Chapter 20
Title, Risk, and Insurable Interest
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
B1. Under the UCC, the right of ownership is the central concept in sales law.
B2. If a contract calls for a lease of specific and ascertained goods already in existence,
identification takes place at the time the contract is made.
B3. Fungible goods are goods that cannot be delivered by physical transport.
B4. In all circumstances, title passes to the buyer at the time and place the seller performs
by delivering the goods.
B5. Generally, a contract is assumed to be a destination contract if nothing to the contrary
is stated in the contract.
B6. A bill of lading serves as a contract for the transportation of goods.
B7. A seller with void title can transfer good title to a good faith purchaser for value.
B8. Entrusting goods to a merchant who deals in goods of the kind gives the merchant
power to transfer all rights to a buyer in the ordinary course of business.
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. A contract’s delivery term can affect a buyer’s recovery for goods damaged in transit.
B11. Under a shipment contract, the risk of loss passes to the buyer when the goods are
tendered to the buyer at a specified destination.
B12. 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.
B13. 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.
B14. 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.
B15. In a sale or return, a buyer takes goods primarily for resale, with a right to return any
goods that fail to sell.
B16. A consignment is similar to a sale or return but normally results in a bailment rather
than a sale.
B17. If goods are 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.
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.
B20. A seller has an insurable interest in goods as long as he or she retains title to the
goods.
MULTIPLE CHOICE QUESTIONS
B1. A specific grade of corn that fills Dean and Ethel’s silo is fungible. This means that the
corn is
a. alike naturally or by agreement or trade usage.
b. fundamentally different.
c. fundamentally edible.
d. perishable.
B2. Rita orders 1,000 cases of 1/4-inch nuts from Steel Parts Company’s 10,000-case lot.
Steel Parts separates 1,000 cases from the lot. Title and risk of loss
a. remain with Steel Parts until Rita acknowledges tender of delivery.
b. remain with Steel Parts until Rita accepts 1,000 cases.
c. shift to Rita after she accepts the nuts and inspects them for defects.
d. shift to Rita when Steel Parts separates the cases.
B3. Lou’s Bicycle Store contracts to buy fifty bicycles from Mountain Bikes, Inc. Unless the
contract states otherwise, this is
a. a bill of lading.
b. a destination contract.
c. a shipment contract.
d. a warehouse receipt.
B4. Textiles, Inc., and Fab Fabric Corporation enter into a contract for a sale of muslin. The
terms do not clearly indicate whether it is a destination or shipment contract. A court
would most likely presume that it is
a. a delivery ex-ship.
b. a destination contract.
c. a shipment contract.
d. none of the choices.
B5. Medico Records Company orders thirty hard drives from Nano Computers, Inc. The
hard drives are stored in Enviro Warehouse. Under the terms of the order, Nano must
give Medico a warehouse receipt for the goods, which Medico will then pick up. Title
to the goods passes to Medico when
a. Enviro stores the drives.
b. Medico orders the drives.
c. Medico picks up the drives.
d. Nano gives Medico a warehouse receipt for the drives.
B6. Gene steals Hilary’s brooch and sells it to Imelda. Hilary can recover the brooch from
Imelda
a. only if Imelda did not know that the brooch was stolen.
b. only if Imelda did not give sufficient consideration for the brooch.
c. only if Imelda knew that the brooch was stolen.
d. under any circumstances.
B7. Heavy Equipment Corporation leases six forklifts to Inland Refining Company, but as
the forklifts are delivered, they are lost in an explosion. 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.
B8. Juice Café buys 25 bags of Florida navel oranges from Sweet Citrus Company. The
parties agree to ship the oranges “F.O.B. Juice Café” via Fresh Harvest Truckline. The
oranges rot in transit. The loss is suffered by
a. Juice.
b. Fresh Harvest.
c. Florida.
d. Sweet Citrus.
B9. Sole Savers, Inc., and Rite Fit Footwear Stores enter into a contract for a sale of shoes.
