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

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CHAPTER 21

TITLE, RISK, AND INSURABLE INTEREST

ANSWERS TO CRITICAL THINKING QUESTIONS

IN THE FEATURE

MANAGERIAL STRATEGY—BUSINESS 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

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 21.1—LEGAL 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 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS

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

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

CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 3

CASE 21.2—CRITICAL 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

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 21.3—CRITICAL 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

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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

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

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

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

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

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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

21–3A . 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.

CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 7

21–4A. 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

21–5A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Passage 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

21–6A. 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 seller—were jointly liable for the loss. In a

destination contract, the risk of loss passes to the buyer when the goods are tendered at the

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21–7A. When title passes

Under the UCC, before an interest in specific goods—including title—can 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 ETHICS—Void 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.

CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 9

(b) The Colorado Supreme Court acknowledged that the rule under UCC 2–403 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

21-9A. SPECIAL CASE ANALYSIS—Goods 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.

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(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 oil—goods of lesser value that did not meet the

applicable standards—BMW 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

CHAPTER 21: TITLE, RISK, AND INSURABLE INTEREST 11

ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS

AT THE END OF THE CHAPTER

21–10A. 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

Haas (the carrier).

(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