Deck 21: Transfer of Title and Risk of Loss

Question 1

The bulk sales portion (Article 6) of the Code applies only to transfers in the ordinary course of business.

Answer 1

False

Question 2

The UCC "risk of loss" rules assign the loss according to who has ownership of the goods.

Answer 2

False

Question 3

If the owner of goods entrusts them to a merchant, the merchant can transfer good title to the goods to a buyer in the ordinary course of business even if the original owner does not want to sell the goods.

Answer 3

True

Question 4

The distinction between a void and voidable title is not important in determining the rights of good faith purchasers of goods.

Question 5

The buyer and seller of goods may not simultaneously hold insurable interests in the goods.

Question 6

Under a shipment contract, the seller passes title to the buyer when the goods arrive.

Question 7

Future goods can be the subject of a present sale.

Question 8

Identification may be made by either the seller or the buyer.

Question 9

Morris ordered 1,000 sq. ft. of green carpet from RS Company. In error, RS Company shipped 1,000 sq. ft. of gold carpet. In this case, the risk of loss remains with the seller until the seller remedies the defect or until Morris accepts the gold carpet.

Question 10

If goods are sold and delivered to buyer with an option to return them, the risk is on the buyer until they are returned.

Question 11

Jerry bought a stereo from SX Company "on approval." The risk of loss passed to Jerry when he took possession of the stereo.

Question 12

In a lease, the lessee obtains the right to possess and use the goods for a period of time in return for consideration, but title does not pass.

Question 13

Louella purchases a steam cleaner from Alden for $120. She must believe Alden is the owner of or has the authority to sell the cleaner in order to receive the protection of a good faith purchaser.

Question 14

A "buyer in the ordinary course of business" is necessarily a "good faith purchaser for value."

Question 15

Fungible goods are goods for which one unit is the equivalent of any other unit.

Question 16

Title to existing, identified goods can pass whenever the parties agree it will pass.

Question 17

When goods are to be physically moved by a third-party carrier and delivery is made by physically moving the goods, title passes at the time and place at which the seller completes performance.

Question 18

The UCC and the common law are essentially the same in regard to their treatment of risk of loss or damage to identified goods.

Question 19

The risk of loss for "sale or return" is the same as for a sale "on approval."

Question 20

Duncan Supply has consigned goods to Huffman Hardware. Huffman's creditors may not take possession of the consigned goods to satisfy their claims against Huffman.

Question 21

Goods that have been entrusted to a merchant may be sold by that merchant even when the merchant has been told not to sell the goods, and when a merchant sells such goods to a buyer in the ordinary course of business, that buyer has title that is superior to the title of the original owner who entrusted them to the merchant.

Question 22

Title to goods passes according to rules under the Code if the parties have no explicit agreement as to transfer of title.

Question 23

Z, a seller in Miami, enters into a contract which states that goods are to be delivered to X, a buyer in New York. Title is to remain with Z until delivery. This is:

A) a shipment contract.
B) an FOB Miami contract.
C) a destination contract.
D) a consignment.

Question 24

The Code has expanded the rights of good faith purchasers with respect to sales by minors.

Question 25

Wayne sells James a forklift, but retains a security interest in the equipment. Wayne no longer has an insurable interest in the forklift since title has passed to James.

Question 26

Which of the following is true regarding identification of the goods under Article 2?

A) Only the buyer can identify the goods.
B) Identification of existing goods gives the buyer a special property right.
C) Identification of fungible goods occurs when the seller separates the contracted units from the whole.
D) All of these are correct.

Question 27

A voidable title is no title.

Question 28

The parties, by agreement, may divide the risk and shift the allocation of risk.

Question 29

A sale exists after the buyer takes:

A) the title to the goods.
B) the risk of loss on the goods.
C) an insurable interest in the goods.
D) a special property interest in the goods.

Question 30

A basic tenet of the law, which is expressly stated in the Code, is that a purchaser of goods obtains such title as his transferor had or had power to transfer.

Question 31

Mark, a college student, agreed to sell his horse to Henry for $1,000. The contract required Mark to take the horse on that same day to Idlewild Stables where Henry was going to board the horse. Henry paid Mark the money, patted the horse and said, "I'm glad you're mine, you beauty," and drove off. Mark then led the horse into the trailer and set off for the two-hour drive to Idlewild. Has there been a sale?

