Twomey  Jennings
Anderson’s Business Law and the Legal Environment, Comprehensive 20e
Anderson’s Business Law and the Legal Environment, Standard 20e
Business Law: Principles for Today’s Commercial Environment 2e
Chapter 24
Title and Risk of
Loss
Copyright © 2008 by West Legal Studies in Business
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Types of Potential Problems
• Damage to Goods: What if neither Buyer
nor Seller is responsible?
– What liability does a Carrier have?
• Creditors’ Claims or Seizure of Goods.
• Insurable Interest.
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Determining Rights:
Identification of Goods
• Existing Goods: physically present and
owned by Seller at the time of contract.
– When Seller or Buyer selects goods, they are
“identified.”
• Future Goods: do not exist or not owned by
seller at the time of contract.
• Fungible Goods: indistinguishable.
• Identification Gives Buyer an Insurable
Interest.
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Determining Rights:
Document of Title
• Document of Title: facilitates transfer
of ownership without actually
moving the goods.
– A warehouser stores the goods of
others for compensation and has the
rights and duties of a bailee in an
ordinary mutual benefit bailment.
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Determining Rights:
Document of Title
• Warehouse receipt given to the
depositor (bailor) of the goods.
• Bill of Lading: carrier accepts
goods for shipment.
• Now includes electronic
documents of title.
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Passage of Title in Bailments
• Generally, a seller can only sell what he
owns.
• Stolen Property: finder of stolen property
(or a thief) cannot pass good title to a
third party, even if the buyer purchased in
good faith.
• Estoppel.
• Voidable Title.
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Delivery and Shipment Terms
• Unless otherwise agreed, the Seller is only
required to make shipment to the Buyer, i.e.,
place the goods in a carrier’s possession.
• FOB Place of Shipment.
• FOB Place of Destination.
• FAS.
• CF and CIF.
• COD.
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Passage of Title in
Shipment Contracts
• FOB Place of Shipment Contract.
– Title passes from S B when S places
goods with carrier.
• FOB Place of Destination Contract.
– Title passes from S B when goods are
tendered to the Buyer.
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Determining Rights:
Risk of Loss
• ROL determines who must pay if the
goods are damaged or destroyed.
• Non-Shipment Contracts.
– Merchant Seller: ROL passes from S B
upon B’s actual receipt of goods.
– Non-Merchant Seller: ROL passes from S
B upon tender of goods.
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Determining Rights:
Risk of Loss
• Shipment to Buyer: ROL passes from S
B when tendered to carrier for
shipment.
• Contract for Delivery: ROL passes from
S B when goods tendered at destination
by carrier.
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Determining Rights: Damage or
Destruction of Goods
• Identified Goods Before ROL passes.
– If total loss, contract is cancelled by law.
– If partial loss, B has option to accept or
reject.
• Identified Goods After ROL passes.
– Buyer’s loss (insurable interest).
• Un-Identified Goods.
– No ROL to Buyer, Seller’s loss.
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Risk of Loss in
Shipment Contracts
• Rights of Common Carriers.
– Security lien interest on goods that it
transports.
– Right to compensation per agreement.
• Duties of Common Carriers.
– Deliver the goods as agreed.
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Risk of Loss in
Shipment Contracts
• A common carrier is absolutely liable for
loss or damage to the goods.
• Exceptions:
– Loss was caused solely by an act of God,
– Act of a public enemy,
– Act of a public authority,
– Act of the shipper, or
– Inherent nature of the goods.
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Risk of Loss in
Shipment Contracts
• Seller is Liable for Damages from Delay.
• Limitation of Carrier Liability.
– Unless prohibited by law, carriers can
contractually limit their liability.
– Example: Airbills limit liability to $100,
unless insurance is purchased.
• If Seller ships non-conforming goods and
Buyer reject, ROL stays with Seller.
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Damage / Destruction
of Goods
• Damage to Identified Goods before Risk
of Loss Passes: Depends on facts.
• Damage to Identified Goods after the
Risk of Loss Passes: Buyer sustains loss.
• Damage to Unidentified Goods: no risk to
buyer.
• Effect of Seller’s Breach in ROL.
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Determining Rights:
Special Situations
• Returnable Goods Transactions: Sale on
Approval, Sale or Return.
• Consignments and Factors: A factor is a special
type of bailee who has possession of someone
else’s property for the purpose of selling it.
– This arrangement is commonly called selling on
consignment, and the owner is called a consignor.
– The factor, or consignee, receives a commission on
the sale.
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Determining Rights:
Special Situations
• Self-Service.
• Auction Sales.
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