Performance of Sales and Lease Contracts
Identification and Passage of Title
identification -- distinguishes the goods named in the contract from the seller's or lessor's other goods
Passage of Title
- passage of title by agreement -- title to goods of a sales contract passes from the seller to the buyer in any manner and on any conditions explicitly agreed upon by the parties
- passage of title where there is no agreement -- if the parties have new agreement as to the passage of title, title passes according to the following UCC rules
- shipment contract -- requires the seller to ship the goods to the buyer via a common carrier. Title passes to the buyer at the time and place of shipment
- destination contract -- requires the seller to deliver the goods to the buyer's place of business or other designated destination. Title passes to the buyer when the seller tenders delivery of the goods at the specified destination
- goods that do not move -- and a sales contract authorizes the goods to be delivered without requiring the seller to move them, title passes at the time and place of contracting, unless a document of title is required, in which case title passes when the seller delivers the document of title to the buyer
- passage of title in lease contracts -- goods remain with the lessor were a third party. Title does not pass to the lessee.
Article 6 -- bulk sales
- bulk sales -- occur when an owner/debtor transfers and major part of a business is material, merchandise, inventory, or equipment not in the ordinary course of business
- article 6 (bulk sales) -- establishes rules that require the buyer to notify the creditors of the seller of the proposed sale of assets. If such notice is given, the buyer receives title to the goods, free of all claims of the seller's creditors. If the notice is not given, the goods in the buyer's possession are subject to the claims of the seller's creditors for six months after the date of possession
- amendment -- in 1988, the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI) recommended that states repeal Article 6. As an alternative, the NCCUSL issued a revised version of article 6.
Risk of loss
Agreement Regarding Risk of Loss
- agreement -- the parties to a sales contract may agree among themselves as to who will bear the risk of loss of goods if they are lost or destroyed
- no agreement -- if the parties to a sales contract do not have a specified agreement concerning the assessment of risk of loss, the UCC mandates who will bear the risk
Carrier Cases: Movement of Goods
- shipment contract -- the risk of loss passes to the buyer and seller delivers conforming goods to a carrier. The buyer bears the risk of loss during transportation.
- destination contract -- the risk of loss does not pass to the buyer until the goods are tendered to the buyer at the designated destination. The seller bears the risk of loss during transportation
Shipping Terms
sales contracts often contain the following shipping terms:
- F.O.B. -- free on board/point of shipment
- F.A.S. -- free alongside or port of shipment
- C.I.F. -- crossed, insurance, and freight
- Ex-ship -- from the carrying vessel
- No-arrival, no sale contract
Noncarrier Cases: No Movement of Goods
If the buyer is to pick up the goods from the seller's place of business or other specified location, the following UCC rules apply:
- merchant-seller -- if the seller is a merchant, the risk of loss does not pass to the buyer until the goods are received by the buyer. The merchant-seller bears the risk of loss between the time of contracting in the time the buyer picks up the goods.
- nonmerchant-seller -- if the seller is a nonmerchant, risk of loss passes to the buyer upon tender of delivery of the goods by the seller.
Risk of loss: Conditional sales
The entrustment of goods by a seller to a buyer on a trial basis. The following UCC rules for risk of loss apply:
- sale on approval -- occurs when a merchant allows a customer to take the bids for a specified period of time to try the goods. There is no sale unless and until the buyer accepts the goods. The risk of loss remains with the seller and does not transfer to the buyer until acceptance.
- sale or return -- occurs when a seller delivers goods to a buyer with the understanding that the buyer may return them if they are not used or resold during a stated period of time. The risk of loss passes to the buyer when the buyer takes possessions of the goods
- confinement -- occurs when a seller/consignor delivers goods to a buyer/consignee to sell. The risk of loss passes to the consignee when the consignee takes possessions of the goods
Risk of Loss: Breach of Sales Contract
If there has been a breach of a sales contract, the UCC rules concerning risk of loss apply
Seller in breach -- if a seller breaches a sales contract by tendering or delivering nonconforming goods, the risk of loss to the goods remains of the seller until the defect or nonconformity is cured or the buyer accepts the nonconforming goods.
Buyer in breach -- if a buyer breaches a sales contract by refusing to take delivery of conforming goods or repudiating the contract before the risk of loss would normally transferred to him or her, the buyer bears the risk of loss of any goods identified in the contract for a reasonable commercial time.
Risk of Loss: Lease Contracts
- agreement -- the parties to a lease contract may agree as to who will bear the risk of loss of the goods as they are lost or destroyed
- no agreement -- if the parties do not have an agreement concerning the assessment of risk of loss, the following UCC rules for risk of loss apply:
- ordinary lease -- the risk of loss is retained by the lessor
- finance lease -- the risk of loss passes to the lessee
- breach of contract -- if a tender of delivery of goods fails to confirm to the lease contract, the risk of loss remains with the lessor or supplier on till acceptance or cure
Sales by Nonowners
If a person sells goods that he or she does not hold valid title to, the buyer acquires rights in the goods under the UCC
Void title and lease: Stolen goods -- a thief acquirers no title to goods he or she steals. A person who purchases stolen goods does not acquire title to the goods. Any such title is called void title. The real owner can reclaim the goods from the purchaser. The purchasers recourse is to recover from the thief.
Voidable Title: Sale or Lease of goods to good-faith purchaser for value -- if goods are obtained by fraud, with a check that is later dishonored, or through impersonation of another person, the perpetrator acquirers voidable title to the goods. If the perpetrator sells for leases the goods to a good-faith purchaser or leasee for value -- a person who pays sufficient consideration or rent for the goods and honestly believes that the seller or lessor has good title to the goods -- the buyer or leasee acquirers did title to the goods. The real owners recourse is against the perpetrator who acquired the goods from him or her.
Entrustment Rule -- if an owner entrusts possession of his or her goods to a merchant who deals in goods of that kind (example. For repair) and the merchant sells those goods to a buyer in ordinary course of business (for example. A customer of the merchant), the buyer acquires title to the goods. The real owners recourse is against the merchant who sold his or her goods. This rule is called the entrustment rule.
