CHAPTER 14 Ownership and Risk of Loss in Sales 14-1 Transfer of Ownership 14-2 Risk of Loss and Insurable Interest in Sales
14-1 Transfer of Ownership GOALS Discuss who may transfer ownership of goods Explain what is required for transfer of ownership of goods and when it occurs SLIDE 2
What Exactly is Ownership? It is a bundle of rights: Hold title Possess Use Enjoy Profit from Waste Destroy Legal owner of goods SLIDE 3
What Risks May Occur if You Purchase a Stolen Good? Loss of purchase price Loss of possession of goods if true owner demands them back Facing criminal penalties for receiving stolen goods (does not require knowledge of part of purchaser) Side Note: a man was sentenced to 14 ½ years for selling/buying stolen goods across state lines on ebay (federal offense) SLIDE 4
WHO MAY TRANSFER OWNERSHIP? Authorized persons (owner gives ok) Salespeople in retail stores Auctioneers sheriffs Buyers in a sale induced by fraud Transfer of title is voidable by seller Seller can cancel contract & recover goods unless innocent 3 rd party already has acquired the rights (good faith purchaser) SLIDE 5
WHO MAY TRANSFER OWNERSHIP? Holders of negotiable documents of title Warehouse receipt for goods in storage May or may not name titleholder Possessor has title and can transfer title Merchants with possession of sold goods Resells already sold goods Merchant must replace resold goods or be liable to original buyer SLIDE 6
REQUIREMENTS FOR OWNERSHIP TRANSFER When does ownership transfer? Goods must exist (physical) and identified (designated) Common situations Seller delivers goods to their destination Seller ships, but does not deliver, goods to their destination Seller delivers document of title Seller tenders goods at place of sale SLIDE 7
14-2 Risk of Loss and Insurable Interest in Sales GOALS Explain the general rules for identifying when risk of loss transfers Identify the point at which insurable interest of goods transfers Identify when risk of loss and insurable interest transfer in specific situations SLIDE 8
WHEN DOES RISK OF LOSS TRANSFER? Goods are shipped by carrier Loss passes to buyer at destination Goods are held by a bailee Loss passes to buyer upon receipt of title Contract is breached after goods are identified Buyer rejects goods-loss passes back to seller Other situations Loss falls on buyer upon receipt of goods if seller is a merchant SLIDE 9
WHEN DOES INSURABLE INTEREST TRANSFER? Buyer has right to: Inspect goods at a reasonable hour Compel delivery if seller wrongfully withholds delivery Collect damages from third persons who take or injure the goods SLIDE 10
TRANSFER OF RIGHTS AND RISKS IN SPECIFIC SALES Cash-and-carry sales (time of transaction) (groceries) Sales on credit (time of transaction Pymt at later date COD sales (if buyer does not pay, no delivery of goods) Sale or return (option to return goods-must be in original condition) Sale on approval (risk passes when buyer approves goods Sale of an undivided interest (risk of loss passes at time of sale) Auction public sale to highest bidder Ownership and risk pass by pounding the gavel Bulk transfer all parts of the goods in one unit Van Gogh Painting transfer all parts of the goods in one unit SLIDE 11
PREVENT LEGAL DIFFICULTIES To protect yourself in the actual sales transaction... Remember that ownership of goods will not necessarily prevent transfer of title to them contrary to your wishes when (a) You have authorized others to sell the goods for you. They may violate your instructions. (b) You have been defrauded in a sales transaction and have given a voidable title to the wrongdoer. Before you cancel the contract and try to get your goods back, the wrongdoer can transfer good title to a good faith buyer. (c) You have allowed the person who sold to you to keep possession of your goods. The person who sold them to you might sell them again. Continued on the next slide SLIDE 12
PREVENT LEGAL DIFFICULTIES Act promptly in identifying goods to the sales contract and in completing performance. In important sales contracts, specify precisely in writing when title to goods and risk of loss of goods are to transfer. As a buyer or a seller, carry adequate insurance when appropriate to cover any insurable interest you may have in goods that are the subject matter of the sales contract. Assure yourself of the integrity and financial responsibility of buyers before selling goods to them on credit, on sale or return, or on approval. When the buyer s credit is questionable, sell for cash or on a COD basis. SLIDE 13