ANSWERS TO PROBLEMS
1 Stein, a mechanic, and Beal, a life insurance agent, entered into a written contract for
the sale of Stein’s tractor to Beal for $6,800 cash. It was agreed that Stein would tune the
motor on the tractor. Stein fulfilled this obligation and on the night of July 1 telephoned
Beal that the tractor was ready to be picked up on Beal’s making payment. Beal
responded, “I’ll be there in the morning with the money.” On the next morning, however,
Beal was approached by an insurance prospect and decided to get the tractor at a later
date. On the night of July 2, the tractor was destroyed by fire of unknown origin. Neither
Stein nor Beal had any fire insurance. Who must bear the loss?
Answer: Risk of Loss. Beal must bear the loss. Since Stein was not a “merchant” within
2 Regan received a letter from Chase, the material portion of which stated, “Chase hereby
places an order with you for fifty cases of Red Top Tomatoes. Ship them C.O.D.” As soon
as he received the letter, Regan shipped the tomatoes to Chase. While en route, the
railroad car carrying the tomatoes was wrecked. When Chase refused to pay for the
tomatoes, Regan started an action to recover the purchase price. Chase defended on the
ground that because the shipment was C.O.D., neither title to the tomatoes nor risk of
loss passed until their delivery to Chase. Who has title? Who has the risk of loss?
Explain.
Answer: Risk of Loss: Shipment Contracts. Chase has title to the tomatoes, and must bear
3 On May 10, the Adair Company, acting through one Brown, entered into a contract with
Clark for the installation of a milking machine at Clark’s farm. Following the
enumeration of the articles to be furnished, together with the price of each article, the
written contract provided: “This outfit is subject to thirty days’ free trial and is to be
installed about June 1.” Within thirty days after installation the entire outfit, excepting a
double utility unit, was destroyed by fire through no fault of Clark. The Adair Company
sued Clark to recover the value of the articles destroyed. Explain who bears the risk of
loss.
Answer: Sale on Approval/Sale or Return. This problem presents a question whether the
4 Brown, located in Knoxville, contracted to buy sixty cases of Lovely Brand canned corn
from Clark in Toledo at a contract price of $1,250. Pursuant to the contract, Clark
selected and set aside sixty cases of Lovely Brand canned corn and tagged them “For
Brown.” The contract required Clark to ship the corn to Brown via T Railroad, F.O.B.
Toledo. Before Clark delivered the corn to the railroad, the sixty cases were stolen from
Clark’s warehouse.
a. Who is liable for the loss of the sixty cases of corn, Brown or Clark?
b. Suppose Clark had delivered the corn to the railroad in Toledo. After the corn was
loaded on a freight car but before the train left the yard, the car was broken open and its
contents, including the corn, were stolen. As between Brown and Clark, who is liable for
the loss?
c. Would your answer in question (b) be the same if this was an F.O.B. Knoxville
contract, all other facts remaining the same?
Answer: Risk of Loss: Shipment Contracts.
(a) Clark, the seller, has the risk of loss. Although the goods have become identified to
the contract as existing goods as to which the contract refers and Brown has a special
property in them under Section 2-501 of the U.C.C., this does not cause title or risk of
5 Gardner owned a quantity of corn, which was contained in a corncrib located on
Gardner’s farm. On March 12, Gardner wrote a letter to Bassett stating that he would
sell to Bassett all of the corn in this crib, which he estimated at between nine hundred
and one thousand bushels, for $3.90 per bushel. Bassett received this letter on March 13
and immediately wrote and mailed on the same day a letter to Gardner stating that he
would buy the corn. The corncrib and its contents were accidentally destroyed by fire that
broke out about 3 A.M. on March 14.
(a) What are the rights of the parties?
(b) What difference, if any, in result if Gardner were a merchant?
Answer: Risk of Loss. (a) The risk of loss falls on Gardner. Bassett is not liable for the
price of the corn. Bassett does not have any rights against Gardner for breach of the
6 Franco, a New York dealer, purchased twenty-five barrels of specially graded and packed
apples from a producer at Hood River, Oregon, under a contract that specified an agreed
price on delivery at Franco’s place of business in New York. The apples were shipped to
Franco from Oregon but, through no fault of Franco, were totally destroyed before
reaching New York. Does any liability rest on Franco?
Answer: Risk of Loss: Destination Contracts. No. The contract between Franco and the
7 Smith was approached by a man who introduced himself as Brown of Brown & Co.
Smith, who did not know Brown, asked Dun & Bradstreet for a credit report on Brown.
He thereupon sold Brown some expensive gems and billed Brown & Co. “Brown” turned
out to be a clever jewel thief, who later sold the gems to Brown & Co. for valuable
consideration. Brown & Co. was unaware of “Brown’s” transaction with Smith. Can
Smith successfully sue Brown & Co. for either the return of the gems or the price as
billed to Brown & Co.?
