Clark 11e TB a Ch21

211

Chapter 21

Title, Risk, and Insurable Interest

TRUE/FALSE QUESTIONS

A1. Title is one concept that the UCC has substituted for the common lawconcept of risk of loss.

ANSWER: F PAGE: 421 TYPE: NNAT: AACSB Analytic AICPA Legal

A2. If a sale involves crops that are to be harvested within twelve months,identification takes place when the crops are planted or begin to grow.

ANSWER: T PAGE: 421 TYPE: =NAT: AACSB Reflective AICPA Legal

A3. In contracts involving a sale of unborn animals to be born within twelvemonths, identification takes place when the animals are conceived.


A4. When an owner holds fungible goods as a tenant in common, the ownercannot pass title to the goods without the other owners’ acquiescence.

ANSWER: F PAGE: 422 TYPE: NNAT: AACSB Reflective AICPA Legal

A5. A receipt issued by a warehouser for goods stored in a warehouse is a billof lading.


212 TEST BANK A—UNIT 4: DOMESTIC AND INT’L SALES & LEASE CONTRACTS

A6. Fungible goods are goods that can be delivered only by transport.


A7. A seller with voidable title can transfer good title to a good faithpurchaser for value.

ANSWER: T PAGE: 423 TYPE: NNAT: AACSB Analytic AICPA Legal

A8. When a lessee sells leased equipment to a third party, the lessor cannot,under any circumstances, recover the equipment from the buyer.

ANSWER: F PAGE: 425 TYPE: =NAT: AACSB Analytic AICPA Legal

A9. Under a shipment contract, the risk of loss passes to the buyer when theseller places conforming goods in the possession of the carrier.

ANSWER: T PAGE: 427 TYPE: =NAT: AACSB Analytic AICPA Legal

A10. Under a destination contract, the risk of loss passes to the buyer whenthe goods are duly delivered to the carrier.


A11. A warehousing company that normally issues documents of title forgoods it receives is a bailee.


A12. If a seller is not a merchant, the seller holds the goods, and the buyer isto pick them up, the risk of loss passes to the buyer on tender of delivery.


A13. If a lessor is a merchant, the risk of loss passes to a lessee when thelessee takes physical possession of the goods.


CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 213

A14. If a seller is not a merchant, and the goods are not to be moved, the risk ofloss cannot pass to a buyer.


A15. If a seller is a merchant, and the goods are not to be moved, the risk ofloss cannot pass to a buyer.


A16. A sale or return is a conditional sale.


A17. When goods are in a consignee’s possession, his or her creditors willprevail over the consignor in an action to repossess the goods.


A18. In a sale on approval, title and risk of loss pass only when the buyer ac-cepts the goods.


A19. When a buyer breaches a contract, the risk of loss immediately shifts tothe buyer.

ANSWER: T PAGE: 432 TYPE: +NAT: AACSB Analytic AICPA Legal

A20. A buyer and a seller cannot normally have an insurable interest in iden-tical goods at the same time.



MULTIPLE CHOICE QUESTIONS

A1. Uri sells 100 cases of vitamins to Wanda, but before she takes physicalpossession, the cases are lost. Under the UCC, the parties’ rights andobligations with respect to the loss depend on the concept of

a. physical possession.b. product liability.c. risk of loss.d. title.

ANSWER: C PAGE: 421 TYPE: NNAT: AACSB Reflective AICPA Legal

A2. Office Equipment Leasing, Inc. (OEL), agrees to lease five computerworkstations to Product Promotion Corporation (PPC). Before any inter-est in the workstations can pass from OEL to PPC, they must be

a. in existence and identified as the goods in the contract.b. in existence only.c. identified as the specific goods designated in the contract only.d. none of the choices.

ANSWER: A PAGE: 421 TYPE: =NAT: AACSB Reflective AICPA Legal

A3. Alaskan salmon that fill the hold of Bill and Carla’s fishing boat arefungible if the salmon are

a. alike naturally or by agreement or trade usage.b. fundamentally different.c. fun, good, and edible.d. liable to deteriorate over time.

ANSWER: A PAGE: 422 TYPE: NNAT: AACSB Reflective AICPA Legal

A4. Kip, a representative for Little Shipping Company, delivers a bill oflading to Meg, the owner of Normal Warehouse. A bill of lading is

a. an invoice for payment for loading and carting.b. an order to ship goods by carrier to a certain destination.c. a receipt for goods signed by a carrier.d. a receipt issued by a warehouser for goods in a warehouse.

