Figure 8.2
A sale is defined as a transaction that involves the passing of a title from the seller to the buyer
for a price. (Credit: Negative Space/ pexels/ License: CC0)
Issues Associated with Title
Imagine the following scenario: A café purchases a new coffee machine from a supplier. However, when the
supplier tries to deliver the equipment to the café, it is involved in an accident and the coffee machine is
destroyed. A question emerging from this scenario is this: Is the supplier legally obligated to replace the
machine? Asked differently: Who holds the good title in this scenario?
Prior to the introduction of the Uniform Common Code, the loss would have fallen on the owner of the café,
since he or she paid for the coffee machine prior to taking possession of it. Under the UCC, however, as long
as the supplier is considered a merchant, the risk of loss remains with the merchant until the buyer takes
possession of the good.
Given problems like the one described above, the UCC separately considers four specific issues relating to
titles:
•
Ownership. Under consideration is the question of when the title transfers from vendor to vendee, and
hence when ownership is said to occur.
•
The concept of encumbrance considers when the vendee is granted an interest in the good such that the
good can be used as collateral for a debt.
•
The UCC considers when the risk of loss attaches and what the responsibilities of the buyer and seller are
to each other, should a loss occur.
•
Insurable interest is the right to insure the goods against exposure to risk of loss or damage
The UCC allows four scenarios for sales contracts: simple delivery contracts, common-carrier delivery
contracts, goods-in-bailment contracts, and conditional sales contracts.
Each type involves the title, risk of loss, and insurable interest passing at different times.
A simple delivery contract occurs when the goods are transferred from the buyer to the seller at the time of
the sale or later, e.g., if the goods are delivered. Title transfers when the contract is executed, insurable
Chapter 8 Sales Contracts
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