Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
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
2.
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
