Chapter 20
Title, Risk and
Insurable Interest
© 2004 West Legal Studies in Business
A Division of Thomson Learning
1
Introduction
Sale of goods requires different rules than real
property transactions: risk should not always pass
with title.
UCC replaces title with identification, risk, and
insurable interest.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
2
§1: Identification
For any interest to pass to buyer, goods must be:
 In existence.
 Identified as specific goods in the sales contract (by
serial numbers and/or physically separated from
others. Except for fungible goods which do not need
separation).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
3
Identification [2]
Gives the buyer the right:
 To obtain insurance on the goods.
 To recover from third parties who damage the good.
Identification occurs:
 If goods are designated when contract is made. If
goods are not designated when contract is made, then
identified at time of designation.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
4
§2: When Title Passes
Title can pass:
 Upon physical delivery, or
 When agreed to by the parties, or
 If no agreement, depends on whether contract is
shipment or destination contract:
• Shipment: title passes at time and place of shipment.
• Destination: title passes when goods are tendered at
the destination.
Case 20.1: In re Stewart (2002).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
5
Delivery Without
Movement of Goods
Title passes when agreed by the parties, or
With document of title: when and where
document delivered.
Without document: when sales contract is made,
if goods have been identified or when
identification occurs if they have not been
identified.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
6
Sales or Leases
By Non-Owners
Void Title: true owner gets goods back.
Voidable Title: good faith purchaser keeps
goods.
 Case 20.2: Memphis Hardwood v. Daniel (2000).
Entrustment rule: good faith purchaser keeps
goods.
Seller’s Retention of Sold Goods:
good faith purchaser wins.
 Sham transactions or preferential transfers.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
7
§3: Risk of Loss
ROL does not necessarily pass with title. ROL
is important because of insurance concerns.
Unless agreed otherwise, ROL passes to
Buyer depending on whether delivery is with
or without movement of the goods.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
8
ROL: Delivery With Movement
Shipment Contracts.
 ROL passes to Buyer when tendered to Carrier. If
goods damaged in transit, Buyer’s loss.
Destination Contracts.
 ROL passes to Buyer when goods tendered at
particular Destination.
Case 20.3: Windows Inc. v. Jordan Panel System
Corp. (1999).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
9
ROL: Shipping Terms
Term
Definition
F.O.B.
Free on Board. Sales price includes shipping to specific place in
contract. Example: FOB Chicago.
F.A.S.
Free Along Side. Requires seller to deliver goods alongside the ship
before ROL passes to buyer.
C.I.F.
Cost, Insurance and Freight. Seller puts the goods in possession of a
carrier.
Delivery ExShip
Deliver from Carrying shipping vessel. ROL passes to buyer when
goods leave the ship or unloaded.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
10
ROL: Delivery Without
Movement of Goods
Goods Held by Seller:
 Document of Title is generally not used.
 If Seller is a merchant, ROL passes when buyer
takes physical possession of goods.
Goods Held by Bailee (Warehouse). ROL
passes when:
 Buyer receives document of title; bailee
acknowledges Buyer’s right to goods and buyer
receives title and has reasonable time to pick up.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
11
ROL: Conditional Sales
Sale on Approval.
 ROL passes when buyer approves expressly or
implicitly.
Sale or Return. (Consignment is sale or return
unless it complies with Art. 9.)
 ROL passes to buyer with possession.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
12
ROL: Breach of Contract
Generally breaching party bears ROL.
Seller’s Breach.
 Rejection - risk stays with seller.
 Revocation of acceptance - risk passes back to seller
to the extent that buyer’s insurance does not cover
the loss.
Buyer’s Breach. Goods are identified, risk
passes to buyer for a reasonable amount of time
after seller learns of the breach, to the extent that
seller’s insurance does not cover loss.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
13
§4: Insurable Interest
Buyer has an insurable interest in goods that
have been identified.
Seller has an insurable interest in goods as long
as they retain title or a security interest.
Both buyers and sellers can have an insurable
interest at the same time.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
14
§5: Bulk Transfers
Covered by Article 6 of the Uniform.
Commercial Code.
A bulk transfer is defined as:
 Major part of seller’s inventory.
 Not made in the usual course of business.
UCC 6 is becoming obsolete and has been
repealed by many states.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
15
Law on the Web
Information on Commercial Law topics at the
Hale Dorr Law Firm.
Sample Bills of Lading.
Legal Research Exercises on the Web.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
16