A) No, not until delivery to Idlewild.
B) No, not until Henry sees the horse again.
C) Yes, since Henry already paid for it.
D) Yes, since the contract was made earlier in the day.

Question 32

Under a shipment contract, title passes to the buyer at a time and place the seller contracts with the carrier to ship the goods.

Question 33

Security interests, defined by the Code as interests in personal property or fixtures that ensure payment or performance of obligations, are governed by Article 6 of the UCC.

Question 34

When one party breaches the sales contract, the Code places the risk of loss on that party.

Question 35

A void title may allow good title to pass in special circumstances.

Question 36

Goods must be both existing and identified to the contract before any interest in them can pass.

Question 37

Kevin delivers to Zach nonconforming goods. Zach accepts, but later discovers the defect and rightfully revokes acceptance. If the goods are destroyed through no fault of Kevin or Zach:

A) if Zach's insurance is adequate, it will cover the loss and Kevin would not bear any of the loss.
B) Kevin would bear the loss of these nonconforming goods, whether or not Zach has insurance.
C) Zach will bear the loss, whether he has insurance or not.
D) Kevin and Zach will equally share the loss.

Question 38

A(n) __________ is a delivery of possession of personal property to an agent for sale by the agent.

A) sale on approval
B) consignment
C) sale or return
D) None of these.

Question 39

In a contract where the buyer is to pick up the goods at the seller's place of business and the seller is a merchant, the risk of loss passes to the buyer when the goods are tendered to the buyer.

Question 40

When goods have been damaged without the fault of either the seller or buyer, if the risk of loss is placed on the seller, the seller has no right to recover the purchase price from the buyer and has no right to the return of the damaged goods.

Question 41

At common law, the risk of loss or damage to goods identified under a contract of sale falls upon:

A) the buyer.
B) the seller.
C) the party who had title or ownership of the goods at the time of the loss or damage.
D) the designated party as determined by the court.

Question 42

In __________ the goods are sold and delivered to the buyer with an option to return them to the seller.

A) a bailment
B) a sale on approval
C) a sale or return
D) entrusting to a merchant

Question 43

In a sale on approval:

A) possession, but not title, is transferred to the buyer for a stated period of time.
B) possession and title are transferred to the buyer for a stated period of time.
C) title, but not possession, is transferred to the buyer for a stated period of time.
D) neither title nor possession is transferred to the buyer for a stated period of time.

Question 44

Growingreen, a gourmet fresh food store that sells only the highest quality fruits, orders 100 lbs. of peaches from Western Fruits "on approval." Growingreen has never dealt with Western before this transaction. The peaches arrived on Saturday, but the owners of Growingreen were too busy to open the crates. Sunday they are closed. Monday at 4 p.m., they opened the boxes and inspected the peaches. They did not meet the high standards of Growingreen, so they nailed the crates shut and ordered a truck to return them the next day. They arrived at Western on Thursday, totally spoiled, a week after they were sent. This is the first time Western knew they were not being accepted. Who is responsible for the damages to the peaches?

A) Growingreen, since it did not inspect and notify Western within a reasonable time.
B) Growingreen, the risk of loss was on them when the peaches arrived.
C) Western, since they retained the risk of loss until approval.
D) Western, because they agreed to take the goods back.

Question 45

Brett contracts to purchase a particular Chevrolet from Johnson's car lot. Brett obtains a "special property interest" in the car when:

A) the contract is made.
B) the car is tendered to Brett.
C) Brett pays for the car.
D) Brett accepts the car.

Question 46

Jack is a guest at Harry's home. While there, he goes into the library and picks up a music box that is part of Harry's collection. Jack overwinds the stem and it breaks. Hoping Harry won't notice, Jack takes the music box for repair to a jeweler who sells similar ones. The jeweler fixes it, but forgets to tag it and an unsuspecting clerk sells it to Robert. Jack is frantic. Can Harry get the music box from Robert?

A) No, the jeweler gives good title to a bona fide purchaser for value.
B) No, the jeweler was not a merchant with regard to music boxes.
C) Yes, Robert was not a buyer in the ordinary course of business.
D) Yes, Robert has assumed only Jack's title, which is no title at all.

