This is “Title and Risk of Loss”, chapter 14 from the book The Legal Environment and Business Law: Master of Accountancy Edition (v. 1.0). For details on it (including licensing), click here.
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Chapter 14 Title and Risk of Loss
Learning Objectives
After reading this chapter, you should understand the following:
- Why title is important and at what point in the contracting relationship the buyer acquires title
- Why risk of loss is important, when risk of loss passes to the buyer, and when the buyer acquires an insurable interest
- Under what circumstances the buyer can obtain title when a nonowner sells the goods
Parties to a sales contract will usually agree on the obvious details of a sales transaction—the nature of goods, the price, and the delivery time, as discussed in the next chapter. But there are two other issues of importance lurking in the background of every sale:
- When does the title pass to the buyer? This question arises more in cases involving third parties, such as creditors and tax collectors. For instance, a creditor of the seller will not be allowed to take possession of goods in the seller’s warehouse if the title has already passed to the buyer.
- If goods are damaged or destroyed, who must bear the loss? The answer has obvious financial significance to both parties. If the seller must bear the loss, then in most cases he must pay damages or send the buyer another shipment of goods. A buyer who bears the loss must pay for the goods even though they are unusable. In the absence of a prior agreement, loss can trigger litigation between the parties.