CHAPTER 17
TITLE AND RISK OF LOSS
DAVIDSON, KNOWLES & FORSYTHE
Business Law: Cases and Principles
in the Legal Environment (8th Ed.)
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
TITLE TO GOODS UNDER ARTICLE 2

Title refers to legal ownership.
 When goods are sold, title passes from the
seller to the buyer
 Historic Importance
– Under common law, title was of paramount
importance.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
TITLE TO GOODS

Modern Rule.
– All rights, duties, and remedies of any party
apply without regard to title unless title is
specifically required.
– Title passes from seller to buyer when seller
completes performance of delivery.
– Type of delivery contract important in
determining which party has title.
– Goods identified to contract when shipped,
marked, or otherwise designated by the seller.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLERS WITH VOIDABLE TITLE

Fraudulent Retention.
– Problem arise when seller “sells” goods but
retains possession.
– Seller’s creditors can treat the sale as void if
retention by the seller is fraudulent.
– Treat fraudulent retention:



Seller is treated as a conclusive presumption of fraud.
Seller retains possession of goods for any reason other
than a commercial one.
Prima Facie, seller is presumed to be guilty of fraud if
goods retained.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLERS WITH VOIDABLE TITLE

Entrustment.
– Delivery of goods to a merchant who regularly
deals in goods of the type delivered.
– Addresses problems regarding voidable title
and the passage of valid title.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
INSURABLE INTEREST

Insurable Interest.
– The right to purchase insurance on goods to
protect one’s property rights and interests in the
goods.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
RISK OF LOSS UNDER ARTICLE 2

Refers to financial responsibility between
the parties if the goods are lost, damaged, or
destroyed before the buyer accepted them.
 Refers to relationship between buyer and
seller.
 Allocation of risk of loss depends on
method of performance.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ROL: BREACH OF CONTRACT

Breach of Contract.
– Seller breaches contract by sending
nonconforming goods.
– Seller retains risk of loss until cures the defect
or buyer accepts goods despite nonconformity.
– Buyer breaches contract by repudiation, after
goods are identified but before delivery.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ROL: NO BREACH

No Breach of Contract.
– Risk of loss is more technical.
– Distinct contract possibilities to allocate risk of
loss:





1) Seller sends goods by means of a carrier.
2) Goods are in the hands of a bailee and goods not to
be physically delivered.
3) Goods in possession of seller and carrier not used.
4) Sale on approval.
5) Parties can agree to allocate risk of loss in any way.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ROL: NO BREACH

Shipment contract: seller provides for
carriage of goods and surrenders them to
carrier, title and risk of loss belongs to buyer.
 Destination contract: seller retains title and
all risk of loss until carrier delivers goods to
buyer and the seller has not performed until
goods reach their destination.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SPECIAL PROBLEMS
Sale on Approval: buyer “purchases” goods
primarily for personal use and knows can
return goods, buyer given reasonable time
to examine, inspect, try goods at seller’s
risk.
 Buyer accepts goods if:

– 1) Signifies acceptance.
– 2) Does not Return the goods.
– 3) Subjects goods to unreasonable usage.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SPECIAL PROBLEMS

Sale or Return: goods bought for resale
where unsold goods can be returned to
seller, both title and risk of loss rest with the
goods.
 Consignment: owner of the goods allows a
consignee to display and sell the goods for
the owner/consignor.
 Auctions: with or without reserve.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
LEASES UNDER ARTICLE 2A

Article 2A specifically separates title and
possession and states provisions governing
leases.
 Risk of loss in respect to leases depends on
type of lease:
– Finance lease risk of loss passes to lessee.
– Other lease risk of loss is retained by lessor.
– Leased goods in hands of bailee and risk of loss
is to pass to lessee.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
TITLE TO GOODS UNDER CISG

CISG governs only the sale of goods.
 CISG does not concerned with title, but
does imply how title should be treated.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ROL UNDER CISG

ROL under CISG is based on how Seller is
to deliver goods.
 If common carrier depends on carriage
contract.
– If no destination, ROL passes to buyer when
tendered to carrier.
– If a destination, ROL passes to buyer at
location.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
STANDARD SHIPPING TERMS

Law presumes shipment contract if not
specified in contract.
 Free On Board (FOB): seller quotes price
to buyer, represents total cost to the buyer
for goods at place named FOB point.
 Free Along Side (FAS): standard shipping
term for seagoing transportation and buyer
is responsible for any costs incurred.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
STANDARD SHIPPING TERMS

Ex-Ship: destination contract, seller
responsible for getting goods to named
vessel and port and unload them from
vessel, seller shoulders the risk of loading,
transportation, and unloading.
 Cost, Insurance, Freight (CIF) and Cost and
Freight (C & F): seller quotes a lump-sum
price to buyer.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
STANDARD SHIPPING TERMS

No Arrival, No Sale: seller faces the risk of
loss if goods damaged/destroyed during
transit, seller is released from duty to
perform.
 Collect on Deliver (COD): destination
contract with special feature; buyer required
to pay upon tender by carrier but not
permitted to inspect the goods until
payment has been made.
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