Chapter 18
Title and Risk of Loss
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. In most situations involving sales, rights and liabilities are determined by who
has the title to the goods.
2. Identification, risk of loss, and insurable interest are all concepts that are
involved in determining the rights and liabilities of parties to a contract.
3. Before any interest in specific goods can pass from the seller to the buyer, the
goods must exist and be identified to the contract.
4. Even if goods are not identified to the contract, the title and risk of loss can still
pass from the seller to the buyer.
5. Future goods are goods that are not both existing and identified to the contract.
6. If a sale involves crops that are to be harvested within twelve months, iden–
tification takes place when the seeds for the crops are purchased.
7. In contracts involving a sale of unborn animals to be born within twelve months,
identification takes place when the animals are born.
8. Fungible goods are goods that are alike naturally, by agreement, or by trade
usage.
9. If an owner holds fungible goods as a tenant in common, he or she can pass
title without actually separating the goods.
10. Identification takes place when specific goods are designated as the subject
mater of a sales or lease contract.
11. Generally, all contracts are assumed to be shipment contracts if nothing to the
contrary is stated in the contract.
CHAPTER 18: TITLE AND RISK OF LOSS 3
12. A warehouse receipt is a receipt signed by a warehouse for goods stored in a
warehouse.
13. A receipt issued by a warehouser for goods stored in a warehouse is a bill of
lading.
14. In a destination contract, the seller is required to deliver the goods to a
particular destination.
15. When a document of title is required, title passes to a buyer when and where
the document is delivered.
16. Entrusting goods to a merchant who deals in goods of the kind gives the
merchant the power to transfer all rights to a buyer in the ordinary course of
business.
17. A seller with voidable title can transfer good title to a good faith purchaser for
value.
18. Under the UCC, the risk of loss necessarily passes with title.
19. When the risk of loss for goods passes from a seller to a buyer is generally
determined by the contract between the parties.
20. Under a destination contract, the risk of loss passes to the buyer when the
goods are duly delivered to the carrier.
21. 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.
22. 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.
23. If a seller is not a merchant, and the goods are not to be moved, the risk of loss
passes to a buyer on tender of delivery.
24. The risk of loss in a shipment contract passes to the buyer when the goods are
delivered to the carrier.
CHAPTER 18: TITLE AND RISK OF LOSS 5
25. When a seller keeps the goods for pickup, if the seller is a merchant, the risk of
loss passes to a buyer when the buyer actually takes physical possession of
the goods.
26. If a lessor is a merchant, the risk of loss passes to a lessee on the lessee’s
receipt of the goods.
27. If the goods are so nonconforming that the buyer has the right to reject them,
the risk of loss does not pass to the buyer.
28. When a buyer breaches a contract, the risk of loss immediately shifts to the
buyer.
29. If the tender or delivery of goods is so nonconforming that the buyer has the
right to reject them, the risk of loss does not pass to the buyer until cure or
acceptance.
30. If a buyer accepts a shipment of goods and later discovers a defect,
acceptance cannot be revoked.
31. The right to cure is the right of a party who tenders nonconforming performance
to correct his or her performance within the contract period.
6 UNIT THREE: COMMERCIAL TRANSACTIONS
32. A buyer and a seller cannot normally have an insurable interest in identical
goods at the same time.
33. Before a seller can have an insurable interest in goods, the goods must be
identified to a contract.
34. A buyer has an insurable interest in identified goods only if he or she has title to
the goods.
35. A seller has an insurable interest in goods as long as he or she retains title to
the goods.
CHAPTER 18: TITLE AND RISK OF LOSS 7
MULTIPLE CHOICE QUESTIONS
1. NutriRich, Inc., sells fifty cases of Omega 3 capsules to Good Health stores,
but before Good Health takes physical possession, the cases are lost. Under
the UCC, the parties’ rights and obligations with respect to the loss depend on
the concept of
a. identification.
b. insurable interest.
c. risk of loss.
d. title.
2. Jason 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 Jason 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 Jason pays for the golf carts.
3. 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.
4. Bill orders 1,000 nails from Super Hardware, Inc. Super Hardware keeps its
nails in packages of 100,000. Bill and the agent for Super Hardware both sign
the contract for the sale of the nails on Monday. The agent separates 1,000
nails on Wednesday. The agent delivers the nails to Bill on Thursday morning,
and Bill pays for the nails on Friday. Identification of the nails took place on
8 UNIT THREE: COMMERCIAL TRANSACTIONS
a. Monday.
b. Wednesday.
c. Thursday.
d. Friday.
5. Equipment Rentals Corporation (ERC) agrees to lease two backhoes to Dig &
Fill Construction, Inc. Before any interest in the backhoes can pass from ERC
to Dig & Fill, they must be
a. in existence and identified as the goods in the contract.
b. in ERC’s physical possession.
c. in Dig & Fill’s physical possession.
d. listed in a document of title and filed in the appropriate state office.
