority to sell.

NOTE: See Figures 23-1 and 23-2

Void and Voidable Title to Goods — A person claiming ownership of goods by

an agreement that is void obtains no title to the goods and therefore cannot

transfer it.

A voidable title is one for which the transferor can reverse the transfer of title

back to herself. Although the buyer has acquired legal title, the seller may

CASE 23-1

ROBINSON V. DURHAM

Alabama Court of Civil Appeals, 1988

537 So.2d 966

http://scholar.google.com/scholar_case?case=15758867258525788627&hl=en&as_sdt=2&as_vis=1&oi=scholarr

Wright, J.

Ronald Robinson, Wyman Robinson, and Friendly Discount Auto Sales (appellants) appeal from

the granting of summary judgment in favor of appellee Mike Durham (Durham).

The facts material to this appeal and dispositive of this case are undisputed. Appellants, who

are in car sales, purchased a 1968 Chevrolet Camaro. At I the time of the purchase, a female

transferred to the appellants tag receipts in her name and in the name of the previous owner.

Wyman Robinson then registered the automobile in his name. In September 1986 Durham

purchased the automobile from appellants, and all prior documentation was transferred to him.

Appellants’ argument is without merit. It is unequivocal that “a person who has stolen goods

of another cannot pass title thereto to another, whether such other knew, or did not know, that the

goods were stolen.” [Citations.] A thief gets only void title and without more cannot pass any

title to a subsequent purchaser, even a good faith purchaser. [Citation.] It is undisputed that the

automobile had been stolen. Therefore, at the time of purchase appellants obtained no title. In

other words, the title was void. Appellants could not convey good title to Durham; therefore, the

subsequent sale to Durham constituted a breach of warranty of good title.

Entrusting of Goods to a Merchant — If an owner of goods has entrusted

goods to a bailee, such as a repairman, who then sells the goods to a third party,

the owner of the goods has a right of recourse. The question then becomes,

what right should the true owner of the goods have against the third party (the

purchaser)? Once again, the law must balance the right of ownership against

the rights of parties in market transactions.

CASE 23-2

HEINRICH V. TITUS-WILL SALES, INC.

Court of Appeals of Washington, Division 2, 1994

73 Wash. App. 147, 868 P.2d 169

http://scholar.google.com/scholar_case?case=18393426036611380515&q=868+P.2d+169&hl=en&as_sdt=2,34

Seinfeld, J.

[In 1989, Michael Heinrich retained James Wilson to purchase a new Ford pickup truck for him.

Wilson had held himself out as a dealer/broker, but unbeknownst to Heinrich, Wilson had lost his

vehicle dealer license. Wilson negotiated with Titus-Will Ford Sales, Inc. (Titus-Will) to

purchase the truck for Heinrich. Titus-Will had dealt with Wilson as a dealer before but also did

not know that he had lost his dealer license. All payments for the truck went through Wilson, and

the purchase order indicated that the truck was being sold to Wilson as a dealer for resale. Wilson

agreed to deliver the truck to Heinrich at Titus-Will on Saturday, October 21, 1989. Wilson

delivered to a clerk at Titus-Will a postdated check for the balance of the purchase price, which

the clerk accepted, and in return delivered to Wilson a packet containing the keys to the truck,

The Entrustment Doctrine

[UCC] 2–403(2) and (3) contain the entrustment provisions of the Uniform Commercial Code

(UCC).

* * *

To prevail under this statute, Heinrich must show (1) Titus-Will “entrusted” the truck to

Wilson and, thus, empowered Wilson subsequently to transfer all rights of Titus-Will in the truck

to Heinrich; (2) Wilson was a merchant dealing in automobiles; and (3) Heinrich bought the

truck from Wilson as a “buyer in ordinary course of business.” [Citations.]

Three general policies support [§] 2–403(2), the UCC provision placing the risk of loss on

Secondly, the entrustment clause reflects the idea that the entruster is in a better position than

the innocent buyer to protect against the risk that an intermediary merchant will not pay for or

not deliver the goods. [Citations.]

Thirdly, the entrustment clause facilitates the flow of commerce by allowing purchasers to

rely on a merchant’s apparent legal right to sell the goods. [Citations.] Without the safeguards of

the entrustment provision, a prudent buyer would have to delay the finalization of any sizeable

sales transaction for the time necessary to research the merchant’s ownership rights to the goods.

Entrusting

The UCC definition of “entrusting,” contained in 2– 403(3), is broad. [Citation.] The statute

declares that “any delivery and any acquiescence in retention of possession” constitutes

entrustment. 2–403(3). A person can entrust goods to a merchant by a variety of methods, such as

consigning them, creating a bailment, taking a security interest in inventory, leaving them with

Merchant

Titus-Will argues that Wilson was not a merchant because he had no inventory. However, it is not

necessary to possess an inventory to fit within the broad statutory definition of merchant. Article

2 of the UCC defines (in part) “merchant” as “a person who deals in goods of the kind or

otherwise by his occupation holds himself out as having knowledge or skill peculiar to the

practices or goods involved in the transaction.” 2–104(1). Wilson was a merchant who dealt in

Buyer in Ordinary Course

There is also substantial evidence that Heinrich was a “buyer in ordinary course of business”

although the trial court referred to him as a “good faith purchaser for value.” A buyer in ordinary

course of business is

a person who in good faith and without knowledge that the sale to him is in violation of the

ownership rights or security interest of a third party in the goods buys in ordinary course

from a person in the business of selling goods of that kind[.] 1-201(9). “Buying” includes

receiving goods * * * under a pre-existing contract for sale.” 1-201(9). Good faith is

know or have a basis to believe that Wilson’s sale and delivery of the truck to him violated

Titus-Will’s ownership or security interest rights. There was no showing that Heinrich acted

other than in good faith. * * * Wilson’s illegal and fraudulent activity does not taint Heinrich’s

status as a buyer under 2–403(2). When Heinrich accepted delivery after previously paying

Wilson, Heinrich was “buying” as defined by 1–201(9).

Timing of Entrustment

Titus-Will also argues that the UCC entrustment provisions should not apply because it entrusted

the truck to Wilson after Heinrich had completely paid Wilson. This is an issue of first

impression in this jurisdiction.

Before the completion of the Wilson–Heinrich sales transaction, Titus-Will entrusted Wilson

not only with the truck, but also with the signed odometer disclosure statement, the owner’s