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Business Law Chapter 21 Homework Aleriss Having Not Paid The Full Price

Page Count
9 pages
Word Count
5722 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
1
CHAPTER 21
TITLE, RISK, AND INSURABLE INTEREST
ANSWERS TO CRITICAL THINKING QUESTIONS
IN THE FEATURE
MANAGERIAL STRATEGYBUSINESS QUESTIONS
1. What benefits can delivery by commercial drone provide to consumers? One benefit
is the speed of delivery. Amazon Prime Air promises the delivery of small parcels (under five
2. Why has the U.S. been slow to adopt commercial drone delivery in comparison to
other nations? One reason why the United States has taken longer to adopt this technology
may be national security. The U.S. is perhaps more concerned than Australia or China about the
safety of our airspace (air traffic) since 9/11. Our military uses drones as weapons. Therefore, our
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 21.1LEGAL REASONING QUESTIONS
1. What did the contracts between the plaintiffs and the defendants require the
defendants to do? What goods did the contracts involve? What standards applied to the
goods? BMW Group, LLC ordered No. 4 fuel oil from Castle Oil Corporation for delivery to
BMW’s building in Manhattan. Mid Island L.P. and Carnegie Park Associates, L.P. ordered No. 4
2. What was the plaintiffs’ complaint? Why was this important? In the BMW case, the
plaintiffs (BMW Group, LLC and other owners of residential and commercial buildings in New
York City) filed a complaint in a New York state court against Castle Oil Corporation and Hess
Corporation (the defendants), alleging that the defendants had delivered goods of lesser value
that did not meet the standards applicable to the parties’ contracts.
3. What did the trial and appellate courts conclude with respect to the plaintiffs’
allegations? Why? The trial court dismissed the plaintiffs’ complaint on the ground that it did
not allege an injury. The appellate court reversed the dismissal.
BMW Group, LLC and other owners of residential and commercial buildings in New York
City ordered specific grades of fuel oil for their buildings’ heating systems from Castle Oil
Corporation and Hess Corporation. Alleging that the sellers delivered adulterated oilgoods of
CASE 21.2CRITICAL THINKING
ETHICAL
How did the “usual and customary” methods of dealing in the art business help
Malmberg deceive the other parties in this case? What additional steps might those
parties have taken to protect themselves from such deceit? The apparently heavy reliance
in the art industry on dealers and their representations significantly helped Malmberg to deceive
all of the parties in this case. As the Connecticut Supreme Court noted, in the art industry, it
was the ordinary and customary practice that if an individual regularly worked with a particular
art dealer or an art dealer was identified on the identification label of a loaned work of art,
GLOBAL
Considering the international locales in this case, why was Lindholm able to bring an
action against Brant in Connecticut? A Connecticut state court could exercise personal
CASE 21.3CRITICAL THINKING
WHAT IF THE FACTS WERE DIFFERENT?
If the agreement between Herring and the Bowmans had been a lease, would the result
have been the same? Explain. If the agreement between Herring and the Bowmans at the
center of this case had been a lease, the result might not have been the same. Instead of
holding Herring liable for Person’s injuries, the court might have held Bowman liable.
4 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Identification
Identification takes place when specific goods are designated as the subject matter of a
contract. If a sale involves crops that are to be harvested within twelve months (or during the
next harvest season occurring after contracting, whichever is longer), identification takes place
2A. Title
Under the contract terms (“F.O.B. Willow Glen’s field”), the title passes to Mendoza at the time
and place of shipment. F.O.B. (free on board) indicates that the selling price of goods includes
3A. Risk of loss
If a seller is required or authorized to ship goods by carrier but is not required to deliver them to
a particular final destination, as under the contract term (“F.O.B. Willow Glen’s field”) in this
4A. Breach of contract
According to the contract between Willow Glen and Mendoza, Willow Glen was required to
deliver the FreshBest broccoli to Falcon Trucking, after which the risk of loss would pass to
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
The distinction between shipment and destination contracts for the purpose of
deciding who will bear the risk of loss should be eliminated in favor of a rule that
requires the buyer to always buy insurance for the goods being shipped. One thing is
CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 5
certain if this rule was put into effect and that is that courts would no longer have to grabble with
trying to determine whether the movement of purchased goods involved a shipment or a
destination contract. Commerce would become more certain and more fluid. Buyers would
always know that they are responsible for buying insurance on any goods that they have
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Adams Textiles in Kansas City sells certain fabrics to Silk & Satin Stores in
Oklahoma City. Adams packs the fabric and ships it by rail to Silk. While the fabric is in
transit across Kansas, a tornado derails the train and shreds and scatters the fabric
across miles of cornfields. What are the consequences if Silk bore the risk? If Adams
