978-1285770178 Lecture Note BL ComLaw 1e IM-Ch17 Part 1

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whole or in part.

2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

from all similar goods. Identification gives a buyer the right to obtain insurance on goods and the right to

the seller.

A. EXISTING GOODS

If a sale involves specific goods already in existence, identification occurs when the contract is made.

ANSWER TO CRITICAL THINKING QUESTION IN THE FEATURE—

INSIGHT INTO ETHICS

Why might marketing managers of large retail companies, particularly grocery chains, want to

purchase Fair Trade products? Increasingly, the buying public in the US and in Europe is willing to pay

slightly higher prices for fair trade certified coffee, cocoa, chocolate, tea, herbs, fresh fruit, sugar, rice, and

vanilla. Often, showing socially aware customers that a retail outlet is concerned about helping poor people in

other countries and encouraging sustainable growing practices will lead to higher sales.

C. GOODS THAT ARE PART OF A LARGER MASS

Problems may occur when goods exist in a larger mass, in which case identification can often be made

only by separating the goods from the mass. If owners hold fungible goods in common, title and risk can

pass without separation [UCC 2–105(4)].

CHAPTER 17: TITLE, RISK, AND INSURABLE INTEREST 3

Testimony by Indy’s former vice president Vince Ballard was “inconclusive.” Ballard implied that Indy

delivered the cycle to Allen and asserted that Indy kept it in storage. But the cycle was found in Tena Allen’s

garage. This “strongly indicates that claimant delivered it to Allen.

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Notes and Questions

As in many cases, there may have been unstated reasons for the court’s decision against Indy in this

case. When asked whether Indy inquired into the occupations of its customers, the seller said no, because if it

did, it would likely lose half of them. In response to queries about the price of Allen’s custom cycle, Indy gave

different answers at different times. The seller was also not clear on how much the buyer still owed on the

price. When asked how long the cycle had been in storage, Indy provided a date that fell after the cycle had

been seized by law enforcement officers.

Is it ethical for the government to seize goods that arguably constitute the proceeds of a crime

even if those goods are not in the possession of the criminal? Yes. Ethics has to do with the fairness,

justness, rightness, or wrongness of action. A crime is illegal and generally unethical—a crime is not fair to its

victims, whether they are individuals or society as a whole. It is just and fair, however, for the government to

seize goods that constitute the proceeds of a crime, regardless of whose possession they are in, so that the

“wrongness” of the crime can be made right.

ANSWER TO THE “WHAT IF THE FACTS WERE DIFFERENT?”

QUESTION IN CASE 17.1

Suppose that Indy had given the “Certificate of Origin” to Allen and had kept the motorcycle.

Would the result have been different? Explain. Possibly not. That goods have not been delivered to the

buyer can be determinative that title has not passed. In the context of this case, however, Indy might still have

had to prove its ownership of the cycle. If the company were no more successful in proving ownership; even

with the cycle in its possession, than the company was in the actual case, the result might have been the

same. But evidence that Allen had not paid for the cycle, coupled with Indy’s possession of it, would certainly

have leant support to Indy’s claim. If the court had viewed these circumstances as a sufficient indication that

title had not passed, the result might have been different.

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”

QUESTION IN CASE 17.1

Should the passage of title be tied so closely to the possession of the goods? Discuss. Yes.

Before the creation of the UCC, title—the right of ownership—was the central concept in sales law, controlling

all of the issues of rights and remedies of the parties to a sales contract. There are numerous problems with

this concept, however, making it difficult to predict and determine which party had title and when. The UCC

divorced the question of title as completely as possible from the question of the rights and obligations of the

parties, replacing the concept in most situations with the concepts of identification, risk of loss, and insurable

whole or in part.

interest. The concept of title is still relevant but its passage is tied to the possession of the goods—once the

seller has relinquished possession of sold goods, the buyer has them, and the parties expect no further action

by the seller, the buyer also has title. The UCC allows the parties to “otherwise explicitly agree.” This provides

for the parties to create their own rule to pass title. The UCC rules apply only if they do not otherwise agree.

ADDITIONAL CASES ADDRESSING THIS ISSUE —

Other cases involving the passage of title in a sales contract include the following:

• Usinor Industeel v. Leeco Steel Products, Inc., 209 F.Supp.2d 880 (N.D.Ill. 2002) (title passed to the

buyer at the time and place at which the seller physically delivered the goods—steel—despite the seller’s

reservation, in their contract, of a security interest in the goods).

• Arcadia Financial, Ltd. v. Southwest-Tex Leasing Co., 78 S.W.3d 619 (Tex.App.—Austin 2002) (title to

motor vehicles did not pass to the buyer on the physical delivery of the goods because the parties had agreed

that transfer of title was contingent on the seller’s receipt of payment).

• In re Pro Page Partners, LLC, 270 Bankr. 221 (E.D.Tenn. 2001) (title passed to the buyer at the time and

place at which the seller physically delivered the goods—office equipment—despite the seller’s reservation, in

their contract, of a security interest in the goods).

• Right Touch of Class, Inc. v. Superior Bank, FSB, 536 S.E.2d 181 (Ga.App. 2000) (title to motor vehicle

passed to the buyer on the physical delivery of the goods in a sale between used–car dealers for the express

purpose of the vehicle’s resale to a third party).

• Concord General Mutual Insurance Co. v. Sumner, 762 A.2d 849 (Vt. 2000) (title to motor vehicle passed

to the buyer on the physical delivery of the goods in a sale between dealers).

A. SHIPMENT AND DESTINATION CONTRACTS

Under a shipment contract, title passes at the time and place of shipment. Under a destination contract,

title passes when goods are tendered at the destination.

2. When a Title Document Is Not Required

When a buyer is to pick up goods and a document of title is not required, title passes at the time

and place of contracting, if the goods have been identified; if they have not, title passes on

identification [UCC 2–401(3)].

whole or in part.

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