Since we're not lawyers, let's forget the legalities and just talk about what's fair. It seems terrible that people should be forced to sell their luggage to a

Since we're not lawyers, let's forget the legalities and just talk about what's fair. It seems terrible that people should be forced to sell their luggage to an airline... because the airline lost it. At the time the airline offers compensation, the choice is between nothing and whatever the airline offers. That's can hardly be considered a fair exchange of ownership. Obviously, it's built in to the situation that there is a low chance the luggage will be recovered. I'd say if the luggage is recovered, the airline could request money back, minus an amount to compensate the travelers for the inconvenience and the temporary loss of the items. Consider, e.g., that they may have needed to replace some items on short notice. If the amount the airline paid is as small as is suggested here, it doesn't sound like they should get much of anything back. Note that the travelers recovered the luggage themselves.