twomey & jennings business law

© 2004 West Legal Studies in BusinessA Division of Thomson Learning

BUSINESS LAW Twomey • Jennings 1stEd.

Twomey & JenningsTwomey & JenningsBUSINESS LAWBUSINESS LAW

Chapter 23Legal Aspects of

Supply Chain Management:Title and Risk of Loss

2© 2004 West Legal Studies in BusinessA Division of Thomson Learning


Types of Potential Types of Potential ProblemsProblems

• 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.



Identification of GoodsIdentification 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.



Passage of TitlePassage 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.



Nonnegotiable NegotiableTo whom goods are deliveredas stated on receipt

Deliver to Jane Doe Deliver to the beareror

Deliver to the order of JohnDoe

Purposes of receipt 1. Contract for storage2. Receipt for goods3. Document of title

1. Contract for storage2. Receipt for goods3. Document of title

Is receipt required for deliveryof goods?

Yes YesIf receipt says “Deliver to theorder of John Doe,” It must beindorsed by John Doe forholder of receipt to receivegoods.

Warehouse ReceiptsWarehouse Receipts



Negotiability of Negotiability of Documents of TitleDocuments 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.


BUSINESS LAW Twomey • Jennings 1stEd.Passage of Passage of

Title Title Under Article Under Article 22

At time ofcontract

When Shipped,

Marked; orOtherwise Designed

Existing

Future

Fungible

Goods Identified?

Yes

FOB Destination FOB Shipment

Title passesupon tender

Title Passes upon Delivery of Goods

to Carrier

No

Document of Title?

Yes No

Title Passes at Time of Contracting

Title Passes upon Delivery of Title

Document

Yes

Title Cannot PassDelivery?

No



Negotiation of Negotiation of DocumentsDocuments

WAREHOUSER(Issuer)(Bailee)

WAREHOUSERECEIPT

BUYER

PURCHASER OF WAREHOUSE

RECEIPT

WAREHOUSERECEIPT

Indorsement anddelivery

value/good faithdue negotiation

right to goods

or right tonegotiate further

GOODSSELLER

(Depositor) (Bailee)



Limitation of LiabilityLimitation 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.



Passage of Title in Passage of Title in BailmentsBailments

• 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?



Delivery and Shipment Delivery and Shipment TermsTerms

• 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.



Passage of Title in Passage of Title in Shipment Contracts 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.

Future Tech Int’l, Inc. v TaeII Media, Ltd. (1996) Who has the right to the Goods?



Risk of LossRisk 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.



Risk of LossRisk 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.



Damage or Destruction Damage or Destruction of Goodsof 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.



Common Carriers, Common Carriers, ROL and LiabilityROL 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.

Bottoms & Tops Int’l Inc. v UPS (1994) Who is liable for failure to deliver the jewelry to Dwek?



Liability of Common Liability of Common CarrierCarrier

• 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.



Liability of Common Liability of Common CarrierCarrier

• 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’s Breach and ROLSeller’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?



Special SituationsSpecial Situations• 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?



Consignment and Consignment and FactorsFactors

• 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.