U.C.C. Identification, Risk of Loss, Title

REMEMBER: Unless otherwise stated, UCC terms, provisions, etc., are altered by any incon- sistent agreed contract term!! I. IDENTIFICATION [TO CONTRACT] A. The first legal event in contract performance 1. “Identification” performs two tasks a. Specific items are _____________ a particular contract b. The buyer obtains a ______________________ in the identified items 2. Two conditions must exist before “identification” occurs a. The goods/ items must be in ____________________ b. Specific items objectively connected to contract

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 _____________________________

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 require- ment is met. The sequence in which the various requirements occur is not important. This is the same in law generally (90+% of the time).

II. INSURABLE INTEREST A. The most significant result of UCC identification 1. 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 2. 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

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.

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 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 3. 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

REMEMBER: Unless otherwise stated, UCC terms, provisions, etc., can be altered by the agreement of the parties!! TITLE & RISK OF LOSS I. GENERAL IDEAS & INTENT 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

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. Over-rides general rules b. The override rule applies as of the moment of breach 3. 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 NOTE: Legal delivery/possession does not necessarily coincide with physical possession/delivery

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. Issued by a carrier = “_____________________” b. Issued by a warehouse = “_________________________” 3. “Negotiable” means that the document can be transferred and the transferee obtains all rights of transferor TO THE GOODS a. Negotiable document of title is treated __________________ _________________ for title, risk, etc., purposes b. ONLY the person with title and possession of the document of title has the right to control movement and delivery 4. Non-negotiable is evidence of rights but is more like a receipt See also Bailment, esp. “special types” (Pers. Prop. Ch.)

General Category Delivery Method or Situation Risk of Loss Passes Title Passes Carrier Cases: Seller delivers goods via common carrier Shipment = delivery to carrier at Seller’s place of busines On physical delivery to carrier Same as Risk of Loss Destination = delivery by Seller at a remote location On delivery to location specified Bailee Cases: Goods in posses-sion of a bailee & Seller has no obligation to physically deliver Negotiable 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 No document of title Same as with non-negotiable document of title Later of: when contract is made or goods identified All other situations If Seller is a merchant On physical receipt by Buyer Later of: when contract is made or goods are identified If Seller is not a merchant When delivery “tendered” to Buyer

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 » Buyer’s creditors can attach until goods are actually shipped back to Seller 2. “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

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!]

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) From the owner or with the owner’s permission (2) Through fraud or other such act (not in good faith) such as by “rubber check” OR (3) 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.

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.