Section 13.2

What You’ll Learn How to differentiate between passage of title and risk of loss in a sales contract (p. 277) What you can do when someone breaches a sales contract (p. 281)

Why It’s Important Being informed about ownership and risk of loss when you make sales contracts will help you protect your investment when buying or selling products.

Legal Terms title (p. 276) bill of sale (p. 276) voidable title (p. 276) risk of loss (p. 278) identified goods (p. 278) future goods (p. 278)

Legal Terms carrier (p. 278) f.o.b. (p.278) destination contract (p. 279) bill of lading (p. 281) warehouse receipt (p. 281)

Section Outline Title Passage of Title and Risk of Loss Voidable Title Buying from a Merchant Passage of Title and Risk of Loss Shipment Contract Destination Contract Documents of Title

Section Outline Remedies for Breach of Sales Contract Seller’s Remedies Buyer’s Remedies

Pre-Learning Question What does it mean to “have title” to something?

Title The right of ownership to goods is known as title. People who own goods have title to them.

Title A bill of sale is formal evidence of ownership. You receive this document when you buy goods. It only proves that you once had title, not that you still own the goods.

Elements of a Bill of Sale Price Name and address of buyer and of seller Receipt Goods sold

Elements of a Bill of Sale Warranty Date Signature of seller

Voidable Title Anyone who obtains property as a result of another’s fraud, mistake, undue influence, or duress holds only voidable title to the goods.

Voidable Title Voidable title means title that may be voided if the injured party elects to do so.

Buying from a Merchant The UCC has a special rule that allows merchants who have no title to goods to pass on good title to their consumers.

Buying from a Merchant This occurs when you entrust your own goods to a merchant who sells them in the ordinary course of business.

Buying from a Merchant This gives consumers confidence that they will receive good title when buying from a merchant. This rule does not apply to stolen goods. Only the rightful owner has title to stolen property.

Pre-Learning Question How do you think title is passed from one to another?

Passage of Title and Risk of Loss Sometimes it is necessary to determine who has title to goods—the seller or the buyer.

Passage of Title and Risk of Loss Similarly, it is sometimes necessary to determine who must bear the risk of loss, or the responsibility for loss or damage to goods.

Passage of Title and Risk of Loss The reason is that goods may be stolen, damaged, or destroyed after the sales contract has been entered but before the transaction is completed.

Passage of Title and Risk of Loss Title to goods cannot be transferred under a sales contract until the goods have been identified. Identified goods are goods that presently exist and that have been set aside for a contract.

Passage of Title and Risk of Loss Goods that are not both existing and selected are known as future goods, such as crops not yet grown or items not yet manufactured. No one can have title to future goods.

Ed Johnson goes to the Buy-a-Heap car dealership and buys a used car Ed Johnson goes to the Buy-a-Heap car dealership and buys a used car. Later, the police pull him over and tell him that the car was stolen.

Assuming the police are correct, does Johnson have ownership of the car?

ANSWER No. Only the rightful owner has title to stolen property.

Shipment Contract A shipment contract is one in which the seller turns the goods over to a carrier for delivery to a buyer. A carrier is a transportation company.

Shipment Contract Both title and risk of loss pass to the buyer when the goods are given to the carrier.

Shipment Contract The term f.o.b., or free on board, means that goods will be delivered free to the designated place. The buyer must pay the freight charges from the shipping point to the destination.

Destination Contract When a contract requires the seller to deliver the goods to a destination, it is a destination contract.

Destination Contract Both title and risk of loss pass to the buyer when the seller leaves the goods at the place of destination.

No Delivery When no delivery is required and the contract calls for the buyer to pick up the goods, title passes to the buyer when the contract is made.

No Carrier When goods are not to be shipped by carrier, the passage of risk of loss depends on whether the seller is a merchant.

No Carrier If the seller is a not a merchant, the risk of loss passes to the buyer when the seller delivers the product, or the seller offers to turn the goods over to the buyer.

No Carrier If the seller is a merchant, the risk of loss is transferred from the seller to the buyer when the buyer receives the goods.