6. Corn that fills County Grain Co-op’s silo is fungible if the corn is
a. alike naturally, by agreement, or by trade usage.
b. fundamentally different.
c. fun, good, and edible.
d. rotting due to a leaky roof and a delay in shipping.
7. Ralph, a representative for Statewide Truck & Transport Company, delivers a
warehouse receipt to Thelma, the owner of United Storage Warehouse. A
warehouse receipt is
a. an invoice for payment for loading and carting verified by a seller.
b. an order to ship goods signed by a buyer.
c. a receipt for goods signed by a carrier.
d. a receipt issued by a warehouser for goods in a warehouse.
8. 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.
9. Grace purchases three tons of fine merino wool on behalf of Woolen Creations.
Woolen Creations wants the wool to remain in the warehouse where it is being
stored until it is needed. Grace makes an offer for the wool on Monday. The
offer is accepted on Tuesday. The warehouser gives Woolen Creations a
warehouse receipt on Wednesday. Woolen Creations picks up the wool from
the warehouse three months after the sale. Title for the wool passed to Woolen
creations
a. on Monday.
b. on Tuesday.
c. on Wednesday.
d. three months after the sale.
10. A contract between Fresh Fruit Corporation and Green Grocer, Inc., requires
Fresh Fruit to deliver goods to Green Grocer’s place of business. This is
10 UNIT THREE: COMMERCIAL TRANSACTIONS
a. a bill of lading.
b. a destination contract.
c. a shipment contract.
d. a warehouse receipt.
11. Big Red Drinks, Inc. contracts to buy two tons of cranberries from Super Fruits,
Inc. The contract states that Super Fruits is required to ship the cranberries to
Big Red Drinks by Speedy Wind Air Freight. The contract is
a. a bill of lading.
b. a destination contract.
c. a shipment contract.
d. a warehouse receipt.
12. 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.
13. Southern Distribution, Inc., signs a receipt for goods that will also serve as a
contract for the goods’ transport. This is
a. a bill of lading.
b. a destination contract.
c. a shipment contract.
d. a warehouse receipt.
14. 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.
15. Levi, a well-known lumber dealer with a good reputation, buys a load of lumber
and pays for it with a check that is later dishonored. Sam, who is unaware of
the bad check, buys the lumber from Levi. Sam is a(n)
a. good faith purchaser.
b. bad faith purchaser.
c. insolvent purchaser.
d. bailee.
16. Elizabeth buys a car from Silas, who is sixteen years old. Elizabeth then wants
to sell the car to her neighbor, John. Elizabeth’s title to the car is
a. valid.
b. voidable.
c. void.
d. good.
17. Brad leaves an iPod at Computer Sales & Repair (CSR) to have the battery
replaced. CSR sells the iPod to Doris, who does not know that it belongs to
Brad. Brad can recover from
a. no one.
b. CSR.
c. Doris.
d. Apple, Inc., the maker of the iPod.
18. Sweets Store buys chocolate from Tasty Candies, Inc. The parties agree that
the chocolate will be shipped “F.O.B. Sweets” via United Railroad Corporation.
The chocolate is lost in transit. The loss is suffered by
a. Sweets and Tasty, but not United.
b. Sweets only.
c. Sweets, Tasty, and United.
d. Tasty only.
19. Red’s Roofing buys asphalt roofing tiles from Shingles, Inc. The parties agree
that the tile will be shipped “F.O.B. Shingles warehouse” to Red’s Roofing
location via Tristate Shipping Corporation. The tiles are lost in transit. The loss
is suffered by
a. Tristate Shipping.
b. Shingles, Inc.
c. Red’s Roofing.
d. Red’s customers by an increase in the prices of goods and services.
20. Thorpe buys an HD TV from Viewpoint Electronics store, which agrees to keep
the TV for Thorpe until he picks it up. Before Thorpe gets the TV, a fire
destroys the store and the set. The loss is suffered by
a. neither Thorpe nor Viewpoint
b. Thorpe and Viewpoint.
c. Thorpe only.
d. Viewpoint only.
21. Roasters Corporation and Outdoor Barbecue, Inc., enter into a contract for a
sale of a commercial grill. The contract requires Roasters to deliver the goods
to Speedy Delivery Company for transport to Outdoor. Risk of loss passes to
Outdoor when
a. Roasters delivers the goods to Speedy.
b. Roasters and Outdoor enter into their contract.
c. Speedy transports the goods to Outdoor.
d. Outdoor begins to use the grill.
22. Fay pays $800 for a new iPad to Global Goods, Inc. Global holds the iPad until
Fay picks it up. Global is
a. a bailee.
b. a consignee.
c. a lessee.
d. a seller.
23. Safety Supply Corporation in New York sells a truckload of protective suits,
masks, and other safety gear to Toxic Recovery, Inc., in Connecticut, “F.O.B.
New York.” Safety Supply arranges with US Truckline to transport the goods.
The cost of the transport will be paid by
a. Safety Supply.
b. Toxic Recovery.
c. US Truckline.
d. Toxic Recovery’s clients by an increase in the price of loss control
services.
