Chapter 25
Passage of Title and Risk of Loss:
Rights of Parties
Twomey, Business Law and the
Regulatory Environment (14th Ed.)
Duties under Particular Terms [25-1]
CIF
Cost,
Insurance,
Freight
CF
Cost,
Freight
FOB
Free on
Board
FAS
Free
Alongside
Named Vessel
Ex-Ship
Buyer pays the seller for costs of
goods, insurance, and freight.
Risk of loss and title pass to buyer
after goods delivered to the carrier.
Buyer pays the seller costs of goods
and freight to a specified location.
Risk of loss and title pass to buyer
after goods delivered to the carrier.
Seller obligated to put the goods on
board named vessel, truck, or carrier
or
make tender at a named point (place).
Risk of loss and title pass to buyer
at the F.O.B. point. Seller pays costs
to point, buyer from point.
Seller must deliver goods alongside
vessel at own expense and risk.
Risk of loss and title pass to buyer
at the shipping point.
Seller must deliver or unload goods
from ship at port to destination.
Risk of loss and title pass to buyer
when goods are properly unloaded.
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Passage of Title under Article II [25-2]
Existing
Time of
Contract
Goods Identified?
Future
Yes
No
Delivery
No
Title Cannot Pass
Yes
Document of Title
Yes
Title Passes
upon Delivery
of Title
Document
Fungible
Shipped,
Marked, or
Otherwise
Designed
No
FOB Destination
Title Passes
upon Tender
FOB Shipment
Title Passes
upon Delivery of
Goods to Carrier
Title Passes at
Time of
Contracting
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Risk of Loss [25-3]
Identification
Shipment
FOB
Shipment
FOB
Destination
Passes to Passes to
Buyer
Buyer
upon
upon
Delivery
Tender
to Carrier
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Warehouse
(Third Party)
Non-Shipment
Merchant
NonMerchant
Passes to
Buyer
upon
Receipt
Sale on Approval
Sale or Return
Other
Document
Document
of Title
Passes to
Buyer
upon
Tender
Passes to
Buyer
upon
Receipt of
Document
Chapter 25
No
Document
Passes to
Buyer
when
Buyer Is
Notified
Goods
Are
Available
Passes to
Buyer
when
Buyer
Accepts
Goods
Passes to
Buyer
under
Same
Rule as
Ordinary
Sale
4
Risk and Property
Rights in Sales Contracts
Nature of
Goods
Terms of
Transaction
Existing
Goods
Identified
at Time of
Contracting
Future
Goods
Transfer of Risk
of Loss to Buyer
Transfer of Title to
Buyer
Acquisition of
Insurable Interest
by Buyer
Time and place of
contracting
§2-501(1)(a)
1. Without
Document of
Title
Buyer’s receipt of
goods from merchant
seller, tender of
delivery by
nonmerchant seller
§ 2-509(3)
Time and place of
contracting*
§ 2-401(3)(b)
2. Delivery of
Document of
Title Only
Time and place of
delivery of
documents by seller
§2-401(3)(a)
No transfer until a
later event
Time and place of
contracting
§ 2-501(1)(a)
3. Marking for
Buyer
Buyer’s receipt of
negotiable document
of title
§ 2-509(2)(a)
No transfer until a
later event
4. Contract for
Shipment to
Buyer
Delivery of goods to
carrier
§ 2-509(1)(a)
Delivery of goods to
carrier
§ 2-401(2)(a)
Delivery to carrier or
marking for buyer
§ 2-501(1)(b)
5. Contract for
Delivery at
Destination
Tender of goods at
destination
§ 2-509(1)(b)
Tender of goods at
destination
§ 2-401(2)(b)
Delivery to carrier or
marking for buyer
§ 2-501(1)(b)
At time of marking
§ 2-501(1)(b)
*Assumes no document of title
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Shipping Terms
COD
Cash on Delivery (payment term, not shipment term)
CF
Lump sum, price includes cost and freight
Risk-buyer upon delivery to carrier
Title-buyer upon delivery to carrier
Expense-seller includes cost of freight in contract
price
CIF
Lump sum, price includes cost, insurance, and freight
Risk-buyer upon delivery to carrier
Title-buyer upon delivery to carrier
Expense-included in contract price (seller buys
insurance in buyer’s name, and pays freight)
FOB
Free on Board
FAS
Free Alongside (FOB for boats)
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Chapter 25 Summary
Problems relating to risk and property rights
in sales transactions often involve damage to
the goods, the claims of creditors, and
insurance. In the absence of an agreement, the
solution to these problems depends on the
nature of the transaction between the seller
and the buyer. Sales transactions may be
classified according to the nature of the goods
and the terms of the transactions.
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Chapter 25 Summary [2]
Existing goods are physically in existence and owned
by the seller. Future goods are not yet owned by the
seller or are not yet in existence. The title to existing
goods that are identified at the time of the contract
passes to the buyer at the time the parties agree to the
transaction. Once the goods are identified, both the
buyer and the seller have an insurable interest in the
goods. If the goods are damaged after the sales
agreement has been made, a merchant seller bears the
loss occurring until the time the buyer receives the
goods.
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Chapter 25 Summary [3]
If the seller is not a merchant, the risk of loss
passes to the buyer when the goods are tendered
or made available to the buyer. In a shipment
contract, title and risk of loss pass at the time
and place of shipment; in a destination contract,
title and risk pass when the goods are made
available at the destination. As long as the goods
are unidentified, neither title nor risk of loss
passes to the buyer.
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Chapter 25 Summary [4]
In cases where the risk of loss would ordinarily pass to
the buyer, the risk remains with the seller if the goods
do not conform to the contract. Even when the goods
do conform to the contract, the buyer and seller could
have agreed in their contract that the goods may be
returned. The nature of their agreement, such as a sale
on approval, sale or return, or consignment sale,
determines who has title and who bears the risk of loss.
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Chapter 25 Summary [5]
The reservation of a security interest in
goods does not affect the question of whether
title or risk of loss has passed to the buyer.
Ordinarily, sellers cannot pass any better
title than they possess. In some cases, however,
the law permits a greater title to be transferred.
These exceptions protect good-faith purchasers.
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