Question 47

Tom makes pottery in his spare time. Jackie asks if he'd sell her a covered bowl. Later that day, he telephones her and says she can have it for $50. She agrees, so he tells her he'll wrap it up for her and it will be ready in half an hour. Six days later, Jackie had not yet come for the bowl when a dog knocks the box off the shelf and breaks the bowl. Who is liable?

A) Tom, because Jackie had not yet received the bowl.
B) Tom, because the bowl was in his possession when the dog broke it.
C) Jackie, because she had identified the bowl.
D) Jackie, because Tom had tendered the bowl to her nearly a week earlier.

Question 48

Tender requires that the seller, at a reasonable time:

A) put and hold conforming goods at the buyer's disposition.
B) give notice to the buyer that the goods are available.
C) keep the goods available for a reasonable period of time.
D) all of these.

Question 49

When delivery is to be made without moving the goods, unless otherwise agreed, title passes:

A) at the time and place of contracting under all circumstances.
B) when a document of title is created if a negotiable document of title is involved.
C) when the goods are identified if they were not identified at the time of contracting.
D) at the time the seller completes performance.

Question 50

Alex sees Mona's ring, and he thinks it is very valuable. He uses physical duress to cause her to give him the ring, and he quickly sells it to unsuspecting Hanna's Antique Jewelry Shop for $5,000. A month later, Mona discovers her ring on sale at Hanna's. Can Mona get the ring back?

A) Yes, since a true owner can always recover her own property.
B) Yes, since Alex had voidable title to the ring.
C) Yes, since Alex had void title to the ring.
D) No, since Hanna was a good faith purchaser for value.

Question 51

Howard stole a computer and then sold it to his friend Ivan for $100. Ivan has:

A) good title to the computer, because he paid for it.
B) a voidable title to the computer.
C) a void title to the computer.
D) good title to the computer, because he is a good faith purchaser for value.

Question 52

Under the CISG:

A) loss of, but not damage to, the goods after the risk of loss has passed to the buyer discharges the buyer from the obligation to pay the purchase price.
B) if the sales contract involves the carriage of the goods and the seller is not obligated to hand them over at a particular destination, risk of loss passes to the buyer when the goods are handed over to the first carrier.
C) if the sales contract does not involve carriage of the goods, the risk of loss passes to the buyer when the goods are tendered to him.
D) All of the answers are correct.

Question 53

Inga runs a Swedish health spa in Connecticut. She orders 100 loofah sponges from a company in California. They are sent "F.O.B. Hartford, Connecticut," but they never arrive. What consequence?

A) Inga has to pay anyway since it was a destination contract.
B) The California company is required to bear the loss since the sponges had not yet reached the F.O.B. point.
C) The California company and Inga will have to split the loss since they did not specify in their contract when the risk of loss would pass to Inga.
D) It cannot be determined who has the risk of loss from the information given.

Question 54

If the goods that are the subject of a sale are in the possession of a bailee and are to be delivered without being moved, when does the risk of loss pass to the buyer?

A) At such time as the contract of sale was entered.
B) At such time as the buyer receives the negotiable document of title.
C) When the seller tenders a nonnegotiable document of title to the bailee.
D) When the bailee is orally notified of the sale.

Question 55

Article 6 of the Code does not:

A) apply to sales of goods in the ordinary course of business.
B) define "bulk transfer" as any transfer in bulk and not in the ordinary course of business.
C) apply to merchants whose principal business is the sale of merchandise from stock.
D) include the transfer of a substantial part of equipment as a bulk transfer under any circumstances.
E) All of the answers are correct.

Question 56

Mary orders a dress for $1,000. The designer sends the wrong size. Mary doesn't inspect the dress on arrival and therefore doesn't discover the nonconformity until the day before she is to wear it to her first board meeting as president of Tri-State Engineering. She calls the designer and sends the dress back, but it is lost in the mail. Mary's insurance would cover $400 of the loss. The designer's insurance would cover $900. Who is liable?

A) Mary will bear the whole loss because she accepted the goods.
B) The designer will bear the whole loss because Mary returned the nonconforming goods.
C) Mary will owe $100, the designer $900.
D) The risk is Mary's to the extent of $400.

Question 57

In Robinson v. Durham , the court found:

A) the Robinsons were good faith purchasers for value when they bought the car for their business, and they had good title which they passed to Durham.
B) the Robinsons had a voidable title, and they passed good title to Durham, who was a good faith purchaser for value.
C) there was a breach of warranty of title between the Robinsons and Durham.
D) the Robinsons obtained no title from the thief, but they passed good title to Durham since he was a good faith purchaser for value.