Answer: Void and Voidable Title to Goods. No, because Brown & Co. was a good faith
purchaser for value.”Smith intended to pass title to the gems to the man physically before
8 Charlotte, the owner of a new Cadillac automobile, agreed to loan the car to Ellen for
the month of February while she (Charlotte) went to Florida for a winter vacation. It was
understood that Ellen, who was a small-town Cadillac dealer, would merely place
Charlotte’s car in her showroom for exhibition and sales promotion purposes. While
Charlotte was away, Ellen sold the car to Bob. When Charlotte returned from Florida,
she sued to recover the car from Bob. Who has title to the automobile? Explain.
Answer: Risk of Loss: Goods in the Possession of a Bailee. Decision in favor of Bob.
Charlotte, the owner of the Cadillac, voluntarily placed the automobile in a dangerous
9 Brilles offered to sell his used automobile to Nevarro for $12,600 cash. Nevarro agreed
to buy the car, gave Brilles a check for $12,600, and drove away in the car. The next day
Nevarro sold the car for $13,000 to Hough, a bona fide purchaser. The $12,600 check
was returned to Brilles by the bank in which he had deposited it because of insufficient
funds in Nevarro’s account. Brilles brings an action against Hough to recover the
automobile. What judgment?
Answer: Void and Voidable Title to Goods. Judgment for Hough. Nevarro acquired
voidable title to the automobile when he purchased it with a check drawn on an account
1. Yount told Lewis he wished to buy Lewis’s automobile. He drove the car for about ten
minutes, returned to Lewis, stated he wanted to take the automobile to show it to his
wife, and then left with the automobile and never returned. Yount sold the automobile in
another state to Turner and gave him a bill of sale. Can Lewis recover the automobile
from Turner? Explain.
Answer: Void and Voidable Title to Goods. Judgment for Turner, he has title to the
10 On February 7, Pillsbury purchased eight thousand bushels of wheat from Landis. The
wheat was being stored at the Greensville Grain Company. Pillsbury also intended to
store the wheat with Greensville. On February 10, the wheat was destroyed. Landis
demands payment for the wheat from Pillsbury. Who prevails? Who has title? Who has
the risk of loss? Explain.
Answer: Passage of Title/Risk of Loss. Pillsbury prevails. When goods are held by a bailee
the risk of loss occurs: a) if a negotiable document of title is involved, upon the buyer’s
11 Johnson, who owns a hardware store, was indebted to Hutchinson, one of his suppliers.
Johnson sold his business to Lockhart, one of Johnson’s previous competitors. Lockhart
combined the inventory from Johnson’s store with his own and moved the combined
inventory to a new, larger store. Hutchinson claims that Lockhart must pay Johnson’s
debt because the sale of the business had been made without complying with the
requirements of the bulk sales law. Discuss whether Lockhart is obligated to pay
Johnson’s debt to Hutchison?
Answer: Sales of Goods in Bulk. Judgment for Hutchinson—Lockhart must pay the debt.
This is a bulk transfer covered by Article 6 of the U.C.C. since it could be described as
“any transfer in bulk and not in the ordinary course of the transferor’s business of a major
12 Seller had manufactured forty thousand pounds of plastic resin pellets especially for a
buyer, who agreed to accept them at the rate of one thousand pounds per day upon his
issuance of shipping instructions. Despite numerous requests by the seller, the buyer
issued no such instructions. On August 18, the seller, after warehousing the goods for
forty days, demanded by letter that the buyer issue instructions. The buyer agreed to
issue them beginning August 20, but never did. On September 22, a fire destroyed the
seller’s plant containing the goods, which were not covered by insurance. Who bears the
risk of loss? Why?
Answer: Risk of Loss: Breach by the Buyer. Judgment for Seller—the buyer bears the risk
of loss. Where conforming goods have been identified to a contract which the buyer
13 McCoy, an Oklahoma cattle dealer, orally agreed with Chandler, a Texas cattle broker, to
ship cattle to a New Mexico feedlot for delivery to Chandler. The agreement was for six
lots of cattle valued at $119,000. After McCoy delivered the cattle, he presented invoices
to Chandler that described the cattle and set forth the sales price. McCoy then demanded
payment, which Chandler refused. Unknown to McCoy, Chandler had obtained a loan
from First National Bank and had pledged the subject cattle as collateral. The bank had
no knowledge of any interest that McCoy may have had in the cattle. McCoy sued to
recover the cattle. The bank counterclaimed that it had a perfected security interest in the
cattle that was superior to any interest of McCoy’s. Who has title to the cattle? Explain.