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. Leo buys a Naturo-brand bicycle from his brother, Mike. Mike agrees to keep the bike
at his house until Leo picks it up. During a storm, a tree falls from Ogden’s yard onto
Mike’s garage and destroys the bike. The loss of the bike is suffered by
a. Leo.
b. Mike.
c. Naturo.
d. Ogden.
B11. Commercial Storage (CS), a bailee, holds goods for Delta Distributors, Inc., which has
contracted to sell them to Eagle Company. The goods are to be delivered without
being moved. The risk of loss will pass to Eagle when Eagle receives
a. a copy of Delta’s contract with CS.
b. a copy of Delta’s contract with Eagle.
c. a negotiable document of title.
d. a notice that Eagle’s payment for the goods has cleared.
B12. With a bill of lading, Cartage Common Carrier Company acknowledges possession of
certain goods and contracts to deliver them. Cartage 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. Corona Storage Company holds goods for Durango Sales Corporation, which contracts
to sell them to El Dorado 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 El
Dorado
a. if Corona refuses to honor the bill of lading.
b. if Durango gives the bill of lading to Corona.
c. if the goods are lost due to an “act of God.”
d. when El Dorado receives the bill of lading.
B14. My-Tee Shirt Corporation orders from Celebrity Sales, Inc., goods that are stored in a
Realty, Inc., warehouse. My-Tee pays for the goods, delivery is via the transfer of a
negotiable warehouse receipt, and My-Tee moves the goods out of the warehouse.
The risk of loss passes to My-Tee 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. Weightless Workouts, Inc., offers to sell a home gym to Jessica and sends it to her on
a trial basis. This is
a. a consignment.
b. a delivery ex-ship.
c. a sale on approval.
d. a sale or return.
B16. Focus Camera Shop receives Sharpview-brand lenses from Optical, Inc., under a sale
or return agreement. While the lenses are in Focus’s possession, title is held by
a. Optical.
b. Focus.
c. Focus’s creditors.
d. Sharpview.
B17. Jim’s Jewelry Store orders Sho-Off-brand display racks from Kino’s Merchandise
Presentation, Inc. Kino’s mistakenly ships racks of the wrong size and color, which
Jim’s rejects and returns via Longroad Shipping Company. During the return, the racks
are lost. The loss is suffered by
a. Jim’s.
b. Longroad.
c. Sho-Off.
d. Kino’s.
B18. Geno’s Café orders five gallons of PureMaid-brand transfat-free olive oil from Chefs
Supply, Inc. Chefs mistakenly ships soy oil, which Geno’s 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. Geno’s.
d. Chefs.
B19. Office Reports Corporation (ORC) orders five Zippy-brand inkjet printers from Prime
Printers, Inc. (PPI), to be delivered by PPI. Before PPI’s truck arrives with the goods,
ORC tells PPI it will not pay. The printers are destroyed in transit. The loss is suffered
by
a. all of the parties’ insurance companies pro rata.
b. Zippy’s insurance company.
c. ORC to the extent of a deficiency in PPI’s insurance coverage.
d. PPI to the extent of a deficiency in ORC’s insurance coverage.
B20. Orange Computer Corporation sells Pad-brand MP3 players to Quik Discount Stores
and other retailers. Orange will have an insurable interest in the players as long as
a. Orange remains in business.
b. Orange retains title to the goods.
c. the goods are in existence.
d. there is no risk of loss.
ESSAY QUESTIONS
B1. A contract between Kwik Import Company in Los Angeles and Macro Retail
Corporation in New York does not expressly state which party bears the risk of loss
but says only that Kwik 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?
B2. Ann boards her horse Blaze at Cora’s Ranch. Ann sells the horse to Dan and tells Cora,
“I sold Blaze to Dan.” Cora says, “Okay.” That night, Blaze is kicked in the head by
another horse and dies. Who suffers the loss?