A1 Business and Technical College Business Discussion

Review the Point/Counterpoint on pages 44-45 of your text. Discuss your thoughts on the application of the Entrustment Rule.  In doing so, be certain to answer the following questions:

If a merchant sells goods to a good faith purchaser under the Entrustment Rule, does the original owner of the goods have any remedy?  If so, what is it?

Practically speaking, identify a situation in which a merchant might sell goods under the Entrustment Rule?

Knowing about the Entrustment Rule, do you feel comfortable leaving your goods with a merchant for repair?  Why or why not?

INSTRUCTIONS

Make an initial post that is responsive to the above prompt.

1/23/2018
Chapter 22
Title, Risk of Loss, and Insurable
Interest
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Overview
• LO22-1: What is the concept of title? How
does it pass?
• LO22-2: What is insurable interest?
• LO22-3: What are the different kinds of
sales contracts, and how does each type
affect title passing, risk of loss, and
insurable interest?
22-2
Categories of Title
• Good title: Acquired from someone who
already owns the goods free and clear
• Void title: Not true title
• Example: Purchase of stolen goods
• Voidable title: Occurs in certain situations
in which contract between original parties
would be void, but goods have already
been sold to third party
22-3
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UCC Article 2 Rules Regarding
Title Acquisition
• Good title: Acquired from someone who has
rightful ownership
• Void title: Results when someone acquires
possession of stolen goods.
• Voidable title results when:
•
•
•
•
Buyer deceived seller regarding his/her identity
Buyer wrote bad check
Buyer committed criminal fraud in securing goods
Buyer and seller agreed title would not transfer until
later time
• Buyer is a minor
22-4
Acquiring Good Title
• General rule: If third-party purchaser
makes good-faith purchase for value,
he/she gets good title (not void/voidable
title)
• If owner entrusts possession of goods to
merchant who deals in goods of that kind,
merchant can transfer all rights in the
goods to a buyer in the ordinary course of
business
22-5
UCC Terminology Regarding
Transfer of Title
• Ownership: Transfer of title
• Encumbrance: Goods used as collateral for
debt
• Loss: Refers to which party has risk of loss
when goods damaged/destroyed
• Insurable interest: Right to insure goods
against any risk exposure
22-6
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Types of Sales Contracts
• Simple delivery: Buyer and seller contract, buyer
gets goods at time of sale or some time later by
seller’s delivery
• Title transfers to buyer when contract executed
• Risk of loss transfers to buyer when buyer takes possession
• Buyer has insurable interest upon receiving title
• Common-carrier delivery: Buyer and seller contract,
seller then places goods with common carrier
• Shipment contract: Title transfers to buyer at time and
place of shipment; buyer bears risk of loss while goods in
transit
• Destination contract: Seller bears risk of loss until seller
delivers goods to stipulated destination
22-7
Types of Sales Contracts
(Cont’d)
• Goods-in-bailment: Identifies goods in storage
• Rules regarding passage of title, risk of loss, and insurable
interest vary, depending on whether seller has negotiable
title
• Conditional sales
• Sale-on-approval: Title and risk of loss with seller until
buyer notifies seller of approval
• Sale-or-return: Buyer has insurable interest once goods
identified in contract; title and risk of loss transfer depend
on whether goods in bailment, delivered by common
carrier, or delivered by seller
22-8
Shipping Terms Specifying
Requirements for Delivery
• FOB (free on board): Selling price includes
transportation costs, and seller has risk of loss to
either place of shipment, or place of destination
• FAS (free alongside): Seller, at seller’s expense,
delivers goods alongside ship before risk transferred
to buyer
• CIF or CF (cost, insurance, and freight; cost and
freight): Seller places goods in possession of carrier
before risk passes to buyer
• Delivery ex-ship (delivery from carrying vessel): Risk
of loss passes to buyer when goods leave ship
22-9
3
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Risk of Loss upon
Breach of Contract
• Seller in breach (by failing to deliver goods):
• Buyer may accept nonconforming goods as is, or
reject goods (subject to seller’s right to cure)
• Risk of loss remains with seller until buyer accepts
goods, or deficiencies corrected
• Buyer in breach (buyer refuses to accept
conforming goods and goods later lost or
damaged):
• Risk of loss depends on type of contract between
buyer and seller
22-10
4