U.C.C.
Identification, Risk of Loss, Title
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REMEMBER: Unless otherwise
stated, UCC terms, provisions,
etc., are altered by any inconsistent agreed contract term!!
I.
IDENTIFICATION [TO CONTRACT]
A. The first legal event in contract performance
1.
2.
“Identification” performs two tasks
a.
Specific items are _____________ a particular contract
b.
The buyer obtains a ______________________ in the
identified items
Two conditions must exist before “identification” occurs
a.
The goods/ items must be in ____________________
b.
Specific items objectively connected to contract
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B.
The goods must be in existence
1.
Some special rules for particular types of goods (fungible
goods)
2.
“Future Goods”
a.
Nothing can be identified that does not exist
b.
BUT if the item(s) sold are to be manufactured or
assembled
»
The items that _____________________________ can be
identified to the contract (project, process)
C.
The items must be objectively connected with the contract
1.
Unique items can be/are identified when the contract is
entered into, if the contract identifies ______________________
2.
Any method that objectively connects contract and item
is effective – even if that was not specifically intended by
the actor
3.
At the very latest, identified _____________________________
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C.
“Identification” must happen before any of the other
steps/events in performance can occur
1.
Legal Events – “_______________” and “____________” can
only occur with respect to specific items
2.
Physical Events – Delivery, inspection, etc., can only
occur with respect to specific items
3.
If not done before, items are identified to a contract
when they are prepared for shipment, or delivered to
carrier or buyer
NOTE: Whenever the UCC requires more than one thing to occur to produce a
particular result (e.g. identification), the result is created when the last requirement is met. The sequence in which the various requirements occur is not
important.
This is the same in law generally (90+% of the time).
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II.
INSURABLE INTEREST
A. The most significant result of UCC identification
1.
2.
Insurance law requires that an insured party have some legally
recognized interest in an item before it will pay any claim
relating to that item
a.
Commonly called “insurable interest”
b.
Before a person can legally “lose” anything, she/he must
have ______________________________________ that thing
»
Insurance covers only to the extent of that interest
Under Common Law rules, no insurable interest unless insured
person had/has some __________________________ interest
a.
Seller did not want to pass title until paid
b.
Title often passed long after buyer had an investment
or cost related to purchased (contracted) item
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3.
UCC drafters created “insurable interest” to solve problem
a.
Technically called a “special property interest”
b.
This interest attaches to item at __________________ time
4.
Having an insurable interest does not guarantee recovery
5.
Seller and Buyer can both have an insurable interest
a.
Buyer gets interest on identification
b.
Seller has insurable interest until title and possession
pass to buyer, or until paid if it has a contract right to
recover goods if not paid
c.
Insurance company will not pay any specific loss twice
NOTE: These rules apply ONLY to determining, as between the Buyer and the
Seller, who suffers the loss. In addition to insurance, that party may have a right
to recover from third parties (e.g. carrier). That is generally irrelevant to
Buyer/Seller issue.
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C.
Effects of “insurable interest” (‘special property interest”) rules
1.
Rule relates only to rights to specific goods (not “title”)
»
Legal effects result from application of non-UCC rules,
given the buyer’s legal interests in the goods
2.
Insurance claims and payments
3.
a.
Loss of insured item allows recovery for related losses
»
Cost of preparing to receive item
»
Monetary losses resulting from physical loss
(e.g. prepayments, loan costs, prepaid storage space)
b.
Recovery for loss of identified item goes ___________________
____________________________ under UCC or other rules
Right to obtain physical possession
a.
Buyer has priority with respect to all identified goods in the
event of bankruptcy or insolvency (subject to prior security
interests
b.
Buyer has option of inspecting and taking (with price
adjustment) damaged goods – regardless of location
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TITLE & RISK OF LOSS
I.
GENERAL IDEAS & INTENT
REMEMBER: Unless otherwise
stated, UCC terms, provisions,
etc., can be altered by the
agreement of the parties!!
A. Disconnecting Title from other factors
1.
“Risk of Loss” is significant concerning rights, etc., between
______________________
2.
Passage of title (who holds title) is more significant with
respect ________________________________________________
B. Parties to a contract can control their respective risks (and get
insurance coverage) if they know the rules.
1.
If the parties make no special provisions for title and risk of
loss, UCC rules/presumptions apply
2.
If parties wish different result, can _____________________
»
Define “delivery” in contract
»
Specify when “risk of loss” passes
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II.
RISK of LOSS
A. General Statements & Assumptions
1.
