237
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
A1. The UCC has replaced the common law concept of title in part with the concept of risk
of loss.
A2. If a sale involves crops that are to be harvested within twelve months, identification
takes place when the crops are planted.
A3. If a sale involves unborn animals to be born within twelve months after contracting,
identification takes place when the animals are born.
A4. Fungible goods are goods that can be delivered only by transport.
238 TEST BANK A—UNIT 4: DOMESTIC & INT’L SALES & LEASE CONTRACTS
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 239
A5. If an owner holds fungible goods as a tenant in common, he or she cannot pass title to
the goods without the other owners’ acquiescence.
A6. A receipt issued by a warehouser for goods stored in a warehouse is a bill of lading.
A7. A seller with voidable title can transfer good title to a good faith purchaser for value.
A8. A lessee acquires whatever title the lessor has to the goods.
A9. Under a shipment contract, the risk of loss passes to the buyer when the goods are
delivered to the carrier.
A10. Under the UCC, the risk of los necessarily passes with title.
A11. When a seller keeps the goods for pickup, if the seller is a merchant, the risk of loss
passes to a buyer on tender of delivery.
240 TEST BANK A—UNIT 4: DOMESTIC & INT’L SALES & LEASE CONTRACTS
A12. If a lessor is a merchant, the risk of loss passes to a lessee on the lessee’s receipt of
the goods.
A13. In a sale on approval, a buyer takes goods primarily for resale, with a right to return
any goods that fail to sell.
A14. In a sale or return, title and risk of loss remain with the seller until the buyer accepts
the goods.
A15. A consignment is treated as a sale or return and governed by Article 2.
A16. When a buyer breaches a contract, the risk of loss immediately shifts to the buyer.
NAT: AACSB Analytic AICPA Legal
A17. If a buyer accepts a shipment of goods and later discovers a defect, acceptance can be
revoked.
A18. If the tender or delivery of goods is so nonconforming that the lessee has the right to
reject them, the risk of loss remains with the lessor until cure or acceptance.
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 241
A19. Both the buyer and the seller can have an insurable interest in identical goods at the
same time.
A20. A seller has an insurable interest in goods as long as the goods are in existence.
MULTIPLE CHOICE QUESTIONS
A1. Leasing Equipment Corporation (LEC) agrees to lease five computer workstations to
Mapmakers, Inc. Before any interest in the workstations can pass from LEC to
Mapmakers, they must be
a. in existence and identified as the goods in the contract.
b. in LEC’s physical possession.
c. in Mapmakers’s physical possession.
d. listed in a document of title and filed in the appropriate state office.
A2. Wild Alaskan sockeye salmon that fill the hold of Dexter’s fishing boat are fungible if
the fish are
a. alike naturally, by agreement, or by trade usage.
b. fundamentally different.
c. fun, good, and edible.
d. rotting due to a broken freezer in the hold.
242 TEST BANK A—UNIT 4: DOMESTIC & INT’L SALES & LEASE CONTRACTS
A3. Laraby, a representative for Merchandise Shipping Company, delivers a bill of lading
to Caitlin, the owner of Dockside Warehouse. A bill of lading 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.
A4. Suki leaves a Update-brand watch at Timepiece Sales & Repair to be fixed. Timepiece
sells the watch to Vera, who does not know that the watch belongs to Suki. Suki can
recover from
a. no one.
b. Timepiece.
c. Vera.
d. Update.
A5. Uri sells 100 cases of vitamins to Wanda, but before she 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.
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A6. Catchy Gadgets Corporation and Discount Outlets, Inc., enter into a contract for a sale
of kitchenware. The contract requires Catchy to deliver the goods to Rapido Carrier
Company for transport to Discount’s warehouse. Risk of loss passes to Discount when
a. Catchy delivers the goods to Rapido.
b. Catchy and Discount enter into their contract.
c. Rapido transports the goods to Discount’s warehouse.
d. Discount sells the goods to its customers.
A7. Harley’s Home Store buys furniture from Relax-a-by Furniture, Inc. The parties agree
that the furniture will be shipped “F.O.B. Relax–a-by’s warehouse” to Harley’s via Jiffy
Shipping Corporation. The furniture is lost in transit. The loss is suffered by
a. Jiffy Shipping.
b. Relax-a-by Furniture.
c. Harley’s Home Store.
d. F.O.B.
A8. Matrix Material Corporation in New Jersey sells fifty tons of fabric to Natural Fit
Clothing, Inc., in Ohio, “F.O.B. New Jersey.” Matrix arranges with Outbound Truckline
to transport the goods. The cost of the transport will be paid by
a. Matrix.
b. Natural Fit.
c. New Jersey.
d. Outbound.
