1. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. Twomey & Jennings BUSINESS LAW Chapter 23 Legal Aspects of Supply Chain Management: Title and Risk of Loss Chapter 23 Legal Aspects of Supply Chain Management: Title and Risk of Loss

2. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 2 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. 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.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 3 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. 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.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 4 Passage 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. Warehouse receipt given to the depositor (bailor) of the goods. Bill of Lading: carrier accepts goods for shipment. 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. Warehouse receipt given to the depositor (bailor) of the goods. Bill of Lading: carrier accepts goods for shipment.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 5 NonnegotiableNegotiable To whom goods are delivered as stated on receipt Deliver to Jane DoeDeliver to the bearer or Deliver to the order of John Doe Purposes of receipt1. Contract for storage 2. Receipt for goods 3. Document of title 1. Contract for storage 2. Receipt for goods 3. Document of title Is receipt required for delivery of goods? Yes If receipt says “Deliver to the order of John Doe,” It must be indorsed by John Doe for holder of receipt to receive goods. Warehouse Receipts

6. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 6 Negotiability of Documents of Title In some cases, a warehouse receipt can be bought, sold, or used as security to obtain a loan. –A nonnegotiable warehouse receipt states that the goods received will be delivered to a specified person. –A negotiable warehouse receipt states that the goods will be delivered “to the bearer” or “to the order of” a named person. In some cases, a warehouse receipt can be bought, sold, or used as security to obtain a loan. –A nonnegotiable warehouse receipt states that the goods received will be delivered to a specified person. –A negotiable warehouse receipt states that the goods will be delivered “to the bearer” or “to the order of” a named person.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 7 Passage of Title Under Article 2 At time of contract When Shipped, Marked; or Otherwise Designed Existing Future Fungible Goods Identified? Yes FOB DestinationFOB Shipment Title passes upon tender Title Passes upon Delivery of Goods to Carrier No Document of Title? YesNo Title Passes at Time of Contracting Title Passes upon Delivery of Title Document Yes Title Cannot PassDelivery? No

8. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 8 Negotiation of Documents WAREHOUSER (Issuer) (Bailee) WAREHOUSE RECEIPT BUYER PURCHASER OF WAREHOUSE RECEIPT WAREHOUSE RECEIPT Indorsement and delivery value/good faith due negotiation right to goods or right to negotiate further GOODS SELLER (Depositor) (Bailee)

9. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 9 Limitation of Liability A warehouser may limit its liability for loss or damage to goods due to its own negligence to an agreed valuation of the property stated in the receipt. The depositor must be given the right to store the goods without the limitation at a higher storage rate. A warehouser may limit its liability for loss or damage to goods due to its own negligence to an agreed valuation of the property stated in the receipt. The depositor must be given the right to store the goods without the limitation at a higher storage rate.

10. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 10 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. 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. Alamo Rent-A-Car v Mendenhall (1997) Does the Buyer Have Good Title?

11. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 11 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. 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.

12. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 12 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. 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. Future Tech Int’l, Inc. v TaeII Media, Ltd. (1996) Who has the right to the Goods?

13. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 13 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. 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.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 14 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. 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.

15. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 15 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. 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.

16. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 16 Common Carriers, ROL and Liability 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. 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. Bottoms & Tops Int’l Inc. v UPS (1994) Who is liable for failure to deliver the jewelry to Dwek?

17. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 17 Liability of Common Carrier 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. 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.

18. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 18 Liability of Common Carrier 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. 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.

19. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 19 Seller’s Breach and ROL If Seller ships non-conforming goods and Buyer reject, ROL stays with Seller. Graff v Bakker Brothers of Idaho, Inc. (1997) Peeling Back the Layers of the Great Onion Contract Breach: Who is Really Liable?

20. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 20 Special Situations Returnable Goods Transactions. –Sale on Approval. –Sale or Return. Returnable Goods Transactions. –Sale on Approval. –Sale or Return. Houghton Wood Products v Badger Wood Products. (1995) Can the Defendant return the goods to Seller after transforming the products?

21. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 21 Consignment 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. 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.