Returnable Goods Transactions Discussion

Returnable Goods TransactionsThe parties may agree that the goods to be transferred under the contract can be returnedto the seller. This type of arrangement in which goods may be returned is classified as oneof the following: (1) a sale on approval, (2) a sale or return, or (3) a consignment sale. Inthe first two types of transactions, the buyer is allowed to return the goods as an addedinducement to purchase. The consignment sale is used when the seller is actually theowners agent for the purpose of selling goods.26C P A Sale on ApprovalIn a sale on approval, no sale takes place (meaning there is no transfer of title) until thebuyer approves, or accepts, the goods. Title and risk of loss remain with the seller until thereis an approval. Because the buyer is not the owner of the goods before approval, thebuyers creditors cannot attach or take the goods before the buyers approval of the goods.The buyers approval may be shown by (1) express words, (2) conduct, or (3) lapse oftime. Trying out or testing the goods does not constitute approval or acceptance. Any usethat goes beyond trying out or testing, such as repairing the goods or giving them away asa present, is inconsistent with the sellers continued ownership. These types of uses showapproval by the buyer. For Example, a buyer may order a home gym through a televisionad. The ad allows buyers to try the room full of equipment for 30 days and then promises,If you are not completely satisfied, return the home gym and well refund yourmoney. The offer is one for a sale on approval. If the buyer does not return the homegym equipment or contact the seller within 30 days, the sale is complete.The contract may give the buyer a fixed number of days for approval. The expirationof that period of time, without any action by the buyer, constitutes an approval. Alsoduring this time, the buyers creditors cannot take the goods pursuant to a judgment orlien. If no time is stated in the contract, the lapse of a reasonable time without action bythe buyer constitutes an approval. If the buyer gives the seller notice of disapproval, thelapse of time thereafter has no effect.If the buyer does not approve the goods, the seller bears the risk of and expense fortheir return.Sale or ReturnA sale or return is a completed sale with an option for the buyer to return the goods.Revised Article 2 provides a new distinction between sale on approval and sale or returnbut with the same basic rules on title and risk of loss.In a sale or return transaction, title and risk of loss pass to the buyer as in the case ofthe ordinary or absolute sale. Until the actual return of the goods is made, title and risk ofloss remain with the buyer. The buyer bears the expense for and risk of return of thegoods. In a sale or return, so long as the goods remain in the buyers possession, thebuyers creditors may treat the goods as belonging to the buyer.
Consignments and FactorsUnder a consignment, the owner of the goods entrusts them to a dealer for the purposeof selling them. The seller is the consignor, and the dealer is the consignee. The dealerconsigneeis often referred to as a factor, a special type of bailee who sells consigned goods just as if the goods were her own. The dealer-consignee is paid a feefor selling the goods on behalf of the seller-consignor. A consignment sale is treated as asale or return under Article 2, and the dealer-consignee has full authority to sell the goodsfor the consignor and can pass title to those goods. While the goods are in the possessionof the consignee, they are subject to the claims of the sellers creditors

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