Answer: Transfer of Title. Judgment for the bank—the bank has a superior interest in the
cattle. Title to goods passes to the buyer at the time and place at which the seller
completes his performance with reference to the physical delivery of the goods, unless
14 Home Indemnity, an insurance company, paid one of its insureds after the theft of his car.
The car reappeared in another state and was sold to Michael Schrier for $4,300 by a
used car dealer. The dealer promised to give Mr. Schrier a certificate of title. One month
later, the car was seized by the police on behalf of Home Indemnity. Explain who is
entitled to possession of the car.
Answer: Good Faith Purchaser. Judgment for Home Indemnity; home Indemnity is
entitled to possession . The possessor of stolen goods, regardless of her knowledge of
15 Fred Lane, who sells boats, motors, and trailers, sold a boat, motor, and trailer to John
Willis in exchange for a check for $6,285.00. The check was not honored when Lane
attempted to use the funds. Willis subsequently left the boat, motor, and trailer with John
Garrett, who sold the items to Jimmy Honeycutt for $2,500.00. Considering the boat’s
quality, Honeycutt was surprised at how inexpensive it was. He did not know where
Garrett had obtained the boat, but he had dealt with Garrett before and described him as
a “sly businessman.” Garrett did not sell boats; normally, he sold fishing tackle and
provisions. Honeycutt also received a forged certificate for the boat, on which he had
observed Garrett forge the purported owner’s signature. Can Lane compel Honeycutt to
return the boat, motor, and trailer? Explain.
Answer: Power to Transfer/Good Faith Purchaser. Yes, Lane can regain possession
–judgment for Lane. The court found that Honeycutt was not a good faith purchaser
under Section 2-403 of the UCC, which provides:
16 Mike Moses purchased a mobile home, including installation, from Gary Newman.
Newman delivered the home to Moses’s lot. Upon inspection of the home, Moses’s fiancée
found a broken window and water pipe. Moses also had not received keys to the front
door. Before Newman corrected these problems, a windstorm destroyed the home. Who
bears the risk for the loss of the home? Why?
Answer: Risk of Loss. Judgment for Moses; Newman bears the loss. “Where a tender or
delivery of goods so fails to conform to the contract as to give a right of rejection the risk
2. United Road Machinery Company, a dealer in heavy road equipment (including truck
scales supplied by Thurman Scale Company), received a telephone call on July 21 from
James Durham, an officer of Consolidated Coal Company, seeking to acquire truck
scales for his coal mining operation. United and Consolidated entered into a
twenty-four-month lease-purchase arrangement. United then notified Thurman that
Consolidated would take possession of the scales directly. United paid for the scales and
Consolidated took possession of them, but the latter never signed or returned the
contract papers forwarded to it by United. Consolidated also never made any of the
rental payments ($608/month) due under the lease. On September 20, Consolidated,
through its officer Durham, sold the scales to Kentucky Mobile Homes for $8,500.
Kentucky’s president, Ethard Jasper, checked the county records prior to the purchase
and found no lien or encumbrance on the title; likewise, he denied knowledge of the
dispute between Consolidated and United. On September 22, Kentucky sold the scales to
Clyde Jasper, individually, for $8,500. His search also failed to disclose any lien on the
title to the scales, and he denied knowledge of the dispute between Consolidated and
United. United brought suit to recover the scales from Jasper. Can United recover the
scales from Jasper? Explain.
Answer: Voidable Title/Good Faith Purchaser. The right of rescission in the original owner
of the goods is cut-off, and the possessor takes good title if such purchaser is a good faith
ANSWERS TO “TAKING SIDES” PROBLEMS
Harrison, a men’s clothing retailer located in Westport, Connecticut, ordered
merchandise from Ninth Street East, Ltd., a Los Angeles–based clothing manufacturer.
Ninth Street delivered the merchandise to Denver-Chicago Trucking Company (Denver)
in Los Angeles and then sent four invoices to Harrison that bore the notation “F.O.B. Los
Angeles.” Denver subsequently transferred the merchandise to a connecting carrier, Old
Colony Transportation Company, for final delivery to Harrison’s Westport store. When
Old Colony tried to deliver the merchandise, Harrison’s wife asked the truck driver to
deliver the boxes inside the store, but the driver refused. The dispute remained
unresolved, and the truck departed with Old Colony still in possession of the goods. By
letter, Harrison then notified Ninth Street of the nondelivery, but Ninth Street was unable
to locate the shipment. Ninth Street then sought to recover the contract purchase price
from Harrison. Harrison refused, contending that risk of loss remained with Ninth Street
because of its refusal to deliver the merchandise to Harrison’s place of business.
(a) What are the arguments that the risk of loss remained with Ninth Street?
(b) What are the arguments that the risk of loss passed to Harrison?
(c) What is the appropriate outcome?
ANSWER:
(a.) Harrison made a reasonable request to the carrier—Old Colony Transportation—to
deliver the merchandise into the store. Old Colony departed with the goods, and they