ANSWER: C PAGE: 422 TYPE: NNAT: AACSB Reflective AICPA Legal


A5. Rani leaves a pair of new shoes at Soles Shoe Store to be dyed. Soles sellsthe shoes to Tia, who does not know that the shoes belong to Rani. Ranican recover from

a. neither Tia nor Soles Shoe Store.b. Soles Shoe Store only.c. Soles Shoe Store or Tia.d. Tia only.

ANSWER: B PAGE: 425 TYPE: =NAT: AACSB Reflective AICPA Legal

A6. Ideal Gadgets, Inc., and Jolly Outlets Corporation enter into a contractfor a sale of kitchenware. The contract requires Ideal to deliver the goodsto Ladle Carrier Company for transport to Jolly’s warehouse in MetroCity. Risk of loss passes to Jolly when

a. Ideal delivers the goods to Ladle.b. Ideal identifies the goods to the contract.c. Ladle transports the goods to Jolly’s warehouse.d. the goods arrive in Metro City.

ANSWER: A PAGE: 427 TYPE: NNAT: AACSB Reflective AICPA Legal

A7. Home Products Store buys furniture from Ideal Furniture, Inc. Theparties agree that the furniture will be shipped “F.O.B. Ideal’s ware-house” to Home Products via Jiffy Shipping Corporation. The furniture islost in transit. The loss is suffered by

a. Home Products and Ideal Furniture, but not Jiffy Shipping.b. Home Products, Ideal Furniture, and Jiffy Shipping.c. Home Products only.d. Ideal Furniture only.

ANSWER: C PAGE: 427 TYPE: =NAT: AACSB Reflective AICPA Legal

A8. Real Tea Company and Savory Stores, Inc., enter into a contract for asale of tea. The contract includes the term “F.O.B. Upriver City,” whichis Savory’s location. This means that the contract is

a. a bailment contract.b. a destination contract.c. a shipment contract.d. a transportation contract.

ANSWER: B PAGE: 428 TYPE: NNAT: AACSB Reflective AICPA Legal


A9. Fine Material Corporation in New Jersey sells fifty tons of fabric toGreat Clothing, Inc., in Ohio, F.O.B. New Jersey. The cost of transportingthe fabric to Ohio will be paid by

a. Fine Material.b. Great Clothing.c. New Jersey.d. Ohio.


A10. Martin buys 1,000 bales of hay from Nuevo Farms. The parties agreethat the hay will be transported F.A.S. via Overland TransportCompany. Nuevo Farms’ truck carrying the hay explodes before reach-ing Overland Transport. The loss is suffered by

a. Martin and Nuevo Farms, but not Overland Transport.b. Martin, Nuevo Farms, and Overland Transport.c. Martin only.d. Nuevo Farms only.

ANSWER: D PAGE: 428 TYPE: =NAT: AACSB Reflective AICPA Legal

A11. Perfect Furnishings, Inc., agrees to lease a desk to Research Resources,Inc. (RRI), which requests that the desk be left outside StreetsideWarehouse for RRI to pick up. Before RRI retrieves the desk, it is stolen.The loss is suffered by

a. Perfect Furnishings and RRI, but not Streetside Warehouse.b. Perfect Furnishings only.c. Perfect Furnishings, RRI, and Streetside Warehouse.d. RRI only.


A12. Twyla buys a bicycle from U-Pik-It Bike Store, which agrees to keep thebike for Twyla until she picks it up. Before Twyla gets the bike, a firedestroys the store and the bike. The loss is suffered by

a. neither Twyla nor U-Pik-Itb. Twyla and U-Pik-It.c. Twyla only.d. U-Pik-It only.



A13. Delta Products Corporation contracts with Excel Trucking Company totake goods to Flight Airlines, Inc., with Flight to transport the goods to aGeo Storage Company warehouse. Excel, Flight, and Geo each acknowl-edge possession of the goods by a document of title. Excel, Flight, and Geoare

a. bailees.b. consignees.c. lessees.d. sellers.


A14. Crest Jewelers buys diamonds from Excel Gems to resell with the rightto return the unsold stones in lieu of payment. This is

a. a bailment.b. a consignment.c. a sale on approval.d. a sale or return.

ANSWER: D PAGE: 432 TYPE: NNAT: AACSB Reflective AICPA Legal

A15. Relax Recreation Toys, Inc., allows Sandy to take a Relax boat for a “testrun.” Sandy tries the boat for a few hours, returns, and buys it. This is

a. a bailment.b. a consignment.c. a sale on approval.d. a sale or return.