Risk is usually with the party that has ____________________ i.e. the
legal right to control physical possession and movement
2.
If a party breaches the sale contract, _______________________
a.
b.
3.
NOTE:
Over-rides general rules
The override rule applies as of the moment of breach
Related assumptions concerning legal delivery/possession
a.
If the buyer is a consumer the assumption is delivery
(physical and legal) ____________________________________
b.
If the buyer is not a consumer = “______________” contract
c.
If goods will be delivered without movement, that is
normally very obvious in the contract
Legal delivery/possession does not necessarily coincide with
physical possession/delivery
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B.
“Negotiable” and “non-negotiable” documents of title
1.
A document that is both a contract and “evidence of title”,
_________________________ (carrier or warehouse)
2.
Issued to party that delivers goods and guarantees title
a.
b.
3.
“Negotiable” means that the document can be transferred
and the transferee obtains all rights of transferor TO THE
GOODS
a.
b.
4.
Issued by a carrier = “_____________________”
Issued by a warehouse = “_________________________”
Negotiable document of title is treated __________________
_________________ for title, risk, etc., purposes
ONLY the person with title and possession of the document
of title has the right to control movement and delivery
Non-negotiable is evidence of rights but is more like a receipt
See also Bailment, esp. “special types” (Pers. Prop. Ch.)
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General
Category
Carrier Cases:
Seller delivers
goods via
common carrier
Bailee Cases:
Goods in possession of a bailee &
Seller has no
obligation to
physically
deliver
All other
situations
Delivery Method
or Situation
Risk of Loss
Passes
Shipment = delivery to
carrier at Seller’s place
of busines
On physical delivery to
carrier
Destination = delivery
by Seller at a remote
location
On delivery to location
specified
Negotiable document
of title
With the document of
title
With the document of
title
Non-negotiable
document of title
When (1) Buyer has
the document, and (2)
reasonable amount of
time to present it has
passed OR
Bailee acknowledges
Buyer’s rights
With the document of
title
No document of title
Same as with nonnegotiable document
of title
Later of: when
contract is made or
goods identified
If Seller is a merchant
On physical receipt by
Buyer
If Seller is not a
merchant
When delivery
“tendered” to Buyer
Title Passes
Same as Risk of Loss
Later of: when
contract is made or
goods are identified11
III.
TITLE
A. See Diagram for “normal” rules
B. Special Categories of Sales
(Principal concern is whose creditors can grab the goods)
1.
“Sale or Return” (consignment) = _________________
»
Seller delivers to buyer with agreement that unsold goods
can be returned, usually with some time limitation
»
2.
Buyer’s creditors can attach until goods are actually
shipped back to Seller
“Sale on approval” is essentially an ____________, which Buyer
accepts or not
»
Seller delivers to Buyer with agreement that Buyer can
choose which items it wants to purchase, others to be
returned.
»
Seller retains all title, etc., until offer “accepted” by sale or
other act inconsistent with Seller’s rights
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General UCC “tactic”:
When a conflict is created between two parties as a result of the acts of a
third party, the UCC provides against (places the related risk on) the
party that was in the better position to have prevented the problem from
occurring.
EXAMPLES:
—
—
—
Person who accepts rubber check
Person who does not take adequate care in a transaction
Person who entrusts goods to merchant
The party who takes the loss (as between the two innocent ones) has a
right to recover against the bad guy [ lots o’ luck!]
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C.
Special Categories of Sellers
1.
Thief = “void title” = no title
2.
“Voidable title”
a.
Based on property laws – person attempting to sell
obtained physical possession, ________________________:
(1)
(2)
(3)
From the owner or with the owner’s permission
Through fraud or other such act (not in good faith)
such as by “rubber check”
OR
Possession was gained rightfully, but did not return
or deliver as directed (often called “embezzlement”
b.
True owner can always obtain from _____________________
(OR can obtain payment for value, losses)
c.
True owner may be able to repo from voidable title
holder’s buyer
(1) If purchaser bought in good faith, for value, without
notice, _________________
(2) If not good faith, can recover possession, damages.
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3.
“Entrustment”
a.
Special category similar “voidable title” situation
(1) Owner gives possession _____________ in the type of
goods involved
»
Merchant is a “bailee” with obligation to return
(2) Merchant ____________________ 3d party who acts in
good faith, etc.
(3) Original owner cannot recover from 3d party
General rule: A person, acting in good faith and without reason
to know of any problem, who obtains item from,
and pays reasonable price to, a person with voidable
title gets good title.
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