Chapter 25 Passage of Title and Risk of Loss: Rights of Parties Twomey, Business Law and the Regulatory Environment (14th Ed.)

(c) 2000 West Legal Studies Chapter 252 Duties under Particular Terms [25-1] Buyer pays the seller costs of goods and freight to a specified location. Risk of loss and title pass to buyer after goods delivered to the carrier. Buyer pays the seller for costs of goods, insurance, and freight. Risk of loss and title pass to buyer after goods delivered to the carrier. Seller obligated to put the goods on board named vessel, truck, or carrier or make tender at a named point (place). Risk of loss and title pass to buyer at the F.O.B. point. Seller pays costs to point, buyer from point. Seller must deliver goods alongside vessel at own expense and risk. Risk of loss and title pass to buyer at the shipping point. Seller must deliver or unload goods from ship at port to destination. Risk of loss and title pass to buyer when goods are properly unloaded. CIF Cost, Insurance, Freight CF Cost, Freight FOB Free on Board FAS Free Alongside Named Vessel Ex-Ship

(c) 2000 West Legal Studies Chapter 253 Passage of Title under Article II [25-2] Time of Contract Existing Future Fungible Goods Identified? Yes No Title Cannot Pass Delivery Yes Document of TitleFOB DestinationFOB Shipment Title Passes upon Tender Title Passes upon Delivery of Goods to Carrier Yes No Title Passes at Time of Contracting Title Passes upon Delivery of Title Document No Shipped, Marked, or Otherwise Designed

(c) 2000 West Legal Studies Chapter 254 Risk of Loss [25-3] Identification Warehouse (Third Party) ShipmentNon-ShipmentSale on ApprovalSale or Return FOB Shipment FOB Destination Merchant Non- Merchant No Document Document of Title Other Document Passes to Buyer upon Delivery to Carrier Passes to Buyer upon Tender Passes to Buyer upon Receipt Passes to Buyer upon Tender Passes to Buyer upon Receipt of Document Passes to Buyer when Buyer Is Notified Goods Are Available Passes to Buyer when Buyer Accepts Goods Passes to Buyer under Same Rule as Ordinary Sale

(c) 2000 West Legal Studies Chapter 255 Risk and Property Rights in Sales Contracts *Assumes no document of title

(c) 2000 West Legal Studies Chapter 256 Shipping Terms CODCash on Delivery (payment term, not shipment term) CFLump sum, price includes cost and freight Risk-buyer upon delivery to carrier Title-buyer upon delivery to carrier Expense-seller includes cost of freight in contract price CIFLump sum, price includes cost, insurance, and freight Risk-buyer upon delivery to carrier Title-buyer upon delivery to carrier Expense-included in contract price (seller buys insurance in buyer’s name, and pays freight) FOBFree on Board FASFree Alongside (FOB for boats)

(c) 2000 West Legal Studies Chapter 257 Chapter 25 Summary Problems relating to risk and property rights in sales transactions often involve damage to the goods, the claims of creditors, and insurance. In the absence of an agreement, the solution to these problems depends on the nature of the transaction between the seller and the buyer. Sales transactions may be classified according to the nature of the goods and the terms of the transactions.

(c) 2000 West Legal Studies Chapter 258 Existing goods are physically in existence and owned by the seller. Future goods are not yet owned by the seller or are not yet in existence. The title to existing goods that are identified at the time of the contract passes to the buyer at the time the parties agree to the transaction. Once the goods are identified, both the buyer and the seller have an insurable interest in the goods. If the goods are damaged after the sales agreement has been made, a merchant seller bears the loss occurring until the time the buyer receives the goods. Chapter 25 Summary [2]

(c) 2000 West Legal Studies Chapter 259 If the seller is not a merchant, the risk of loss passes to the buyer when the goods are tendered or made available to the buyer. In a shipment contract, title and risk of loss pass at the time and place of shipment; in a destination contract, title and risk pass when the goods are made available at the destination. As long as the goods are unidentified, neither title nor risk of loss passes to the buyer. Chapter 25 Summary [3]

(c) 2000 West Legal Studies Chapter 2510 In cases where the risk of loss would ordinarily pass to the buyer, the risk remains with the seller if the goods do not conform to the contract. Even when the goods do conform to the contract, the buyer and seller could have agreed in their contract that the goods may be returned. The nature of their agreement, such as a sale on approval, sale or return, or consignment sale, determines who has title and who bears the risk of loss. Chapter 25 Summary [4]

(c) 2000 West Legal Studies Chapter 2511 Chapter 25 Summary [5] The reservation of a security interest in goods does not affect the question of whether title or risk of loss has passed to the buyer. Ordinarily, sellers cannot pass any better title than they possess. In some cases, however, the law permits a greater title to be transferred. These exceptions protect good-faith purchasers.