Chapter 16Sections 1-2

Business Law

Mr. Whisel

Hot Debate

• While you are having dinner one evening, your laptop computer is stolen from the front sear of your car. You do not report the theft for a week and a half. The police discover that the computer was sold to an innocent purchaser by a pawn shop that has since gone out of business. The new “owner” of the laptop is a pastor of a church that ministers to the homeless. She bought the laptop from a pawn shop before you reported the theft to the police. When you approach the pastor to get the computer back, she refuses. She says that the church needs it desperately to keep track of its “flock.” It is especially important during the current winter season when knowing where the homeless can seek shelter means life or death. You file suit for the return of the computer.

• 1. What are the legal reasons for your suit?• 2. What sort of legal arguments could you anticipate the

attorney for the church making?

Section 16-1 Goals

• Describe various types of goods• Discuss who may transfer ownership of

goods • Explain what is required for transfer of

ownership of goods• Identify when the ownership of goods has

transferred

What’s Your Verdict?

• Brad stole a cassette player from Fuller’s car. He then sold it to Standon, who knew it was stolen.

• Did either Brad or Standon receive good title to the cassette player?

Who May Transfer the Ownership of Goods?

• Generally only the true owner of goods may legally transfer ownership

• Exception to the Rule:– Persons authorized to do so may transfer

another’s title– Buyers in a sale induced by fraud may transfer

better title than they have– Holders of negotiable documents of title may

transfer better title than they have– Merchants who keep possession of goods they

have sold may transfer better title than they have

Authorized Persons

• Person may validly sell what they do not own if the owner has authorized them to do so.– Salesperson– Auctioneers– Sheriffs (Under Court Order, Stolen or

repossessed goods, foreclosed property)

Buyers in a Sale Induced by Fraud

• If the owner of goods is induced by fraud to sell the goods, the buyer obtains a voidable title.

• The victimized seller may cancel the contract and recover the goods unless an innocent third party has already given value and acquired rights in them.

• Good Faith Purchaser– Innocent third party to a fraudulent transfer of

goods who gives value to the goods and acquires right in them

Holders of Negotiable Documents of Title

• In Business, certain documents are substituted for possession.– Examples

• Warehouse receipts, Bills of Lading, and air bills issued by common carriers

– These documents may be negotiable or nonnegotiable

– Take ownership by transferring good and receipt

– Holder• Party in possession of commercial paper payable to

his or her order or to bearer

Merchants With Possession of Sold Goods

• Occasionally a buyer will allow the merchant seller to temporarily retain possession of the goods after the sale.

• If during the period the merchant resells to a good faith purchaser the latter receives good title

• Merchant must replace the resold goods or be liable in damages to the original buyer for the tort of conversion

• Conversion– Using property in a manner inconsistent with

the owner’s rights.

What’s Your Verdict?

• O'Dell was preparing for gala New Year’s Eve charity ball. He could not decide which of three tuxedoes to buy from signet styles. At O'Dell's request, the manager set all three aside until the next day so O’Dell’s friend could come in to help him decide. That night a few destroyed the store and its contents.

• Must O'Dell pay for the tuxedos that were set aside?

Requirement For Transfer of Ownership

• In order to transfer ownership goods must be existing and identified

• Existing Goods– Are physically in existence even though

they may not be in a fully assembled and immediately deliverable condition.

• Owned by the seller

• Identified Goods– Have been specifically designated as the

subject matter of a particular sales contract.• Identification may be done by the buyer, seller, both

by a mutually agreed-upon third party• Usually separated after identification

• Future Goods– Goods that are not both existing and identified

Requirement For Transfer of Ownership

More Requirements

• Any contract for a sale of future goods is a contract to sell not a sale.– Neither ownership nor risk of loss passes at

the time of the agreement

• An important exception to the process of identification is made for fungible goods.– They are goods of homogeneous or essentially

identical nature.

More Requirements

• Fungible goods become transferred at the time of agreement because they are all identical

What’s Your Verdict?