Documents of Title Sometimes when you buy goods you receive a document of title, rather than the actual goods.

Documents of Title A bill of lading is a receipt for shipment of goods given by a transportation company, or carrier, to a shipper when the carrier accepts goods for shipment.

Documents of Title A warehouse receipt is a document given to a customer by the warehouse that is storing his or her goods.

Pre-Learning Question What remedies do buyers and sellers have in the event of a breach of a sales contract?

Remedies for Breach of Sales Contract The UCC prescribes specific remedies for both the buyer and the seller when there is a breach of a sales contract.

Seller’s Remedies Cancel the contract. Withhold delivery of goods.

Seller’s Remedies Stop delivery of any goods that are still in the possession of the carrier. Resell any goods that have been rightfully withheld.

Seller’s Remedies Bring a claim against the buyer for the difference between the agreed price and the market price or for the price of any goods that were accepted by the buyer.

Buyer’s Remedies Cancel the contract. Bring a claim against the seller for the return of any money that has been paid or for the difference between the agreed price and the market price.

Buyer’s Remedies Refuse to accept the goods if they do not conform to the contract. Cover the sale.

Buyer’s Remedies Give notice to the seller that the goods have been accepted but that they do not conform to the contract. Revoke the acceptance and return the goods.

Reviewing What You Learned Section 13.2 Assessment Reviewing What You Learned When does title pass from the seller to the buyer in a sales contract? When does the risk of loss pass?

Reviewing What You Learned Answer Section 13.2 Assessment Reviewing What You Learned Answer Shipping contract: title and risk of loss pass to buyer when goods are given to carrier. Destination contract: title and risk of loss pass to buyer when goods reach destination.

Reviewing What You Learned Answer Section 13.2 Assessment Reviewing What You Learned Answer If buyer must pick up goods, title passes when contract is made. If seller is a merchant, risk of loss passes when buyer receives goods. If not, risk passes to buyer when seller tenders goods.

Reviewing What You Learned Section 13.2 Assessment Reviewing What You Learned What remedies are available when a seller breaches a sales contract? When a buyer breaches a contract?

Reviewing What You Learned Answer Section 13.2 Assessment Reviewing What You Learned Answer When buyer breaches, seller may cancel contract, withhold delivery, stop delivery, resell goods and bring claim for difference between agreed prices and market price, or bring claim for any goods that were accepted by buyer.

Reviewing What You Learned Answer Section 13.2 Assessment Reviewing What You Learned Answer When seller breaches, buyer may cancel contract, bring claim against seller for return of money paid or for difference between agreed and market price,

Reviewing What You Learned Answer Section 13.2 Assessment Reviewing What You Learned Answer reject nonconforming goods, cover the sale, accept nonconforming goods and bring claim against seller if no adjustment is made, or revoke acceptance.

Critical Thinking Activity Fairness Section 13.2 Assessment Critical Thinking Activity Fairness Suppose you leave your ring at a jewelry store to be appraised and the store sells it by mistake to an innocent purchaser. Under the UCC, the innocent purchaser receives good title to your ring.

Critical Thinking Activity Fairness Section 13.2 Assessment Critical Thinking Activity Fairness Is this rule fair? Support your argument.

Critical Thinking Activity Answer Fairness Section 13.2 Assessment Critical Thinking Activity Answer Fairness Answers may vary. This law gives consumers confidence that they will receive title to goods bought from a merchant.

Legal Skills in Action Contracts Involving Minors Section 13.2 Assessment Legal Skills in Action Contracts Involving Minors If you are under the age of eighteen when you buy goods, you can return the goods and get your money back. You lose this right when you become eighteen.

Legal Skills in Action Contracts Involving Minors Section 13.2 Assessment Legal Skills in Action Contracts Involving Minors Present a point of view to the class regarding whether this rule is reasonable.

Legal Skills in Action Answer Section 13.2 Assessment Legal Skills in Action Answer Contracts Involving Minors Presentations will vary, but should recall a minor’s capacity to contract.

End of Section 13.2