1. Chapter 16
Sections 1-2
Business Law
Mr. Whisel

2. 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?

3. 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

4. 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?

5. 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

6. 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)

7. 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

8. 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

9. 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.

10. 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?

11. 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

12. Requirement For Transfer of
Ownership
• 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

13. 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.

14. More Requirements
• Fungible goods become transferred at the
time of agreement because they are all
identical

15. 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?

16. 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

17. End of Section 16-1
• THINK ABOUT LEGAL CONCEPTS
• THINK CRITICALLY ABOUT EVIDENCE

18. 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

19. 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

20. 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?

21. 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

22. 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

23. 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.

24. 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.

25. 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?

26. WHEN DO INSURABLE PROPERTY INTERESTS
TRANSFER?
• The buy obtains a special property interest in
goods at the time of their identification.

27. 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?

28. End of Section 16.2
• THINK ABOUT LEGAL CONCEPTS
• THINK CRITICALLY ABOUT EVIDENCE

29. 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

30. End of Chapter
CHAPTER IN REVIEW