Title, Creditors And Good Faith Purchasers - - CA Commercial Law

Section § 2401

This law explains when and how the ownership of goods (known as 'title') transfers from the seller to the buyer. Generally, the buyer gets ownership once the goods are either shipped or delivered, but the exact moment depends on the details of the contract. Ownership typically can't transfer to the buyer before the goods are specifically identified for that particular sale. Even if a seller holds onto a document of ownership as a security, the goods' title will still pass to the buyer when the goods are delivered as agreed. If a buyer refuses the goods, whether justified or not, the ownership goes back to the seller.

Each provision of this division with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this division and matters concerning title become material the following rules apply:

(1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this code. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the division on secured transactions (Division 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.

(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading

(a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but

(b) If the contract requires delivery at destination, title passes on tender there.

(3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods,

(a) If the seller is to deliver a tangible document of title, title passes at the time when and the place where he delivers such documents and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document; or

(b) If the goods are at the time of contracting already identified and no documents of title are to be delivered, title passes at the time and place of contracting.

(4) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a “sale.”

title transfer buyer ownership seller's security interest goods identification delivery of goods tangible document of title electronic document of title shipment delivery at destination contract agreement title revesting refusal of goods revocation of acceptance

(Amended by Stats. 2006, Ch. 254, Sec. 37. Effective January 1, 2007.)

Section § 2402

This law talks about the rights of buyers and unsecured creditors when it comes to goods identified in a sales contract. If goods are identified for sale, the buyer's rights to get those goods come before the claims of unsecured creditors. However, a creditor can challenge the sale if the seller wrongfully keeps the goods. But if the seller keeps the goods temporarily and in good faith, that's usually okay. The law doesn't change how secured transactions work or affect situations where goods are identified or delivered to satisfy a pre-existing debt in a way that might be seen as a fraudulent deal under local laws.

(1) Except as provided in subdivisions (2) and (3), rights of unsecured creditors of the seller with respect to goods which have been identified to a contract for sale are subject to the buyer’s rights to recover the goods under this division (Sections 2502 and 2716).

(2) A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him or her a retention of possession by the seller is fraudulent or void under any rule of law of the state where the goods are situated, except that retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification is not fraudulent or void.

(3) Nothing in this division shall be deemed to impair the rights of creditors of the seller:

(a) Under the provisions of the division on secured transactions (Division 9); or

(b) Where identification to the contract or delivery is made not in current course of trade but in satisfaction of or as security for a pre-existing claim for money, security or the like and is made under circumstances which under any rule of law of the state where the goods are situated would apart from this division constitute the transaction a fraudulent transfer or voidable preference.

unsecured creditors buyer rights identified goods seller possession fraudulent retention merchant-seller commercially reasonable time secured transactions fraudulent transfer voidable preference pre-existing claim goods situated contract sale current course of trade seller's creditors

(Amended by Stats. 1988, Ch. 1368, Sec. 9. Operative January 1, 1990, by Sec. 18 of Ch. 1368.)

Section § 2403

This section explains how ownership of goods is transferred when someone buys them. If you buy something, you usually get whatever ownership rights the seller had. If you're a good faith buyer, you might get a good title even if the seller had issues like identity deception or a bounced check. If a merchant has goods and they're in the business of selling that type, they can transfer all rights to another buyer, but special rules apply to secured transactions, bulk transfers, and titles on goods.

(1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though

(a) The transferor was deceived as to the identity of the purchaser, or

(b) The delivery was in exchange for a check which is later dishonored, or

(d) The delivery was procured through fraud punishable as larcenous under the criminal law.

(2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.

(3) “Entrusting” includes any delivery and any acquiescence in retention of possession for the purpose of sale, obtaining offers to purchase, locating a buyer, or the like; regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under the criminal law.

(4) The rights of other purchasers of goods and of lien creditors are governed by the divisions on secured transactions (Division 9), bulk transfers (Division 6) and documents of title (Division 7).

purchaser rights good faith buyer voidable title merchant entrusting buyer in the ordinary course transfer of title limited interest purchase discretion in delivery fraudulent acquisition secured transactions disposition of goods acquisition through deception lien creditors merchant power identity deception

(Amended by Stats. 1967, Ch. 799.)