Deck 18: Transfer of Title and Risk in Sales Contracts

Question 1

What problems can arise when there is a question about who the owner of goods is?

Answer 1

Following are few of the problems that may arise when there is a doubt about the owner of goods:
• Goods may be seized by creditors of the seller based on the assumption that they are owned by the seller.
• Goods may also be seized by the creditors of the buyer based on the assumption that they are owned by the buyer.
• Transactions where goods are resold by the buyer are important from the ownership perspective.• Tax liability may be difficult to compute when there is a doubt about the ownership.

Question 2

Automotive Finance Corporation (AFC) provided financing to R American Auto Inc. (R American) and got a security interest in all of R American's current and future inventory. R American bought a white Corvette. AFC took possession of the Corvette's certificate of title. Kip Rowley, the owner of R American, gave AFC a business check for $43,220 as payment in full for the Corvette, and on January 31, AFC gave Rowley the certificate of title. The check was dishonored, and AFC could not find the car. A year later, Steven Tolbert asked the court to release AFC's lien on the Corvette. He alleged that he was a bona fide purchaser of the Corvette. Tolbert testified he paid Kip Rowley $52,000 on November 2, and immediately took possession of the car. However, on December 12, an agent of AFC had physically inspected the Corvette on R American's lot. Tolbert had not received a bill of sale, a receipt for his payment, or the certificate of title. He testified that Rowley had given him a bill of sale and certificate of title the following January 21. Tolbert learned about AFC's lien when he attempted to have the Corvette titled in his name. Tolbert claimed he was a bona fide purchaser for value. Was he?

Answer 2

Opinion:
In the case Tolbert v. Automotive Finance Corp. (AFC), WD 71908 (2011), the trial court found in favor of AFC and ordered Tolbert to pay damages in the amount of $53,904.41 on AFC's conversion claim.
The appellate court affirmed.AFC filed a claim against Tolbert for conversion stating that Tolbert was not a bona fide purchaser for value and the trial and appellate courts agreed with AFC.
The court determined that Tolbert's claim of bona fide purchaser was voided when he was put on notice of the irregularities in the seller's title. In this case, a reasonably prudent buyer would have questioned the title and the fact that there was not bill of sale or certificate of title offered in the sale.Therefore, Tolbert was NOT a bona fide purchaser for value.

Question 3

If goods are to be sent to the buyer, when is the seller's performance completed?

Answer 3

Title Passes:
Under Uniform Commercial Code (UCC) § 2-401 , when goods are created and identified, the provisions apply to passage of title. Unless otherwise specifically agreed means that any specific understanding (meeting of the minds) between buyer and seller controls when title passes.
Without that specific understanding, buyer receives title to goods at the time and place the seller performs (by delivering the goods) under (UCC) § 2-401(2).
Therefore, goods stored by the seller pass title when the buyer is in possession of appropriate documentation. When title documentation is not required and the goods have been identified, title passes where and when the sales contract is made.
Title does not pass under UCC § 2-401(3) unless the goods have been identified.

Question 4

Michelle Schneider and Michael Goldmuntz were close family friends, both involved in the jewelry business, although for different companies. Goldmuntz transferred to Schneider jewelry worth just over $200,000. They entered into a written contract, which they entitled "promissory note," calling for two separate payments from Schneider to Goldmuntz totaling the wholesale value of the jewelry. Schneider pledged some of her property as collateral in the agreement. The agreement made no mention of Schneider's ability to sell the jewelry, at what price it could be sold, or any commission to be paid to Goldmuntz. When Schneider failed to make the agreed payments, Goldmuntz sued. Schneider defended that their agreement was not sale or return, but rather a consignment, so that she was not liable to pay unless or until the jewelry had been sold. Was Goldmuntz entitled to be paid on the "promissory note"?

Question 5

When does title to existing and identified goods that are not to be transported pass?

Question 6

Rad Source Technologies Inc. sold a blood irradiation machine to the University of Illinois. It was to be shipped FOB Atlanta. After arriving in Atlanta, the irradiation unit was damaged in transit, so the university sued Rad Source. Rad Source had a general liability insurance policy from Colony National Insurance Company. Colony refused to defend the lawsuit, because the policy excluded damage from assumption of liability in a contract. Rad Source asked the court to declare that Colony had a duty to defend the suit and indemnify it because Rad Source had not assumed liability for shipment of the unit. The lawsuit hinged on what Rad Source's responsibility for the machine was during shipment. What was Rad Source's responsibility?

Question 7

Why does the risk of loss remain longer on a merchant seller when goods are existing and identified at the time of contracting?

