This class deals with the business law topics that appear on the CPA exam: Agency, Contracts, Debtor-Creditor Relationships, Government Regulation of Business, and Business Organizations. Students will gain an understanding of how these areas of the law affect businesses and their operations, with an eye on preparation for the business law portions of the REG section of the CPA exam. By the end of the class, students will be able to identify the legal principles that govern various business situations and apply those principles to an issue to determine the outcome when the law is applied to the facts of a scenario.
Title to Goods & Risk of Loss: No Breach
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From the course by University of Illinois at Urbana-Champaign
Corporate & Commercial Law I: Contracts & Employment Law
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University of Illinois at Urbana-Champaign
1 rating
From the lesson
Module 2: Special Rules for Sales Contracts
In this module, you will learn the special rules that apply to contracts for the sale of goods. A set of statutes, known as UCC Article 2, modifies the common law rules governing contract formation, and this module will detail those modifications. By the end of this module, you will be able to determine which contracts are governed by UCC Article 2 and how they differ from contracts that do not involve the sale of goods.
Meet the Instructors
Professor Michael R FrickeTeaching Assistant Professor
Department of Business Administration
In this first part of a two part series on Title to Goods & Risk of Loss,
we look at the rules from UCC article two that govern: who owns goods,
and who bears the risk of loss assuming neither party has breached the contract?
In this first of a two part series on Title to Goods & Risk of Loss,
we're going to talk about: who owns goods
when they are being transferred from a seller to a buyer,
and who bears the risk of loss if those goods are damaged somewhere along the way?
Why do we care about that?
Well, consider you buy something online from an online retailer.
You might want to know, when do you actually own that?
When is that your property?
Is it when you click buy?
Is it when they ship it to you?
Is that when it arrives to you?
And when more importantly than when you own it is,
when are you responsible for damage to it?
If it gets damaged in shipping,
does the seller have to send you a new one? Is that on you?
Should you have had it insured if it was valuable?
That's why we care about this kind of stuff,
because things happen and we want to make sure
we know who bears the risk of loss when those things happen.
So in this first lesson,
we're going to discuss the rules of Title to Goods & Risk of Loss,
when neither party has breached the contract.
So everybody's doing what they're supposed to do,
just accidents happen sometimes, right?
The rules for when title transfers and when risk of loss transfers
from seller to buyer depend on the type of contract that you have.
The first type of contract that we care about is what's called a "Shipment contract."
A shipment contract specifically calls for the use of what we call a "common carrier."
A common carrier is just a business whose business it is to ship stuff.
The United States Postal Service, UPS,
FedEx, DHL, these are all common carriers.
So, when you purchase something from Amazon,
and in the checkout screen it says,
"how do you want to receive this?"
and you click a button that says,
"US Postal Service," this is a shipment contract.
You're both specifically contemplating that
a common carrier will be used to send your goods to you.
And in this case,
the title to those goods & the risk of loss for damage to those goods
both transfer from the seller to
the buyer when the seller delivers the goods to the common carrier.
So, when Amazon gives the goods to UPS, you,
the buyer, now own them and bear the risk of loss if something happens to them.
Now, contrast this with what we call a destination contract.
A destination contract says,
"I don't care how you get me the goods,
just get them to me."
The seller's obligation is to deliver goods to the buyer,
whether it's the buyer's office,
the buyers residents, whatever.
Now, could a seller still use a common carrier?
Sure. But the contract doesn't specifically say to use a common carrier,
so the seller is responsible for getting the goods
to the buyer however the seller chooses to do that.
And under a destination contract,
title to the goods & risk of loss both transfer from
the seller to the buyer when those goods are actually delivered to the buyer's location.
But those are both pretty easy.
Where it gets a little tricky is when
the goods are not delivered to the buyer or sent via a common carrier,
but instead, the buyer picks up the goods from the seller.
We call these goods delivered at the sellers location.
Not really even delivered, they're just held for the buyer to come and pick them up.
Now, in this case,
title to the goods & the risk of
loss might pass from the seller to buyer at different times.
For instance, title to goods that
are held at the seller's location passes to the buyer when one of two things happens.
First, when the seller delivers what's called a
"document of title," consumer transactions,
this doesn't happen super often.
But in business-to-business transactions,
there something like a bill of lading or a warehouse receipt or something like this.
Some document that says,
"Hey, you now own these goods."
That's a document of title.
And at that moment,
the buyer will own them even though they don't have them in their possession yet.
More common than a document of title is when the seller identifies the goods.
So if I call up a bicycle company and say,
"Hey, I want to buy a hundred of bikes."
And they have a warehouse full of a million bikes,
and they take a hundred bikes,
they put a sticker on them and say,
"These are all my bikes."
They've been identified at that point,
out of the hole,
my little subset has been identified for me.
At that point, title passes to me,
because they've been identified to my contract.
That's when ownership passes.
But, again, what I really care when ownership passes in this case,
what we really care about is,
who bears the risk if something happens to them and they get damaged?
In a contract where goods are delivered at the seller's location,
when the risk of loss passes depends on if the seller is a merchant or not a merchant.
I told you, it would be important to know if the seller is
a merchant at some point and this is where it becomes important,
the first of several places where it becomes important.
So if the seller is a merchant,
they hold on to the risk of loss until the buyer comes to pick them up,
even though they might not own them.
Remember, the buyer owns the goods once they've been identified.
But if the seller is a merchant,
they bear the risk of loss until a buyer actually shows up to pick them up.
This makes sense because we think,
if you're a merchant of goods,
we expect you to know how to keep them safe and secure and free from damage.
That's your whole line of business,
so we're going to keep you liable for damage until the buyer comes to get them.
Now, if the seller is not a merchant, the opposite is true.
We don't expect you to be any
better than anybody else at keeping these good safe and free from harm.
So, the risk of loss actually transfers from the seller to
the buyer whenever the seller notifies
the buyer that the goods are ready to be picked up.
So for instance, I'm going to buy a bicycle off the Craigslist,
so I find somebody who's selling a bicycle,
I call them up and say, "Hey, I want to buy your bike."
They say, "Great. You can come and get it any time."
At that point, they said,
"You can come and get it," the risk of loss actually
transfers to me because that seller isn't a merchant of bicycles,
it's just a person selling his or her old bike.
They're not a merchant. And so,
once they tell me they're ready to be picked up,
I bear the risk of loss.
Meaning if their house burns down and the bike is still in it,
that risk isn't on them it's on me.
I still owe them the money for the bike because I bore the risk of loss at that time.
So, those are the rules governing title the goods & risk of loss when there's no breach.
In the next lesson, we're going to discuss
Title & Risk of Loss: When one party has breached the contract.
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