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Chapter 21
Title, Risk, and Insurable Interest
TRUE/FALSE QUESTIONS
B1. Title and risk of loss can pass to the buyer from the seller before the goods are
identified to the contract.
B2. Identification takes place when specific goods are designated as the subject
mater of a sales or lease contract.
B3. Fungible goods are goods that are different naturally, by agreement, or by
trade usage.
B4. Any explicit understanding between the buyer and the seller determines when
title passes.
2 TEST BANK B—UNIT FOUR: DOMESTIC & INT’L SALES & LEASE CONTRACTS
B5. Generally, all contracts are assumed to be shipment contracts if nothing to the
contrary is stated in the contract.
B6. A bill of lading is a receipt signed by a warehouse for goods stored in a
warehouse.
B7. A seller with voidable title has the power to transfer good title to a good faith
purchaser for value.
B8. The entrustment rule basically allows innocent buyers to obtain legitimate title
to goods purchased from merchants even if the merchants do not have good
title.
B9. When the risk of loss for goods passes from a seller to a buyer is generally
determined by the contract between the parties.
B10. The contract term “delivery ex–ship” means that the risk of loss does not pass
to the buyer until the goods are properly unloaded from the ship or other
carrier.
CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 3
B11. Under a destination contract, the risk of loss passes to the buyer when the
goods are duly delivered to the carrier.
B12. When an agreement is ambiguous as go whether it is a shipment or a
destination contract, courts will normally presume that it is a destination
contract.
B13. The contract term “free on board” indicates that the selling price of goods
includes transportation costs to the specific F.O.B. place named in the contract.
B14. When a seller keeps the goods for pickup, if the seller is not a merchant, the
risk of loss passes to a buyer on tender of delivery.
B15. When a bailee is holding goods that are to be delivered under a contract
without being moved, the risk of loss cannot pass to a buyer.
B16. In a sale or return, a buyer has an option to return the goods and undo the
sale.
B17. The right to cure is the right of a party who tenders nonconforming performance
to correct his or her performance within the contract period.
4 TEST BANK B—UNIT FOUR: DOMESTIC & INT’L SALES & LEASE CONTRACTS
B18. When a buyer breaches a contract, the risk of loss remains with the seller.
B19. A buyer has an insurable interest in identified goods only if he or she has title to
the goods.
B20. A seller has an insurable interest in goods as long as he or she retains title to
the goods.
MULTIPLE CHOICE QUESTIONS
B1. Megan, an agent for a department store, orders one hundred dresses from
Sal’s Clothing Shop for the Spring Blossom Sale. There is no specific
agreement in the sale contract indicating when title will pass to the department
store. The title will pass to the department store when
a. Megan signs the contract.
b. Megan and the Sal’s Clothing Shop agent sign the contract.
c. Sal’s Clothing Shop physically delivers the dresses to the department
store.
d. Megan pays Sal’s Clothing Shop for the dresses.
CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 5
B2. Big Beef, Inc. raises calves to sell. Big Beef breeds its cows in April, and the
cows calve in February of the following year. In January, Andrea contracts with
Big Beef to buy fifty calves. Identification takes place in
a. January, when the contract is signed.
b. April, when the calves are conceived.
c. February, when the calves are born.
d. a reasonable period of time.
B3. Foster contracts with Golf Carts Unlimited, Inc. to buy five golf carts. The
contract lists the five carts as GC001, GC002, GC003, GC004, GC005.
Identification
a. requires that Foster verify his identity to take possession of the carts.
b. has taken place.
c. cannot take place until the contract is reviewed by a court.
d. will take place only when Foster pays for the golf carts.
B4. Pipes & Culverts Company orders six irrigation pumps from Quality Plumbing,
Inc. The pumps are stored in Restorers Warehouse. Under the terms of the
order, Quality must give Pipes & Culverts a warehouse receipt for the goods,
which the buyer will then pick up. Title to the goods passes to Pipes & Culverts
when
a. Quality stores the drives.
b. Pipes & Culverts orders the drives.
c. Pipes & Culverts picks up the drives.
d. Quality gives Pipes & Culverts a warehouse receipt for the drives.
6 TEST BANK B—UNIT FOUR: DOMESTIC & INT’L SALES & LEASE CONTRACTS
B5. Outdoor Outfitters Store contracts to buy fifty tents from Pitched Camp, Inc.
Unless the contract states otherwise, it is assumed to be
a. none of the choices.
b. a destination contract.
c. a shipment contract.
d. a delivery ex-ship.
B6. Johan steals Krispin’s car and sells it to Lemar. Krispin can recover the car
from Lemar
a. only if Lemar did not know that the car was stolen.
b. only if Krispin pays to Lemar the amount that Lemar paid to Johan for
the car.
c. only if Lemar knew that the car was stolen.
d. under any circumstances.
B7. Business Banners, Inc., and Cam’s Auto & Truck Sales Dealership enter into a
contract for a sale of thirty advertising banners emblazoned with Cam’s logo.
The terms do not explicitly or clearly indicate whether it is a destination or
shipment contract. A court would normally presume that it is
a. a delivery ex-ship.
b. a destination contract.
c. a shipment contract.
d. none of the choices.
CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 7
B8. Quaff n’ Quench Café buys twenty-five crates of oranges from Reynaldo
Produce, Inc. The parties agree to ship the oranges “F.O.B. Quaff n’ Quench ”
via Swiftline Trucking Company. The oranges rot in transit. The loss is suffered
by
a. Quaff n’ Quench.
b. Swiftline.
c. Columbia.
d. Reynaldo Produce.
