It is not uncommon for contracting parties to sell and buy goods stored in a grain elevator or warehouse without physical movement of the goods. There are two possibilities:
1. Goods with documents of title. A first possibility is that the ownership of the goods is manifested by a document of title—―bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the
regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. ‖Uniform Commercial Code, Section 1-201(15). In that case, the UCC, Section
2-401(3) (a), says that title passes ―at the time when and the place where‖ the documents are delivered to the buyer.
2. Goods without documents of title. If there is no physical transfer of the goods and no documents to exchange, then UCC, Section 2-401(3)(b), provides that ―title passes at the time and place of contracting.‖ Here are examples showing how these concepts work. Suppose the contract calls for Delta Sponge Makers to ―ship the entire lot of industrial grade Sponge No. 2 by truck or rail‖ and that is all that the contract says about shipment. That‘s a ―shipment contract,‖ and the UCC, Section 2-401(2)(a), says that title passes to Very Fast Foods at the ―time and place of shipment.‖ At the moment that Delta turns over the 144 cartons of 1,000 sponges each to a trucker—perhaps Easy Rider Trucking comes to pick them up at Delta‘s own factory—title has passed to Very Fast Foods.
Suppose the contract calls for Delta to ―deliver the sponges on June 10 at the Maple Street warehouse of Very Fast Foods Inc.‖ This is a destination contract, and the seller ―completes his performance with respect to the physical delivery of the goods‖ when it pulls up to the door of the warehouse and tenders the cartons. Uniform Commercial Code, Section 2- 401(2)(b). ―Tender‖ means that the party—here Delta Sponge Makers—is ready, able, and willing to perform and has notified its obligor of its readiness. When the driver of the delivery truck knocks on the warehouse door, announces that the gross of industrial grade Sponge No. 2 is ready for unloading, and asks where the warehouse foreman wants it, Delta has tendered delivery, and title passes to Very Fast Foods.
Suppose Very Fast Foods fears that the price of industrial sponges is about to soar; it wishes to acquire a large quantity long before it can use them all or even store them all. Delta does not store all of its sponges in its own plant, keeping some of them instead at Central Warehousing. Central is a bailee, one who has rightful possession but not title. (A parking garage often is a bailee of its customers‘ cars; so is a carrier carrying a customer‘s goods.) Now assume that Central has issued a warehouse receipt (a document of title that provides proof of ownership of goods stored in a warehouse) to Delta and that Delta‘s contract with Very Fast Foods calls for
Delta to deliver ―document of title at the office of First Bank‖ on a particular day. When the goods are not to be physically moved, that title passes to Very Fast Foods ―at the time when and the place where‖ Delta delivers the document.
Suppose the contract did not specify physical transfer or exchange of documents for the purchase price. Instead, it said, ―Seller agrees to sell all sponges stored on the north wall of its Orange Street warehouse, namely, the gross of industrial Sponge No. 2, in cartons marked B300–B444, to Buyer for a total purchase price of $14,000, payable in twelve equal monthly installments, beginning on the first of the month beginning after the signing of this agreement.‖ Then title passes at the time and place of contracting—that is, when Delta Sponge Makers and Very Fast Foods sign the contract.
So, as always under the UCC, the parties may agree on the terms they want when title shifts. They can do that directly by just saying when—as in the Dow Chemical example—or they can indirectly agree when title shifts by stipulating delivery terms: shipment, destination, goods not to be moved. If they don‘t stipulate, the UCC default kicks in.