244 TEST BANK A—UNIT 4: DOMESTIC & INT’L SALES & LEASE CONTRACTS
A9. Mitchell buys 100 bales of hay from New Grain Fields. The parties agree that the hay
will be transported “F.O.B. New Grain Fields” via Farm County Trucking Company.
Farm County’s truck and the hay are lost in a fire following an accident. The loss is
suffered by
a. Mitchell.
b. New Grain Fields.
c. Farm County Trucking.
d. all of the parties as tenants in common in equal measure.
A10. Delicioso Tea Company and Savory Stores, Inc., enter into a contract for a sale of
organic tea. The contract includes the term “F.O.B. River City,” which is Savory’s
location. This means that the contract is
a. a bill of lading.
b. a destination contract.
c. a shipment contract.
d. a warehouse receipt.
A11. Finished Furnishings, Inc., agrees to lease an Oak Top-brand desk to Research
Resources, Inc. (RRI), which agrees to pick it up at Streetside Warehouse. Before RRI
retrieves the desk, it is stolen. The loss is suffered by
a. Perfect Furnishings.
b. Oak Top.
c. Streetside Warehouse.
d. RRI.
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 245
A12. Twyla buys a Voracious-brand bicycle from U-Pik-It Bike Store, which agrees to keep
the bike for Twyla until she picks it up. Before Twyla gets the bike, a fire destroys the
store and the bike. The loss of the bike is suffered by
a. no one.
b. Voracious.
c. Twyla.
d. U-Pik-It.
A13. Marine Recreation, Inc., allows Nels to take a Marine Recreation boat for a “test run.”
Nels 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.
A14. Dragonaire Corporation contracts with Excel Trucking Company to take goods to Fly–
By Airlines, Inc., with Fly-By to transport the goods to a Geo Storage Company
warehouse. Excel, Fly-By, and Geo each acknowledge possession of the goods by a
document of title. Excel, Fly-By, and Geo are
a. bailees.
b. consignees.
c. lessees.
d. sellers.
246 TEST BANK A—UNIT 4: DOMESTIC & INT’L SALES & LEASE CONTRACTS
A15. Crest Jewelers buys diamonds from Paramount Gems to resell with the right to 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.
A16. Open Road Showroom sells new and used motorcycles. Some of the motorcycles are
held on consignment, including six consigned by Pedro Cycles, Inc. Like most
consignments, Open Road’s deal with Pedro Cycles is
a. a bailment.
b. a sale.
c. a delivery ex-ship.
d. a lease.
A17. Town Style Stores orders Hidebound-brand leather jackets from Cowhide & Cotton
Company (CCC). CCC mistakenly ships denim jackets, which Town rejects and returns
via Valu Transport, Inc. During the return, the jackets are lost. The loss is suffered by
a. Town.
b. Hidebound.
c. Valu.
d. CCC.
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 247
A18. NuStores accepts a shipment of QuikView-brand 3D HD DVD players from Open–Ur–
Eyes, Inc. NuStores later discovers a defect in the players, revokes acceptance, and
returns the players via Playback, Inc. During the return, the players are lost. The loss is
suffered by
a. NuStores.
b. Playback.
c. QuikView.
d. Open-Ur-Eyes.
A19. Essen Corporation buys from Fallow Farms, Inc., a rice crop that Fallow plans to plant
and harvest during the next growing season. Essen plans to sell the rice to Gourmet
Grocery Stores. After the rice is planted, but before 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. Pie Sales Corporation orders ReadyMade-brand pies from Savory Foods Company.
Savory identifies the goods. Before they are shipped to Pie Sales, an insurable interest
in the goods exists in
a. Pie Sales and Savory Foods.
b. ReadyMade and Savory Foods.
c. Pie Sales and ReadyMade.
d. all of the parties as tenants in common.
ESSAY QUESTIONS
248 TEST BANK A—UNIT 4: DOMESTIC & INT’L SALES & LEASE CONTRACTS
A1. 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 Silky, a merchant who sells new and
used television sets. By accident, one of Silky’s employees sells the set to Tuna,
an innocent purchaser-customer, who takes possession. Riley wants his set
back from Tuna.
A2. Quality Computer Company agrees to sell one hundred hard drives to Retail
Electronics, Inc. The hard drives, which Retail Electronics expressly 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 Quality Computer, claiming that the drives do not conform to Retail
Electronics’ memory requirement. A few hours later, the drives are destroyed in a fire
at Retail Electronics’ distribution center. Will Quality Computer succeed in a suit
against Retail Electronics for the cost of the goods?
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 249