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Ch16-SG-BLTS-8e

Ch16-SG-BLTS-8e

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Published by: Holli Smith Boyd-White on Jun 29, 2010
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06/24/2013

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Chapter 16: 
Title and Risk of Loss
108
 
W
HAT
 
THIS
C
HAPTER
I
S
A
BOUT
The UCC has special rules involving title, which may determine the rights and remedies of the parties to asales contract. In most situations, however, issues concerning the rights and remedies of parties to sales or leasecontracts are controlled by three other concepts: (1) identification, (2) risk of loss, and (3) insurable interest.
C
HAPTER
O
UTLINE
I. IDENTIFICATION
For an interest in goods to pass from seller to buyer or lessor to lessee, the goods must (1) exist and (2) beidentified as the goods subject to the contract.
A. W
HAT
I
DENTIFICATION
I
S
Identification is the designation of goods as the subject matter of a sales or lease contract.
B. W
HY
I
DENTIFICATION
I
S
S
IGNIFICANT
Identification gives the buyer (1) the right to obtain insurance and (2) the right to recover from thirdparties who damage the goods.
C. W
HEN
I
DENTIFICATION
O
CCURS
1. According to the Parties’ Agreement
Parties can agree when identification will occur (but to pass title and risk of loss, the goods mustexist) [UCC 2–501, 2A–217].
2. If the Parties Do Not Specify a Time in Their Contracta. Existing Goods
If the contract calls for a sale of specific goods already existing, identification occurs when thecontract is made.
b. Future Goods
If a sale involves unborn animals or crops to be harvested within twelve months of the contract(or, for crops, during the next harvest season, whichever is further in the future), identificationoccurs when the goods are conceived, planted, or begin to grow.
c. Goods That Are Part of a Larger Mass
Identification occurs when—
1) Goods Are Marked, Shipped, or Otherwise Designated2) Exception—Fungible Goods
A buyer can acquire rights to goods that are alike by physical nature, agreement, or tradeusage and that are held by owners in common by replacing the seller as owner [UCC 2–105(4)].
109
 
II. PASSAGE OF TITLE
A. W
HEN
T
ITLE
P
ASSES
1. According to the Parties’ Agreement
Parties can agree on when and under what conditions title will pass.
2. At the Time and Place at Which the Seller Performs
If the parties do not specify a time, title passes on delivery [UCC 2–401(2)]. The delivery termsdetermine when this occurs.
a. Shipment Contracts
If the seller is required or authorized to ship goods by carrier, title passes at time and place of shipment [UCC 2–401(2)(a)]. All contracts are shipment contracts unless they say otherwise.
b. Destination Contracts
If the seller is required to deliver goods to a certain destination, title passes when the goods aretendered there [UCC 2–401(2)(b)].
c. Delivery without Movement of the Goods
If a buyer is to pick up goods, passing title turns on whether a seller must give a document of title (bill of lading, warehouse receipt).
1) When a Document of Title Is Required
Title passes when and where the document is delivered. The goods do not need to move (forexample, they can stay in a warehouse).
2) When No Document of Title Is Required
If the goods have been identified, title passes when and where the contract was made. If thegoods have not been identified, title does not pass until identification [UCC 2–401(3)].
B. S
ALES
 
OR
L
EASES
 
BY
N
ONOWNERS
Generally, a buyer acquires whatever title the seller has to the goods sold [UCC 2–402, 2–403]. A lesseeacquires whatever title a lessor could transfer, subject to the lease [UCC 2A–303, 2A–304, 2A–305].
1. Void Title
If the seller or lessor stole the goods, the buyer or lessee acquires nothing; the real owner can reclaimthe goods.
2. Voidable Title
A seller or lessor has voidable title if goods were obtained by fraud, paid for with a check that is laterdishonored, bought on credit when the seller was insolvent, or bought from a minor.
a. The Real Owner Can Reclaim the Goodsb. Exception—Good Faith Purchaser or Lessee for Value
The real owner cannot recover the goods [UCC 2–403(1)].
3. The Entrustment Rule
Entrustment includes both delivering goods to a merchant and leaving goods with the merchant forlater delivery or pickup [UCC 2–403(3)].
a. Entrusting Goods to a Merchant Who Deals in Goods of the Kind

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