Printable Format84-2-501. Insurable interest in goods; manner of identification of goods. (1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are nonconforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs
(a) when the contract is made if it is for the sale of goods already existing and identified;
(b) if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers;
(c) when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest season after contracting whichever is longer.
(2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified.
(3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.
History: L. 1965, ch. 564, ยง 66; January 1, 1966.
KANSAS COMMENT, 1996
1. This section defines when and how goods become identified to the contract. Upon identification, a buyer obtains an insurable interest and a "special property" interest in the goods. The advantages to the buyer of identification (and the corresponding special property interest) include the availability of remedies permitting the recovery of the goods themselves (84-2-502 and 84-2-716(3)); the right to inspect the goods (84-2-513); and standing to sue third parties that cause injury to the goods (84-2-722). The advantages to the seller of identification include the right to ship under reservation (84-2-505); possible excuse if the goods are damaged or destroyed (84-2-613); the availability of an action for the price of the goods (84-2-709); and standing to sue third parties that cause injury to the goods (84-2-722). Note that title to the goods cannot pass until they are identified to the contract, 84-2-401, although identification alone does not cause title to pass.
2. Under subsection (1), identification may occur in any manner "explicitly" agreed to by the parties to the contract. Absent agreement, goods are identified as provided in paragraphs (1)(a), (b), (c). Goods already existing and identified become identified to the contract when the contract is made. Future goods (other than crops or animals) become identified to the contract when shipped, marked, or designated as the goods subject to the contract. Crops become identified to the contract when they are planted or "otherwise become growing crops" only if they are to be harvested within twelve months or the next normal growing season. Likewise, young animals become identified to the contract when conceived only if the contract is for the sale of young to be born within twelve months. Official Comment 5 to this section explains that the mere making of a contract for the sale of an undivided share of an identified fungible bulk "effect(s) an identification if there is no explicit agreement otherwise." See also Reeves v. Pillsbury Co., 229 K. 423, 625 P.2d 440 (1981) (existing fungible bulk not identified).
3. The seller has an insurable interest in the goods under subsection (2) so long as the seller retains title or retains a security interest in the goods, such as by shipping under reservation (84-2-505) or taking a security interest under Article 9. Subsection (3) makes clear that the insurable interests of both the buyer and the seller under this section are in addition to any insurable interests established under non-Code law.
Law Review and Bar Journal References:
"Remedies for Breach of Sales Contract Under the Code," Keith Hey, 7 W.L.J. 35, 39 (1967).
"Commercial Transactions Under the New Bankruptcy Act," Paul B. Rasor, 48 J.B.A.K. 199, 204 (1979).
CASE ANNOTATIONS
1. Title to goods under K.S.A. 84-2-105, 84-2-401 cannot pass under a contract for sale prior to their identification to the contract. Reeves v. Pillsbury Co., 229 Kan. 423, 427, 428, 429, 625 P.2d 440.