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in whole or in part.
in whole or in part.
in whole or in part.
4 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Identification
Identification takes place when specific goods are designated as the subject matter of a
contract. If a sale involves crops that are to be harvested within twelve months (or during the
next harvest season occurring after contracting, whichever is longer), identification takes place
when the crops are planted or begin to grow. Identification is significant because it gives the
buyer or lessee the right to insure (or to have an insurable interest in) the goods and the right to
F.O.B. place is the place from which the goods are shipped—in this case Willow Glen field—the
contract is a shipment contract and the title passes to the buyer at the time of shipment.
3A. Risk of loss
If a seller is required or authorized to ship goods by carrier but is not required to deliver them to
deliver the FreshBest broccoli to Falcon Trucking, after which the risk of loss would pass to
Mendoza. If Willow Glen delivered the wrong grade of broccoli to Falcon, Willow Glen failed to
perform its obligation and breached the contract. Consequently, Willow Glen would bear the
loss, at least until the defect is cured.
rule was put into effect and that is that courts would no longer have to grabble with trying to
determine whether the movement of purchased goods involved a shipment or a destination
contract. Commerce would become more certain and more fluid. Buyers would always know
CHAPTER 17: TITLE, RISK, AND INSURABLE INTEREST 5
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
that they are responsible for buying insurance on any goods that they have bought, no matter
who is responsible for the shipment and where the goods are to be delivered.
If buyers always had to buy insurance to cover losses during the shipment of goods they
had purchased, buyers would sometimes pay too much for insurance because sellers might, for
example, use carriers with poor accident records. Moreover, buyers might not be able to insure
purchased goods if those buyers had no control over how, when, and where the good were to
be shipped.
across miles of cornfields. What are the consequences if Silk bore the risk? If Adams
bore the risk? Buyers and sellers can have an insurable interest in identical goods at the same
time. If the buyer (Silk & Satin) bore the risk, it must pay and seek reimbursement from its in-
surance company. If the seller (Adams Textiles) bore the risk, it must seek reimbursement from
its insurance company and may still have an obligation to deliver the identified goods (the fabric)
“entrusts” goods to a merchant (a person who deals in goods of that kind), the merchant has the
power to transfer a good title to any purchaser who acquires the goods in the ordinary course of
business. Karlin entrusted her set to merchant Orken. Orken deals in goods of that kind.
Therefore, Orken could pass good title to the set sold to a customer (Grady) because Grady
purchased the goods in the ordinary course of business. Consequently, Karlin cannot get the
17-1A. Risk of loss
(Chapter 17—Page 331)
Neither of Pride’s contentions is correct. Before title and risk of loss can pass from the seller to
the buyer, the goods must be in existence and identified to the contract. Although the Greenie
peas were in existence, until the 1,000 cases were separated from Lot A, the peas were not
in whole or in part.
in whole or in part.
accident. In the actual case on which this problem is based, the court concluded that G.E. was
shipment of pharmaceuticals for Ethicon, Inc., the seller—were jointly liable for the loss. In a
destination contract, the risk of loss passes to the buyer when the goods are tendered at the
specified destination [UCC 2–509(1)(b)].
In this problem, Ethicon contracted with UPS to transport pharmaceuticals. Under a
contract with UPS’s subsidiary, WDS, the drivers were provided by IMSCO. During a shipment
carriers are ultimately liable.
In the actual case on which this problem is based, Ethicon’s insurer filed a suit in a
federal district court against UPS and the others. The court held that under a contractual
limitation-of-liability clause, UPS and WDS were liable for only $250,000 in damages. But
IMSCO’s liability was not restricted because its contract with WDS did not include a limitation-of-
thus Roberts, who obtained the car for value and in good faith, retained ownership of it. On
West’s appeal, a state intermediate appellate court upheld this decision, and on West’s further
appeal, the Colorado Supreme Court affirmed the lower court’s ruling.