Question 58

Amanda ordered fifty personalized sweatshirts from King Manufacturing Company. After the shirts were specially imprinted, but before they were mailed, Amanda called King Manufacturing to disavow the contract. The next day the sweatshirts were stolen. In this case:

A) Amanda must pay the entire purchase price, because she breached the contract.
B) King Manufacturing will have to bear the entire loss, because it had not yet mailed the shirts.
C) Amanda must bear the entire loss, because the shirts were identified to the contract.
D) King must first seek payment from its insurance carrier, and then collect from Amanda for any amount not covered by insurance.

Question 59

With regard to Article 6 of the Uniform Commercial Code, which of the following is accurate?

A) The National Conference of Commissioners on Uniform State Laws and the American Law Institute jointly issued a recommendation stating "that changes in the business and legal contexts in which sales are conducted have made regulation of bulk sales necessary."
B) Nearly all of the states have repealed Article 6 of the UCC.
C) Article 60 is a revision of Article 6.
D) All of these are accurate.
E) None of these are accurate.

Question 60

Which of the following is necessary to be considered a good faith purchaser?

A) The purchaser must act honestly.
B) The purchaser must give value for the item.
C) The purchaser must take the goods without notice or knowledge of any defect in the title of the transferor.
D) All of these are necessary.

Question 61

How has the Code affected the rights of good faith purchasers with respect to minors?

Question 62

a. Arthur brings his new computer to the Quick Fix Repair Shop to be fixed. Two days later, a buyer comes into the shop, and Quick Fix inadvertently sells Arthur's computer. Arthur now wants his computer back. Can Arthur get his computer back? Explain.
b. Why do you think the Code follows this rule in situations such as the one above? Explain.

Question 63

a. What is an insurable interest? At what point in a sales transaction does the buyer get an insurable interest?
b. Is the buyer the only one who has an insurable interest in the goods? Is it possible for both the buyer and the seller to simultaneously hold an insurable interest? Explain.

Question 64

a. What is a bulk transfer?
b. What is the purpose of bulk sales law?
c. What is the effect of a failure to comply with the provisions in Article 6 in those states that still follow this Article?

Question 65

Everett bought a washer and dryer for $1,200 from Neely Appliances, which was to deliver the set in two days, on its regular delivery date for Everett's area. However, on the night of the sale, Neely's suffered an accidental fire and the washer and dryer were destroyed. Who has the risk of loss? Who would have the risk of loss if Everett had instead bought a used washer and dryer from his neighbor who was having a moving sale, and the washer and dryer were destroyed after Everett had paid for them and after the neighbor made them available to Everett but before he picked them up?

Question 66

The Heinrich v. Titus-Will Sales, Inc. case stands for the principle that:

A) the UCC requires proper state licensing for a company claiming to be a merchant to actually have merchant status.
B) a buyer in the ordinary course of business acquires good title when buying from a merchant seller who was entrusted with possession of the goods.
C) risk of loss depends on who has title to the goods at the time the goods are damaged or destroyed.
D) a void title is no title.

Question 67

Explain what a trial sale is. Identify the two types of trial sales recognized by the UCC and explain the test for distinguishing between the two types. Discuss transfer of title and risk or loss with each type of trial sale.

Question 68

Which of the following is correct with regard to risk of loss, where the goods are in the possession of a bailee and are covered by a negotiable document of title?

A) Risk of loss passes when the buyer receives the document.
B) Risk of loss passes when the document is tendered to the buyer.
C) Risk of loss passes when notification of the arrival of the goods is given to the buyer.
D) If the buyer is a merchant, risk of loss passes to the buyer when the goods are delivered.

Question 69

The Windows, Inc. v. Jordan Panel Systems Corp. case illustrated the concept that:

A) unless the parties expressly specify that the contract requires the seller to deliver to a particular destination, the contract is generally considered to be a shipment contract.
B) unless the parties expressly designate the type of contract, it will be interpreted to be a destination contract.
C) goods in the possession of a bailee which are to be delivered without being moved will have the risk of loss pass to the buyer when the buyer receives a negotiable document of title.
D) express, specific provisions in a contract control as long as they are not unconscionable or grossly unfair to one of the parties.