Ch. 16: Title, Risk, and Insurable Interest – No. 1
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
buyer or from lessor to lessee, two conditions must be met:
Existing Goods: If the contract calls for the sale or lease
identification occurs at the time the contract is made.
accordance with the contract, identification occurs when
wheat, barrels of like-grade oil). Identification of these
to the buyer or lessee.
parties who damage the goods (in transit or otherwise).
Ch. 16: Title, Risk, and Insurable Interest – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PASSING TITLE
carrier and (2) transfers title to the buyer once the seller
(a) delivers the goods to the carrier and (b) promptly
notifies the buyer that the goods are en route.
Destination Contract: A contract that (1) requires the
Non-Delivery Contract: When a contract provides that
the buyer will take possession of the designated goods
without delivery by the seller, title passes to the buyer at
the time and place the contract is made, unless the seller
is required to provide a document of title – in which
Ch. 16: Title, Risk, and Insurable Interest – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
IMPERFECT TITLE
Void Title: A buyer (or lessee) who acquires goods from a
seller (or lessor) that did not own or have the right to dispose
of the goods has only void title (or a void leasehold interest)
(3) purchase from a minor, or
(4) purchase on credit while insolvent
may transfer valid title (or a valid leasehold interest) in the
goods to a good faith purchaser (or lessee) who bought (or
leased) the goods without knowing there is any impediment to
Ch. 16: Title, Risk, and Insurable Interest – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
RISK OF LOSS: DELIVERY OR TENDER
Destination Contract: Risk of loss passes to the buyer
when the seller or its carrier makes the goods
available to the buyer at the designated destination.
Goods Held by a Bailee: Risk of loss passes to the buyer
when (1) the buyer receives the title document from the
seller, (2) the bailee acknowledges the buyer’s right of
possession, or (3) the buyer receives a nonnegotiable title
document and has had a reasonable period of time to
Ch. 16: Title, Risk, and Insurable Interest – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
RISK OF LOSS: CONDITIONAL SALES
buyer accepts or approves the offered goods. If the
buyer does not accept, the goods will be returned at the
seller’s expense and risk of loss.
Sale or Return: A conditional sale where title, possession,
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
RISK OF LOSS: BREACH
Non-Conforming Goods: When the seller or lessor provides
Revocation: If a buyer accepts and then discovers the
defect, the buyer may revoke her acceptance, and pass
the risk of loss back to the seller.
reasonable time after the seller has learned of the
breach, and
(2) is liable only to the extent that the seller’s or lessor’s
insurance does not cover the loss.
Ch. 16: Title, Risk, and Insurable Interest – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
INSURABLE INTEREST
Insurable Interest: A property interest in sold or leased
goods that is sufficiently substantial to permit a party to
insure against damage to the goods identified to the sale or
lease contract.
A buyer or lessee has an insurable interest once the
interest in the goods for payment still due, the seller can
insure the goods to the extent of that interest.
Ch. 16: Title, Risk, and Insurable Interest – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PASSING TITLE
carrier and (2) transfers title to the buyer once the seller
(a) delivers the goods to the carrier and (b) promptly
notifies the buyer that the goods are en route.
Destination Contract: A contract that (1) requires the
Non-Delivery Contract: When a contract provides that
the buyer will take possession of the designated goods
without delivery by the seller, title passes to the buyer at
the time and place the contract is made, unless the seller
is required to provide a document of title – in which
Ch. 16: Title, Risk, and Insurable Interest – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
IMPERFECT TITLE
Void Title: A buyer (or lessee) who acquires goods from a
seller (or lessor) that did not own or have the right to dispose
of the goods has only void title (or a void leasehold interest)
(3) purchase from a minor, or
(4) purchase on credit while insolvent
may transfer valid title (or a valid leasehold interest) in the
goods to a good faith purchaser (or lessee) who bought (or
leased) the goods without knowing there is any impediment to
Ch. 16: Title, Risk, and Insurable Interest – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
RISK OF LOSS: DELIVERY OR TENDER
Destination Contract: Risk of loss passes to the buyer
when the seller or its carrier makes the goods
available to the buyer at the designated destination.
Goods Held by a Bailee: Risk of loss passes to the buyer
when (1) the buyer receives the title document from the
seller, (2) the bailee acknowledges the buyer’s right of
possession, or (3) the buyer receives a nonnegotiable title
document and has had a reasonable period of time to
Ch. 16: Title, Risk, and Insurable Interest – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
RISK OF LOSS: CONDITIONAL SALES
buyer accepts or approves the offered goods. If the
buyer does not accept, the goods will be returned at the
seller’s expense and risk of loss.
Sale or Return: A conditional sale where title, possession,
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
RISK OF LOSS: BREACH
Non-Conforming Goods: When the seller or lessor provides
Revocation: If a buyer accepts and then discovers the
defect, the buyer may revoke her acceptance, and pass
the risk of loss back to the seller.
reasonable time after the seller has learned of the
breach, and
(2) is liable only to the extent that the seller’s or lessor’s
insurance does not cover the loss.
Ch. 16: Title, Risk, and Insurable Interest – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
INSURABLE INTEREST
Insurable Interest: A property interest in sold or leased
goods that is sufficiently substantial to permit a party to
insure against damage to the goods identified to the sale or
lease contract.
A buyer or lessee has an insurable interest once the
interest in the goods for payment still due, the seller can
insure the goods to the extent of that interest.