ownership risks in counterfeit parts transactions counterfeit electronic components avoidance...

OWNERSHIP RISKS IN COUNTERFEIT PARTS TRANSACTIONS

Counterfeit Electronic Components Avoidance Workshop

March 27, 2008

Laurence E. Pappas

© Equality Services, LLC 2008


I. Allocation of Interest and Risk of Loss

A. In general → Title to goods is not controlling. Title does not determine risk of loss, Seller’s right to the sales price, or Buyers right to the goods.

What is important?

1. identification 2. insurable interest 3. risk of loss




B. Identification 1. Identification of specific goods takes place at

time contract is made if goods already exist.

2. Identification takes place when goods are shipped, marked, or otherwise

designated by Seller as goods to pass under the contract.




C. Insurable Interest

1. Buyer has insurable interest even before risk of loss passes to him.

2. Seller has insurable interest as long as Seller has title or security interest.




D. Risk of Loss → Concept that denotes which party will pay for goods that are lost, stolen, damaged or destroyed. Risk of loss starts with Seller but shifts to Buyer at some point during transaction. Risk of loss may shift even before Buyer takes possession of goods.

1. Risk in Absence of Breach

a. Carrier cases

1. Contracts not requiring delivery at particular destination → Risk of loss

passes to Buyer when goods are delivered to carrier.




2. Destination Contracts → Risk of loss passes to Buyer when goods are

tendered to Buyer at destination.

b. Non-carrier cases; goods held by bailee to be delivered without being moved.

2. Effect of Breach on Risk of Loss

a. Defective goods → If defect entitles Buyer to reject, risk of loss does not pass until cure or

acceptance in spite of defects.




b. Revocation of Acceptance → Where Buyer revokes acceptance, risk of loss is treated as having

rested on Seller from the beginning to extent of any deficiency in Buyer’s insurance

coverage, the risk of loss at issue being that between time of acceptance and time of revocation of acceptance. Revocation must occur being damage to goods.

c. Breach by Buyer → Where goods are conforming and Buyer breaches before risk of loss passes,

any loss occurring after Seller learns of breach falls on Buyer to extent of deficiency in Seller’s insurance.




E. Rules for Passage of Title

1. Agreement by parties.

2. If no agreement, title passes when Seller completes his performance with

respect to delivery of goods.

a. Carrier cases

1. Non-destination contracts → Title passes at time and place of shipment.

2. Destination contracts → Title passes when goods are tendered at destination.

b. Non-carrier cases



II. Risk of Loss In Transit

A. Interstate Commerce Act (Carmack Amendment)

1. A common carrier is liable for any loss, damage or injury to an interstate shipment. 2. However, insurer’s liability is subject to common-law rule that shipper who intentionally fails to disclose the high value of his shipment in order to set a lower freight rate is barred by his misconduct from recovery for a loss the carrier did not anticipate.


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B. Cargo Insurance → Coverage for direct physical loss or damage to merchandise in transit. Phrase “lawful merchandise” used

often.

1. Lawful Merchandise → Defined as “property which may be legally held, sold, or exported; non contraband property”.

2. Contraband → Defined as “property which is unlawful to produce or possess. Goods exported from or imported

into a country against its laws”.




C. Cargo Insurance → Coverage for direct physical loss or damage to merchandise in transit.

Merchandise in Transit: Defined as not including contraband or other personal property in the course of illegal transportation or trade”.



Vendor

Buyer

Customer

III. Risk of Loss in Specific Transactions

Scenario 1: Buyer buys chips from Vendor and sells to Customer. Chips damaged in transit to customer.

Scenario 2: Same, but chips are found to be counterfeit.


ownership risks in counterfeit parts transactions counterfeit electronic components avoidance...

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