bore the risk? Buyers and sellers can have an insurable interest in identical goods at the same
time. If the buyer (Silk & Satin) bore the risk, it must pay and seek reimbursement from its in-
2A. Karlin takes her television set for repair to Orken, a merchant who sells new and
used television sets. By accident, one of Orken’s employees sells the set to Grady, an
innocent purchaser-customer, who takes possession. Karlin wants her set back from
Grady. If Karlin files a lawsuit, will she prevail? Why or why not? When a person
“entrusts” goods to a merchant (a person who deals in goods of that kind), the merchant has the
power to transfer a good title to any purchaser who acquires the goods in the ordinary course of
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
21-1A. Risk of loss
Neither of Pride’s contentions is correct. Before title and risk of loss can pass from the seller to
the buyer, the goods must be in existence and identified to the contract. Although the Greenie
6 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
peas were in existence, until the 1,000 cases were separated from Lot A, the peas were not
identified to the contract. The contract was formed upon Pride’s promise of prompt shipment,
but title could not pass at that moment because of the lack of identification. In addition, in the
21-2A. Risk of loss
There is no question that the suit is in existence and identified to the contract. Nor do the facts
indicate that there was an agreement as to when title or risk of loss would pass. Therefore,
these situations deal with passage of title and risk of loss to goods that are “to be delivered”
without physical movement of the goods by the seller and not represented by a document of
title. The rules of law are that title passes to the buyer upon the making of the contract, and risk
of loss passes from a merchant seller to the buyer when the buyer receives the goods.
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
213A . Delivery without movement of the goods
Aleris is entitled to the loader. Under the UCC, any explicit understanding between the buyer
and the seller determines when title passes. But there are limits to any such agreement. When a
seller relinquishes possession of the goods, title to the goods also passes, even if the parties’
agreement provides otherwise. When a sales contract does not call for the seller to ship or
deliver the goods, and no document of title is required, title passes at the time and place that the
sales contract is made if the goods have already been identified.
At the time that Holt and Aleris signed their contract, the loader had been delivered to,
and was in the possession of, Aleris. Although the contract provided that the seller (Holt)
retained title to the equipment, this provision did not affect the passage of titlewhich occurred
at the time that the contract was signed because the goods had already been delivered. In spite
of the contract provision and Aleris’s having not paid the full price, Holt is not entitled to
repossess the loader.
In the actual case on which this problem is based, on the reasoning set out above, the
court ruled against Holt’s claim.
214A. Goods held by the seller or lessor
Singletary suffers the loss. If goods are in the possession of a seller or lessor, and the seller or
lessor is not required to ship or to deliver them on their sale to a buyer, then a document of title
215A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWERPassage of title
Altieri held title to the car that she was driving at the time of the accident in which Godfrey was
injured. Once goods exist and are identified, title can be determined. Under the UCC, any
explicit understanding between the buyer and the seller determines when title passes. If there is
216A. Risk of loss
UPS Supply Chain Solutions, Inc., Worldwide Dedicated Services, Inc., (WDS), and
International Management Services Co. (IMSCO)which acted as the carrier transporting the
shipment of pharmaceuticals for Ethicon, Inc., the sellerwere jointly liable for the loss. In a
destination contract, the risk of loss passes to the buyer when the goods are tendered at the
217A. When title passes
Under the UCC, before an interest in specific goodsincluding titlecan pass from a seller to a
buyer, the goods must exist and be identified as the specific goods designated in the parties’
contract. For a sales contract involving specific goods that already exist, identification takes
place at the time the contract is made.
21-8A. A QUESTION OF ETHICSVoid and voidable titles
(a) The court reasoned that under the UCC, title can be legally transferred to a good
faith purchaser for value even if the transferor did not have the authority to do so, and held that
thus Roberts, who obtained the car for value and in good faith, retained ownership of it. On
West’s appeal, a state intermediate appellate court upheld this decision, and on West’s further
appeal, the Colorado Supreme Court affirmed the lower court’s ruling.
The state supreme court concluded that UCC 2403(1) applies to transactions, such as
those in this case, that do not involve merchants, “[b]ecause subsection 2-403(1) does not refer
to merchant transactions or buyers in ordinary course, because the definition of good faith
purchaser for value does not require purchase from a merchant or dealer, and because the
official comments to UCC section 2-403 indicate that only subsections (2), (3), and (4) apply
solely to merchant transactions.”
The court also explained that “West freely chose to deliver the car and its title to Wilson.