B9. Drill Makers, Inc., and Edge Mine & Mill Supply Stores enter into a contract for
a sale of mining drill bits. The contract indicates that the price includes
transportation costs to a specific destination by including the term
a. C.I.F.
b. delivery ex-ship.
c. F.A.S.
d. F.O.B.
B10. Stubbs buys a Tred-brand bicycle from his brother, Uriah. Uriah agrees to keep
the bike at his house until Stubbs picks it up. During a storm, a tree falls from
Victor’s yard onto Uriah’s garage and destroys the bike. The loss of the bike is
suffered by
a. Stubbs.
b. Uriah.
c. Tred.
d. Victor.
8 TEST BANK B—UNIT FOUR: DOMESTIC & INT’L SALES & LEASE CONTRACTS
B11. QuickFreeze Storage, a bailee, holds goods for Restaurant Purveyor, Inc.,
which has contracted to sell the goods to Seafood Dining Company. The goods
are to be delivered without being moved. The risk of loss will pass to Seafood
Dining when it receives
a. a copy of Restaurant Purveyor’s contract with QuickFreeze Storage.
b. a copy of Restaurant Purveyor’s contract with Seafood Dining.
c. a negotiable document of title.
d. a notice that Seafood Dining’s payment for the goods has cleared.
B12. With a bill of lading, Interstate Transport Company acknowledges possession
of certain goods and contracts to deliver them. Interstate Transport is
a. a bailee.
b. a buyer in the ordinary course of business.
c. a good faith purchaser for value.
d. an F.O.B.
B13. Moving & Storage Company holds goods for National Distribution Corporation,
which contracts to sell them to Omni Stores, Inc. The goods are to be delivered
without being moved and are represented by a negotiable bill of lading. The
risk of loss passes to Omni Stores
a. if Moving & Storage refuses to honor the bill of lading.
b. if National Distribution gives the bill of lading to Moving & Storage.
c. if the goods are lost due to an “act of God.”
d. when Omni Stores receives the bill of lading.
CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 9
B14. Roadtrip County Fairs Corporation orders from Stuffed Animal Sales, Inc.,
goods that are stored in a Toy Box Maxi-Storage warehouse. Roadtrip pays for
the goods, delivery is via the transfer of a negotiable warehouse receipt, and
Roadtrip moves the goods out of the warehouse. The risk of loss passes to the
buyer when it
a. orders the goods.
b. pays for the goods.
c. receives the negotiable warehouse receipt.
d. moves the goods out of the warehouse.
B15. Effortless Workouts, Inc., offers to sell a treadmill to Farouk and sends it to him
on a trial basis. This is
a. a bailment.
b. a delivery ex-ship.
c. a sale on approval.
d. a sale or return.
B16. Gas & Wood Stove Shop receives Hearthwarm-brand stoves from Independent
Dealer, Inc., under a sale or return agreement. While the stoves are in Gas &
Wood’s possession, title is held by
a. Independent Dealer.
b. Gas & Wood.
c. Gas & Wood’s creditors.
d. Hearthwarm.
10 TEST BANK B—UNIT FOUR: DOMESTIC & INT’L SALES & LEASE CONTRACTS
B17. Quest Outdoor Store orders RiverRun-brand kayaks from Sports Merchandise,
Inc. Sports Merchandise mistakenly ships kayaks of the wrong size, which
Quest rejects and returns via Trans-State Shipping Company. During the re-
turn, the kayaks are lost. The loss is suffered by
a. Quest.
b. Trans-State.
c. RiverRun.
d. Sports Merchandise.
B18. Organicos Café orders five gallons of PureMaid-brand transfat-free olive oil
from Quico Cooking Supplies, Inc. Quico mistakenly ships soy oil, which
Organicos keeps, despite the nonconformity. The oil is destroyed in a fire. The
loss is suffered by
a. all of the parties as tenants in common in equal measure.
b. PureMaid.
c. Organicos Café.
d. Quico Cooking Supplies.
B19. Motor Vehicles Service Company orders NoBounce-brand shock absorbers
from Parts & Tools, Inc., to be delivered by the seller. Before Parts & Tools’
truck arrives with the goods, Motor Vehicles tells Parts & Tools it will not pay.
The shock absorbers are destroyed in transit. The loss is suffered by
a. all of the parties’ insurance companies pro rata.
b. NoBounce’s insurance company.
c. Motor Vehicles to the extent of a deficiency in Parts & Tools’ insurance
coverage.
d. Parts & Tools to the extent of a deficiency in Motor Vehicles’ insurance
coverage.
CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 11
B20. Household Appliance Corporation sells Ideal-brand vacuum cleaners to Jolly
Discount Stores and other retailers. Household Appliance will have an
insurable interest in the players as long as
a. Household Appliance remains in business.
b. Household Appliance retains title to the goods.
c. the goods are in existence.
d. there is no risk of loss.
ESSAY QUESTIONS
B1. A contract between Pacific Import Company in Seattle and Atlantic Coast Retail
Corporation in Baltimore does not expressly state which party bears the risk of
loss but says only that Pacific Import is “to ship goods at the seller’s expense.”
At what point does the risk of loss of the goods pass from the seller to the
buyer?
ANSWER: All contracts are assumed to be shipment contracts unless they
B2. Brett boards her horse Charley at Dallas’s Equestrian Stables. Brett sells the
horse to Flem and tells Dallas, “I sold Charley to Flem.” Dallas says, “Okay.”
That night, Charley is kicked in the head by another horse and dies. Who
suffers the loss?