ANSWER: C PAGE: 432 TYPE: =NAT: AACSB Reflective AICPA Legal

A16. Eagle Company sells new and used motorcycles. Some of the motorcyclesare held on consignment, including six consigned by Fine Cycles, Inc.While the Fine cycles are in Eagle’s possession, title to them is held by

a. Eagle and Fine jointly.b. Eagle only.c. Eagle’s creditors only.d. Fine only.



A17. Town Style Stores orders leather jackets from Unique ClothingCompany. Unique mistakenly ships denim jackets, which Town rejectsand returns via Value Transport, Inc. During the return, the jackets arelost. The loss is suffered by

a. Town and Unique, but not Value.b. Town only.c. Town, Unique, and Value.d. Unique only.


A18. NuStores accepts a shipment of DVD players from Open-Ur-Eyes Video,Inc. NuStores later discovers a defect in the players, revokes acceptance,and returns the players via Playback, Inc. During the return, the play-ers are lost. The loss is suffered by

a. NuStores only.b. NuStores and Open-Ur-Eyes, but not Playback.c. NuStores, Open-Ur-Eyes, and Playback.d. Open-Ur-Eyes only.


A19. Essen Corporation buys from Fallow Farms, Inc., a rice crop that Fallowplans to plant and harvest during the next growing season. Essen plansto sell the rice to Gourmet Grocery Stores. After the rice is planted, butbefore it is harvested, an insurable interest in the rice exists in

a. Essen and Fallow, but not Gourmet Grocery.b. Essen, Fallow, and Gourmet Grocery.c. Essen only.d. Fallow only.



A20. Quik Sales Corporation orders goods from Re Stock Company. Re plans tomarket the goods to consumers generally. Re identifies the goods. Beforethey are shipped to Quik, an insurable interest in the goods exists in

a. Quik and Re, but not consumers generally.b. Quik only.c. Quik, Re, and consumers generally.d. Re only.


ESSAY QUESTIONS

A1. In the following situations, two parties claim the same goods. Who ismost likely to prevail in each circumstance? Explain.(a) Olan steals Phil’s television set and sells it to Quincy, an innocent

purchaser, for value. Phil learns Quincy has the set and demandsits return.

(b) Riley takes his television set for repair to Silky, a merchant whosells new and used television sets. By accident, one of Silky’semployees sells the set to Tuna, an innocent purchaser-customer,who takes possession. Riley wants his set back from Tuna.

ANSWER: (a) A buyer acquires whatever title the seller has to thegoods sold. If the seller is a thief, the seller’s title is void (seller has notitle). Thus, the buyer can acquire no title, and the real owner hassuperior rights. Under those principles, Phil can recover the televisionset from Quincy.

(b) When a person “entrusts” goods to a merchant (a person whodeals in goods of that kind), the merchant has the power to transfer agood title to any purchaser who acquires the goods in the ordinarycourse of business. Riley entrusted his set to merchant Silky. Silky dealsin goods of that kind. Therefore, Silky could pass good title to the set soldto a customer (Tuna) because Tuna purchased the goods in the ordinarycourse of business. Consequently, Riley cannot get the set back fromTuna. (But Silky the merchant is liable to the true owner, Riley, for theequivalent value of the set).

PAGES: 423–427 TYPE: NNAT: AACSB Reflective AICPA Decision Modeling

A2. Quality Computer Company agrees to sell one hundred hard drives toRetail Electronics, Inc. The hard drives, which Retail Electronics ex-pressly requires to have certain amounts of memory, are to be shipped“F.O.B. Retail Electronics distribution center in Memphis, TN.” When


the drives arrive, Retail Electronics rejects them and informs QualityComputer, claiming that the drives do not conform to Retail Electronics’memory requirement. A few hours later, the drives are destroyed in a fireat Retail Electronics’ distribution center. Will Quality Computer succeedin a suit against Retail Electronics for the cost of the goods?

ANSWER: No, because the goods were nonconforming, and so the costof their loss will be borne by Quality Computer, the seller. When goodsare shipped and destroyed while in the possession of the buyer, if acontract does not state who bears the risk of loss, the determining factoris whether there has been a breach of the contract. There is a breach ifthe goods are so nonconforming as to give the buyer a right of rejection.In that situation, the risk of loss belongs to the seller until the defectsare cured or until the buyer accepts the goods in spite of their defects. Itmakes no difference, in these circumstances, whether the agreement is ashipment contract or a destination contract. Here, the goods were de-stroyed without their defects being cured and without the buyer’saccepting them anyway.

PAGE: 432 TYPE: =NAT: AACSB Reflective AICPA Decision Modeling

Clark 11e TB a Ch21

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