And he chose to do so even though he had neither attempted to cash the cashier's check nor
obtained contact information for Wilson. Hence, we conclude that West's transfer of the Corvette
and its title in exchange for a cashier's check, even though a worthless counterfeit, constitutes a
voluntary transaction.” Under UCC 2-403(1) “when goods have been delivered under a
transaction of purchase, the purchaser has such power to transfer good title to a good faith
purchaser for value even though the delivery was in exchange for a check which is later
dishonored, or the delivery was procured through fraud.”
Here, “Wilson obtained voidable title to the car despite the fact that he paid with a
fraudulent cashier's check. As such, Roberts, a subsequent good faith purchaser for value,
obtained good title to the Corvette.”
(b) The Colorado Supreme Court acknowledged that the rule under UCC 2403 that
applied in this case can result in a loss to an innocent party. “But a determination that West is
entitled to recover the car would also be a determination that Roberts, another innocent party,
must relinquish a vehicle that she purchased in good faith. The policy behind [UCC] 2-403(1) is
to protect the party least able to protect herself-the good faith purchaser for value.
“Where an owner has voluntarily parted with possession of his chattel, even though
induced by a criminal act, a [good faith] purchaser [for value] can acquire good title, under the
theory that where one of two innocent parties must suffer because of the wrongdoing of a third
person, the loss must fall on the party who by his conduct created the circumstances which
enabled the third party to perpetuate the wrong. The original seller is better positioned to take
precautions to prevent loss than a later purchaser. For example, West could have insisted upon
21-9A. SPECIAL CASE ANALYSISGoods that are part of a larger mass
Case No. 21.1
BMW Group, LLC v. Castle Oil Corp.
New York Supreme Court, Appellate Division, First Department,
__ A.D.3d __, N.Y.S.2d __, 2016 WL 963657 (1 Dept. 2016)
(a) Issue: What goods at the center of this case? Why? The goods at the center of
the BMW case were heating fuel oils—specific grades “Nos. 4 and 6,” and other oils, including
waste oil, that was blended with the specific grades. The reason that these goods were at issue
was that their mixture by the sellers (Castle Oil Corporation and Hess Corporation) was
undertaken without the knowledge or consent of the buyers (BMW Group, LLC, and other
owners of residential and commercial buildings in New York City), who had ordered the oil to be
a specific grade.
10 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
(b) Rule of Law: What does the Uniform Commercial Code provide with respect to
causes of action for such goods? According to the New York state intermediate appellate court
that heard the plaintiffs’ appeal in the BMW case, “if the goods that are delivered do not conform
to the goods contemplated by the sale contract, the purchaser has a cause of action under the
Uniform Commercial Code.”
(c) Applying the Rule of Law: How did the appellate court determine whether the
plaintiffs’ allegations were supported in this case? In this case, BMW Group, LLC and other
owners of residential and commercial buildings in New York City ordered specific grades of fuel
oil for their buildings’ heating systems from Castle Oil Corporation and Hess Corporation.
Charging that the sellers delivered adulterated oilgoods of lesser value that did not meet the
applicable standardsBMW and the others filed a suit in a New York state court against Castle
and Hess. The defendants argued that the complaint did not allege any injury to the plaintiffs
resulting from the use or burning of the blended oil.
(d) Conclusion: What did the trial and appellate courts rule with respect to the
plaintiffs’ claims, and what did the appellate court order as a result? Here, the plaintiffs (BMW
Group, LLC and other owners of residential and commercial buildings in New York City) filed a
complaint in a New York state court against the defendants (Castle Oil Corporation and Hess
Corporation, oil refiners and distributors), alleging that the defendants had delivered to the
plaintiffs heating fuel oil that did not meet the standards applicable to the parties’ contracts. The
defendants argued that the complaint did not allege any injury to the plaintiffs resulting from the
use or burning of the blended oil. The trial court agreed.
CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 11
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
2110A. Shipment contracts
(a) PPI suffered the loss. In a shipment contact, if the seller or lessor is required or
authorized to ship goods by carrier, but not required to deliver them to a particular destination,
risk of loss passes to the buyer or lessee when the foods are delivered to the carrier. Buyers
and lessees have recourse against carriers, and they also usually buy insurance to cover the
goods.
In this problem, the contract between PPI and Omneon stated that the sale was “FOB
Omneon’s dock.” This meant that PPI (the buyer) paid the transportation charges from
(b) Arguments in favor of a carrier’s limitation of liability for lost goods include that
parties are free to make a contract with whatever terms they can negotiate. Limiting liability
encourages carriers to do business, and it supports carriage at more affordable rates. Buyers

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