Title, Risk and Insurable Interest

Sale of goods requires different rules than real property transactions: risk should not always pass with title.
UCC replaces title with identification, risk, and insurable interest.

Identification

For any interest to pass to buyer, goods must be:

• In existence.
• Identified as specific goods in the sales contract (by serial numbers and/or physically separated from others.
• Except for fungible goods which do not need separation).

Gives the buyer the right:

• To obtain insurance on the goods.
• To recover from third parties who damage the good.
Identification occurs:
• If goods are designated when contract is made.
• If goods are not designated when contract is made, then identified at time of designation.

When Title Passes

Title can pass:

• Upon physical delivery, or
• When agreed to by the parties, or
• If no agreement, depends on whether contract is shipment or destination contract:
• Shipment: title passes at time and place of shipment.
• Destination: title passes when goods are tendered at the destination.

Delivery Without Movement of Goods

Title passes when agreed by the parties, or
With document of title: when and where document delivered.
Without document: when sales contract is made, if goods have been identified or when identification occurs if they have not been identified.

Sales or Leases By Non-Owners

Void Title: true owner gets goods back.
Voidable Title: good faith purchaser keeps goods.
Case 20.2: Memphis Hardwood v. Daniel (2000).
Entrustment rule: good faith purchaser keeps goods.
Seller’s Retention of Sold Goods: good faith purchaser wins.
Sham transactions or preferential transfers.

Risk of Loss

ROL does not necessarily pass with title. ROL is important because of insurance concerns. Unless agreed otherwise, ROL passes to Buyer depending on whether delivery is with or without movement of the goods.

ROL: Delivery with Movement

Shipment Contracts.
ROL passes to Buyer when tendered to Carrier. If goods damaged in transit, Buyer’s loss. Destination Contracts.
ROL passes to Buyer when goods tendered at particular Destination.
Case 20.3: Windows Inc. v. Jordan Panel System Corp. (1999).

ROL: Delivery without Movement of Goods

Goods Held by Seller:

• Document of Title is generally not used.
• If Seller is a merchant, ROL passes when buyer takes physical possession of goods.
Goods Held by Bailee (Warehouse). ROL passes when:
• Buyer receives document of title bailee acknowledges
• Buyer’s right to goods and buyer receives title and has reasonable time to pick up.

ROL: Conditional Sales

Sale on Approval.
ROL passes when buyer approves expressly or implicitly. Sale or Return.
ROL passes to buyer with possession.

ROL: Breach of Contract

Generally breaching party bears ROL. Seller’s Breach.
Rejection risk stays with seller.
Revocation of acceptance risk passes back to seller to the extent that buyer’s insurance does not cover the loss.
Buyer’s Breach. Goods are identified, risk passes to buyer for a reasonable amount of time after seller learns of the breach, to the extent that seller’s insurance does not cover loss.

Insurable Interest

• Buyer has an insurable interest in goods that have been identified.
• Seller has an insurable interest in goods as long as they retain title or a security interest.
• Both buyers and sellers can have an insurable interest at the same time.

Bulk Transfers

• Covered by Article 6 of the Uniform.
• Commercial Code.

A bulk transfer is defined as:

• Major part of seller’s inventory.
• Not made in the usual course of business.