• Chien Huang ordered electronic equipment worth more than three million dollars from Inter-Continental

• Traders, a Seattle exporter. The equipment was to be shipped to a company in the Peoples Republic of China. The sales agreement, signed y both parties, stated that title and risk of loss would pass “when all necessary governmental permits are obtained.” the Chinese government granted and import permit and Lars to pay for the order. However, the U.S. State Department refused to grant an export permit because of the classified nature of some of the equipment.

• Did a sale take place?

When Does Ownership Transfer

• Tender of Delivery– To place the goods at the buyer’s disposal or

to give notice to the buyer that delivery can be received

• Seller Delivers Goods To Their Destination• Seller Ships, But Does Not Deliver, Goods

to Their Destination• Seller Delivers Document of Title• Buyer Takes Possession at Place of Sale

End of Section 16-1

• THINK ABOUT LEGAL CONCEPTS• THINK CRITICALLY ABOUT EVIDENCE

Section 16-1 Goals

• Describe various types of goods• Discuss who may transfer ownership of goods • Explain what is required for transfer of ownership of goods• Identify when the ownership of goods has transferred

Section 16-2 Goals

• Explain when the risk of los from seller to buyer transfers in different situations

• Explain when insurable property interest transfer in different situations

What’s Your Verdict?

• Alda had stored 200,000 pounds of Idaho potatoes in Berle’s cold Storage house. On December 17,m Alda sold 25,000 pounds to Clark. On December 20. Alda notified Berle, who issued a negotiable warehouse receipt to Clark for 25,000 pounds. On February 15, Clark paid the storage charges and ordered shipment of the potatoes to New Orleans. On February 16, Berle shipped the goods.

• When did the risk off loss transfer to the buyer, Clark?

Seller Ships Goods by Carrier

• When using a Carrier for a delivery the risk of loss passes to the buyer at the destination.

• Commercial buyers use FOB “Free on board.”• Shipments with a foreign country the seller might

use a CIP “cost, insurance, freight.”– The seller contracts for adequate insurance and for

proper shipment to the named destination

Goods Held by Bailee

• A bailee has temporary possession of another persons goods, holding them in trust for a specified purpose.– For ex. a public warehouse.

• Risk of loss transfers to the buyer under such circumstances,– When the buyer receives a negotiable document of title

covering the goods– When the bailee acknowledges the buyers right to

possession of the goods– After the buyer receives a non-negotiable document of

title

Either party breaches after good identified

• The seller sometimes breaches by providing goods so faulty that the buyer rightly rejects them. The risk of loss then remain with the seller until the defects are corrected.

Goods Neither Shipped by Carrier Nor Held by Bailee

• The risk of loss fall on the buyer upon receipt of the goods if the seller is a merchant. If the seller is not a merchant the risk of loss transfers to the buyer as soon as possible.

What’s Your Verdict?

• Frosty-Frolic Company was a fresh food packer and processor. In a sales contract with Goodman, Frosty-Frolic agreed to pack a quantity of head lettuce grown near Salinas, California, and to place the “Soaring Eagle” brand label on the cartons. The lettuce was routinely dehydrated, cooled, packaged, placed in the special cartons, and stacked on pallets in Frosty-Frolic sheds for daily shipment as ordered by Goodman.

• At what point did Goodman obtain the right to insure the goods against possible loss?

WHEN DO INSURABLE PROPERTY INTERESTS TRANSFER?

• The buy obtains a special property interest in goods at the time of their identification.

What’s Your Verdict?

• Cutting Edge Inc., A manufacturer, sold 250 gasoline-powered chain saws to Valu-line, a large retailer. The full price was due in six months, and Cutting edge agreed to accept the return of any saws not sold by then. Two months later, after only 25 saws had been sold, Valu-line filed a bankruptcy petition. Cutting Edge demands return of the unsold saws. Valu-Lines other creditors claim that title to the saws had passed to the retailer. Therefore, under the bankruptcy law, all creditors should share in the claim to the saws.

• Who is right?

End of Section 16.2

• THINK ABOUT LEGAL CONCEPTS• THINK CRITICALLY ABOUT EVIDENCE

Section 16-2 Goals

• Explain when the risk of los from seller to buyer transfers in different situations

• Explain when insurable property interest transfer in different situations

End of Chapter

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