24. Growers Mart buys one hundred cases of berries from Hilltop Farms. The
parties agree that the berries will be transported “F.O.B. Hilltop Farms” via
Refrigerated Trucking Company. Refrigerated’s truck and the berries are lost in
a fire following an accident. The loss of the berries is suffered by
a. Growers Mart.
b. Hilltop Farms.
c. Refrigerated Trucking.
d. all of the parties as tenants in common in equal measure.
25. Mountainside Coffee Company and Nature’s Cuisine, Inc., enter into a contract
for a sale of coffee beans. The contract includes the term “F.O.B. Ocean City,”
which is the location of Nature’s Cuisine. This means that the contract is
a. a bill of lading.
b. a destination contract.
c. a shipment contract.
d. a warehouse receipt.
26. Home Appliance Corporation contracts with Instate Trucking Company to take
a selection of appliance repair parts to Journey Airlines, Inc., with Journey to
transport the goods to a KeepSafe Company warehouse. Instate Trucking,
Journey Airlines, and KeepSafe each acknowledge possession of the goods by
a document of title. Instate Trucking, Journey Airlines, and KeepSafe are
a. bailees.
b. buyers.
c. lessees.
d. sellers.
27. Quaff n’ Quench Café buys twenty-five bags of Columbia coffee beans from
Roasted Bean Brokers, 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. Roasted Bean.
28. 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.
16 UNIT THREE: COMMERCIAL TRANSACTIONS
b. delivery ex-ship.
c. F.A.S.
d. F.O.B.
29. 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.
30. Garden & Field stores order a specific assortment of rose bulbs from Hybrid
Flora Company. Hybrid mistakenly ships a selection of annuals, which Garden
& Field rejects and returns via Intra-state Transport, Inc. During the return, the
annuals are lost. The loss is suffered by
a. Garden & Field.
b. Hybrid Flora.
c. Intra-state Transport.
d. Garden & Field’s customers by an increase in prices of other goods.
31. Consumers Choice store accepts a shipment of EZ2U-brand tablets from
Digital Devices, Inc. Consumers Choice later discovers a defect in the tablets,
revokes acceptance, and returns the tablets via GoBack, Inc. During the return,
the tablets are lost. The loss is suffered by
a. Consumers Choice.
b. Digital Devices.
c. GoBack.
d. Consumers Choice’s customers by an increase in prices of other goods.
32. A-1 Furnishings, Inc., agrees to lease a desk to Business Resources, Inc.
(BRI), which requests that the desk be left outside City Warehouse for BRI to
pick up. Before BRI retrieves the desk, it is stolen. The loss is suffered by
a. A-1 Furnishings and BRI, but not City Warehouse.
b. A-1 Furnishings, BRI, and City Warehouse.
c. A-1 Furnishings only.
d. BRI only.
33. Sweetwater Café orders five gallons of transfat-free cooking oil from
Restaurant Supply, Inc. The seller mistakenly ships the wrong oil, which the
buyer keeps, despite the nonconformity. The oil is destroyed in a kitchen fire.
The loss is suffered by
a. Sweetwater and Restaurant Supply, but not Sweetwater customers.
b. Sweetwater, Restaurant Supply, and Sweetwater customers.
c. Sweetwater only.
d. Restaurant Supply only.
34. Good Food Corporation buys from Home Farms, Inc., a rice crop that Home
Farms plans to plant and harvest during the next growing season. Good Food
plans to sell the rice to Interstate Grocery Stores. After the rice is planted, but
before it is harvested, an insurable interest in the rice exists in
a. Good Food and Home Farms, but not Interstate Grocery.
b. Good Food, Home Farms, and Interstate Grocery.
c. Good Food only.
d. Home Farms only.
35. Summit Sales Corporation orders goods from OverStock Company. Summit
plans to market the goods to consumers generally. OverStock identifies the
goods. Before they are shipped to Summit, an insurable interest in the goods
exists in
a. Summit and OverStock, but not consumers generally.
b. Summit, OverStock, and consumers generally.
c. Summit only.
d. OverStock only.
ESSAY QUESTIONS
1. In the following situations, two parties claim the same goods. Who is most 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 demands its
return.
(b) Riley takes his television set for repair to Slick, a merchant who sells new
and used television sets. By accident, one of Slick’s employees sells the
set to Tuna, an innocent purchaser-customer, who takes possession.
Riley wants his set back from Tuna.
2. Fresh Stuff Company agrees to sell one hundred cases of uncooked burgers,
cut potatoes, shredded lettuce, sliced tomatoes, and other specific food items
to Good Eats, Inc. The goods, which Good Eats expressly requires to be fresh,
are to be shipped “F.O.B. Good Eats distribution center in Brooklyn, NY.” When
the goods arrive, Good Eats rejects them and informs Fresh Stuff, claiming that
the foods do not conform to Good Eats’s freshness requirement—the food is
old, stale, spoiled, and moldy. A few hours later, the cases are destroyed in a
fire at Good Eats’s distribution center. Will Fresh Stuff succeed in a suit against
Good Eats for the cost of the goods?