Title and Risk of Loss
I.


Title to Goods in a Sales Contract
Under common law, title had great
significance, because most of the problems
relating to risks, insurable interests in goods,
remedies were determined on the basis of
who was the technical title owner at the
particular moment the right or liability
arose.
Under the UCC, title and risk of loss do not
always go hand in hand. Which party bears
risk of loss does not depend on _____but
rather______.
(passage of title, time of delivery)
1. Identification
Title to goods cannot pass from the seller to
the buyer until the goods are identified to
the contract.
2. Passage of title
When will title pass from the seller to the buyer?
(1). Agreement:
(2). No agreement---- at the time and the place
the seller performs the physical delivery of
the goods, that is, the seller completes his
obligations as to delivery of the goods.



If the contract requires the seller to “ship”
the goods to the buyer, then title passes to the
buyer when ____________________.
(the seller delivers conforming goods to the
carrier)
If the contract requires the seller to “deliver”
the goods to the buyer, then title does not pass
to the buyer until __________________.
(the goods are delivered to the buyer and
tendered to him)
If delivery is to be made without moving the
goods, then title passes _________________.
An exception is made if title to the goods is
represented by a document of title such
as a warehouse receipt; then title
passes when and where
____________________.
(at the time and place of contracting; the
document of title is delivered to the
buyer)
II. Title and third parties
1. Obtaining good title
A fundamental rule of property law is
that a buyer cannot receive better title
to goods than the seller had.
Case: If Thief steals a TV set from John and
sells to Brown, does Brown get title to the set?
And what can John do?
----Brown does not get good title to the set,
because Thief had no title (void title) to it .
John would have the right to recover the set
from Brown.
Similarly, if Brown sold the set to Carroll,
does Carroll get title to the set? And what
can John do?
----No. Carroll could get no better title to it
than Brown had. John would have the right
to recover the set from Carroll.
2. Under the Code, there are several exceptions to
this general rule. The most important exceptions
include the following: (1) a person who has a
voidable title to goods can pass good title to a
bona fide purchaser for value; (2) a person
who buys goods in the regular course of a
retailer’s business takes free of any interests
in the goods that the retailer has given to
others. (3) a person who buys goods in the
ordinary course of a dealer’s business takes
free of any claim of a person who entrusted
those goods to the dealer.
(1)


Transfers of Voidable Title
Under what circumstances, does the seller have
a voidable title of goods?
Case
Jones goes to the ABC Appliance Store,
convinces the clerk that he is really Clark,
who is good customer of ABC, and leaves
with a stereo charged to Clark’s account. If
Jones sells the stereo to Davis, who gives
Jones value for it and has no knowledge of
the fraud. Then who gets good title to the
stereo, Davis or ABC? And can ABC recover
the stereo from Davis?
----Davis gets good title to the stereo. ABC cannot
recover the stereo ; instead, it must look for
Jones, the person who deceived it. In this
situation, both ABC and Davis were innocent of
wrongdoing, but the law considers Davis to be
the more worthy of its protection because ABC
was in a better position to have prevented the
wrongdoing by Jones and because Davis bought
the goods in good faith and for value.
(2) Buyers in the Ordinary Course of Business
(3) Entrusting of Goods

a.
b.
c.
Blake takes an expensive grandfather clock to
Harvey’s Clock Shop to be repaired. Harvey’s
specializes in the repair and restoration of old
clocks. If an uninformed sales clerk at Harvey’s
sells Blake’s clock to Arnold before Blake can
come to pick it up, which of the following is true?
Arnald will be required to return the clock to
Blake.
Blake can sue Harvey’s for fraud.
Unfair as it may seem, Blake entrusted the clock
to Harvey’s and now can do nothing.
d. Though Arnold now has a legal right to the
clock, Blake can sue Harvey’s for recovery of
the value of the clock.
RISK OF LOSS
 The common law placed the risk on the
party who had the title at the time of the
loss.
 The UCC rejects this approach and
provides specific rules governing risk of
loss. Risk of loss under the UCC depends
on (1) the terms of parties’ agreement, or (2)
on the moment the loss occurs, or (3) on
whether one of the parties was in breach of

(1)
(2)
Read the following cases and decide which
party should bear the risk of loss and what is
the applicable rule.
A Chicago-based seller contracts to sell a
quantity of shirts to a buyer FOB Phoenix,
the buyer’s place of business. The shirts are
destroyed en route when the truck carrying
the shirts is involved in an accident.
In the above case , if the contract has called
for delivery FOB the seller’s manufacturing
plant, then who bears the risk of loss of
shirts?
((1) The risk of loss is on the seller and the
buyer is not obligated to pay for them. The
seller may have the right to recover from the
trucking company. (2) The risk of loss is on
the buyer. The buyer has to pay for the shirts
and then pursue any claims that he has
against the trucking company.)
(3) If Farmer sells Miller a quantity of grain
currently stored at Grain Elevator, when will
the risk of loss of the grain shift from
Farmer to Miller?
(If the goods are in the possession of a bailee and
are to be delivered without being moved, then (a).
when a negotiable warehouse receipt for the grain
is delivered to Miller or (b). when Grain Elevator
notifies Miller that it is holding the grain for
Miller. )
(4) If Jones bought a TV set from ABC Appliance
on Monday, intending to pick it up on Thursday,
and the set was stolen on Wednesday, who bears
the risk of loss ? If Jones had purchased the set
from his next-door neighbor and could have
taken delivery of the set on Monday (i.e.,
delivery was tendered then), who bears the risk?
(a. The risk of loss remained with ABC
b. The risk of loss was Jones.)
(5) If Adler bought a new Buick from Brown Buick
that he later returned to Brown because of
serious defects in it and if through no fault of
Adler’s automobile was damaged while in his
possession, then who should bear the risk of loss?
(The risk of loss would be with Brown. However,
if Adler had insurance on the automobile
covering damage to it and recovered from the
insurance company, Adler would have to turn the
insurance proceeds over to Brown or use them to
fix the car before returning it to Brown.)
(6) Cannery contracts to buy Farmer’s entire crop
of peaches. Farmer picks, crates them, tenders
delivery to Cannery, and stores them in his barn
for Cannery. Cannery then tells Farmer that it
does not intend to honor the contract. Shortly
thereafter, but before Farmer has a chance to find
another buyer, the peaches are spoiled by a fire,
who should bear the risk of loss?
( When a buyer repudiates a contract for goods and
those goods have already been set aside by the
seller, the risk of loss stays with the buyer for a
commercially reasonable time after the
repudiation.)
INSURABLE INTEREST: Buyers and Sellers
 What is insurable interest?
----the right to purchase insurance on goods to
protect one’s property rights and interest in
the goods
 The buyer gains an insurable interest when
the goods are identified to the contract.
The seller has an insurable interest for as
long as he or she retains title to the goods.

a.
b.
Output, Inc., purchases 200 personal personal
computers from an overseas manufacturer
through a telephone transaction. The
manufacturer, upon discovering that the model
Output had requested is not in stock, substitutes
a comparable but slightly different model
computer at the same wholesale cost. At this
point, does Output , Inc., have an insurable
interest in the personal computers?
yes, definitely– even though, technically, they
are nonconforming goods.
No; given the substitution, Output has no
insurable interest.
(A buyer gains an insurable interest from
the moment goods are identified to the
contract, even if those goods are
nonconforming. After all, Output may
well decide to keep the computers, and it
has a right to protect its interests during
shipment.)