The state supreme court concluded that UCC 2–403(1) applies to transactions, such as
those in this case, that do not involve merchants, “[b]ecause subsection 2-403(1) does not refer
obtained contact information for Wilson. Hence, we conclude that West's transfer of the Corvette
and its title in exchange for a cashier's check, even though a worthless counterfeit, constitutes a
voluntary transaction.” Under UCC 2-403(1) “when goods have been delivered under a
CHAPTER 17: TITLE, RISK, AND INSURABLE INTEREST 9
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
transaction of purchase, the purchaser has such power to transfer good title to a good faith
purchaser for value even though the delivery was in exchange for a check which is later
dishonored, or the delivery was procured through fraud.”
Here, “Wilson obtained voidable title to the car despite the fact that he paid with a
fraudulent cashier's check. As such, Roberts, a subsequent good faith purchaser for value,
obtained good title to the Corvette.”
(b) The Colorado Supreme Court acknowledged that the rule under UCC 2–403 that
applied in this case can result in a loss to an innocent party. “But a determination that West is
person, the loss must fall on the party who by his conduct created the circumstances which
enabled the third party to perpetuate the wrong. The original seller is better positioned to take
precautions to prevent loss than a later purchaser. For example, West could have insisted upon
cash or ensured that the check would clear before relinquishing the car and title. On the other
hand, to place the onus on the good faith purchaser to fully investigate every purchase in order
Court of Appeals of Washington, 2013.
2013 WL 663726
(a) Issue: What document was at the center of this case? The document at the center
of this case was the contract of sale for a horse named Toby between Tammy Herring and
Stacy and Gregory Bowman. The agreement was titled “Bill of Sale—Purchase Agreement,” and
between the parties. If the seller is a merchant, risk involving the goods held by the seller
passes to the buyer when the buyer actually takes physical possession of the goods.
In this case, the risk passed from Bowman to Herring at the time of the sale, according to
the terms and statements in the contract between the parties. For example, although the
Bowmans would not provide Toby's registration papers to Herring until she paid in full, the
in whole or in part.
in whole or in part.
4 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Identification
Identification takes place when specific goods are designated as the subject matter of a
contract. If a sale involves crops that are to be harvested within twelve months (or during the
next harvest season occurring after contracting, whichever is longer), identification takes place
when the crops are planted or begin to grow. Identification is significant because it gives the
buyer or lessee the right to insure (or to have an insurable interest in) the goods and the right to
F.O.B. place is the place from which the goods are shipped—in this case Willow Glen field—the
contract is a shipment contract and the title passes to the buyer at the time of shipment.
3A. Risk of loss
If a seller is required or authorized to ship goods by carrier but is not required to deliver them to
deliver the FreshBest broccoli to Falcon Trucking, after which the risk of loss would pass to
Mendoza. If Willow Glen delivered the wrong grade of broccoli to Falcon, Willow Glen failed to
perform its obligation and breached the contract. Consequently, Willow Glen would bear the
loss, at least until the defect is cured.
rule was put into effect and that is that courts would no longer have to grabble with trying to
determine whether the movement of purchased goods involved a shipment or a destination
contract. Commerce would become more certain and more fluid. Buyers would always know
CHAPTER 17: TITLE, RISK, AND INSURABLE INTEREST 5
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
that they are responsible for buying insurance on any goods that they have bought, no matter
who is responsible for the shipment and where the goods are to be delivered.
If buyers always had to buy insurance to cover losses during the shipment of goods they
had purchased, buyers would sometimes pay too much for insurance because sellers might, for
example, use carriers with poor accident records. Moreover, buyers might not be able to insure
purchased goods if those buyers had no control over how, when, and where the good were to
be shipped.
across miles of cornfields. What are the consequences if Silk bore the risk? If Adams
bore the risk? Buyers and sellers can have an insurable interest in identical goods at the same
time. If the buyer (Silk & Satin) bore the risk, it must pay and seek reimbursement from its in-
surance company. If the seller (Adams Textiles) bore the risk, it must seek reimbursement from
its insurance company and may still have an obligation to deliver the identified goods (the fabric)
“entrusts” goods to a merchant (a person who deals in goods of that kind), the merchant has the
power to transfer a good title to any purchaser who acquires the goods in the ordinary course of
business. Karlin entrusted her set to merchant Orken. Orken deals in goods of that kind.