Question 8

Robert Wilson gave Kenneth West a cashier's check, so West signed the title to his Corvette to Wilson and gave him the car. When West found out the cashier's check was a forgery, he filed a stolen-car report. Two years later, the police ran a check on the car's vehicle identification number and found that Tammy Roberts held the title to the car. Roberts had paid her brother for the car that he had bought in response to a newspaper ad. Roberts did not know it was stolen. West sued Roberts for possession of the car. Should he be able to recover it?

Question 9

What interest in the goods does a buyer have at the time and place of contracting when documents that can transfer title represent existing, identified goods?

Question 10

Steve Hammer and Ron Howe gave Kevin Thompson possession of 150 heifers for grazing. Thompson was an order buyer-he bought cattle for people who wanted to buy them and tried to help sell cattle for people who wanted to sell them. Thompson sold the 150 heifers to Roger Morris. Hammer and Howe sued. Thompson had purchased cattle in twenty-five transactions but made only six sales during the year prior to selling Hammer and Howe's heifers. During the five months after that sale, Thompson made many purchases but only one sale. Morris alleged the sale to him was by a merchant who dealt in goods of the kind. Was it?

Question 11

When do title and risk of loss pass to the buyer of future goods?
b. Does a buyer have any interest in future goods before title and risk of loss pass?

Question 12

Italian Designer Import Outlet, Inc. d/b/a Casa Italia (Italia) sold men's clothing from several different suppliers, each with separate agreements regarding payments and returns. For example, with respect to one manufacturer, Cantoni I.T.C. USA, Inc. (Cantoni), approximately 70 percent of Italia's inventory was supplied directly from Cantoni's parent in Italy, with the balance from Uomonuovo, Gucci, and Xegna. For some transactions, payment was made "up front," for others, half payment "up front" with the balance due in 60 days, and for others, payment was not made until after both retail sale and the expiration of any time period for returns. A steam pipe burst in Italia's retail facility, and Italia made a claim for water damage to inventory to New York Central Mutual Fire Insurance Company (Mutual). Mutual declined coverage for certain items on the basis that Italia only held them for consignment purposes, and did not actually "own" those items. Italia claimed all the items had been sold to Italia on a "sale or return" basis. Was this situation best characterized as consignment or sale or return?

Question 13

When goods are to be sold FOB, how long does the seller bear the risk of loss and expense of transportation?

Question 14

A kiwi grower located in Italy, Martini E Ricci Iamino S.P.A. (Martini) contracted with Trinity Fruit Sales Company, Inc. (Trinity), a fruit wholesaler located in Fresno, California, to sell its crop of kiwifruit on an open consignment basis for the open market. There was no formalized written contract; there was an oral agreement followed by e-mails, transmitted accountings and, of course, net proceeds from Trinity back to Martini. After the success of the relationship in the first growing season, Martini contacted Trinity about the next season. Again, there were oral agreements, followed by e-mails covering particular issues as they arose. Trinity did not pay for boxes as they were shipped, but remitted a portion of the proceeds after Trinity sold the boxes on the open market. Martini alleged that there were minimum price expectations for each box shipped, and when Martini did not receive the expected proceeds back from Trinity, brought suit for breach of contract under the United Nations Convention for the International Sale of Goods (CISG). Martini alleged that the arrangement with Trinity was a sale, clearly covered and governed by the CISG. Trinity argued that the arrangement was in fact a consignment and, as a result, not covered by the CISG. Was it a sale or consignment?

Question 15

If damage occurs to goods before risk of loss passes, what options does the buyer have?

Question 16

Jackson Paper Manufacturing Company (Jackson) used recycled materials to make medium paper that was used to make cardboard. It supplied Stonewall Packaging, LLC (Stonewall) with paper, and Stonewall made cardboard. Stonewall did not buy paper from Jackson until it was actually used in making cardboard. Best Cartage Inc. (Best) was a trucking company that had an exclusive transportation contract with Stonewall. However, Jackson negotiated the terms of the contract and signed on behalf of Stonewall. It used the services of Jackson and its employees without reimbursement; Jackson bought the realty on which Stonewall was located; Jackson hired the employees and renovated the building in which Stonewall operated; and they shared common officers and directors. After Stonewall was put in receivership, Jackson retrieved paper from Stonewall since it had supplied it on consignment. Best sued both Stonewall and Jackson for breach of contract rather than making a claim in the receivership. It claimed that Jackson used Stonewall as a shell to insulate itself from potential claims of creditors and that the consignment arrangement constituted wrongdoing. Should Best prevail?

Question 17

Normally, can a thief or finder transfer title to property to a purchaser? Explain.