Therefore, Orken could pass good title to the set sold to a customer (Grady) because Grady
purchased the goods in the ordinary course of business. Consequently, Karlin cannot get the
17-1A. Risk of loss
(Chapter 17—Page 331)
Neither of Pride’s contentions is correct. Before title and risk of loss can pass from the seller to
the buyer, the goods must be in existence and identified to the contract. Although the Greenie
peas were in existence, until the 1,000 cases were separated from Lot A, the peas were not
in whole or in part.
in whole or in part.
accident. In the actual case on which this problem is based, the court concluded that G.E. was
shipment of pharmaceuticals for Ethicon, Inc., the seller—were jointly liable for the loss. In a
destination contract, the risk of loss passes to the buyer when the goods are tendered at the
specified destination [UCC 2–509(1)(b)].
In this problem, Ethicon contracted with UPS to transport pharmaceuticals. Under a
contract with UPS’s subsidiary, WDS, the drivers were provided by IMSCO. During a shipment
carriers are ultimately liable.
In the actual case on which this problem is based, Ethicon’s insurer filed a suit in a
federal district court against UPS and the others. The court held that under a contractual
limitation-of-liability clause, UPS and WDS were liable for only $250,000 in damages. But
IMSCO’s liability was not restricted because its contract with WDS did not include a limitation-of-
thus Roberts, who obtained the car for value and in good faith, retained ownership of it. On
West’s appeal, a state intermediate appellate court upheld this decision, and on West’s further
appeal, the Colorado Supreme Court affirmed the lower court’s ruling.
The state supreme court concluded that UCC 2–403(1) applies to transactions, such as
those in this case, that do not involve merchants, “[b]ecause subsection 2-403(1) does not refer
obtained contact information for Wilson. Hence, we conclude that West's transfer of the Corvette
and its title in exchange for a cashier's check, even though a worthless counterfeit, constitutes a
voluntary transaction.” Under UCC 2-403(1) “when goods have been delivered under a
CHAPTER 17: TITLE, RISK, AND INSURABLE INTEREST 9
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
transaction of purchase, the purchaser has such power to transfer good title to a good faith
purchaser for value even though the delivery was in exchange for a check which is later
dishonored, or the delivery was procured through fraud.”
Here, “Wilson obtained voidable title to the car despite the fact that he paid with a
fraudulent cashier's check. As such, Roberts, a subsequent good faith purchaser for value,
obtained good title to the Corvette.”
(b) The Colorado Supreme Court acknowledged that the rule under UCC 2–403 that
applied in this case can result in a loss to an innocent party. “But a determination that West is
person, the loss must fall on the party who by his conduct created the circumstances which
enabled the third party to perpetuate the wrong. The original seller is better positioned to take
precautions to prevent loss than a later purchaser. For example, West could have insisted upon
cash or ensured that the check would clear before relinquishing the car and title. On the other
hand, to place the onus on the good faith purchaser to fully investigate every purchase in order
Court of Appeals of Washington, 2013.
2013 WL 663726
(a) Issue: What document was at the center of this case? The document at the center
of this case was the contract of sale for a horse named Toby between Tammy Herring and
Stacy and Gregory Bowman. The agreement was titled “Bill of Sale—Purchase Agreement,” and
between the parties. If the seller is a merchant, risk involving the goods held by the seller
passes to the buyer when the buyer actually takes physical possession of the goods.
In this case, the risk passed from Bowman to Herring at the time of the sale, according to
the terms and statements in the contract between the parties. For example, although the
Bowmans would not provide Toby's registration papers to Herring until she paid in full, the
