Deck 15: Bailment and Leasing

Question 1

The tax advantage in leasing arrangements is most apparent

A)for the lessee.
B)for the lessor.
C)where payments are being expensed rather than capitalized.
D)in the off-balance-sheet financing.
E)for the government.

Answer 1

B

Question 2

Rex,a licensed contractor,rented a heavy duty brush cutter from YouRentAll Inc.Within the first few minutes of use,the blade came off and extensively damaged the shroud and housing of the machine.It was determined that the bolts that held the blade on were left loose by some previous user.YouRentAll sued Rex for the repair costs,claiming Rex should have checked out the machine before using.Assuming the lease contract did not speak to this type of situation,how would the court rule?

A)The plaintiff would win,since there is an implied condition here.
B)The defendant would win,since there is an implied warranty of fitness.
C)The plaintiff would win,since they are in the business of renting chattels.
D)The defendant would win,because lessor needs to take care of all repairs.
E)The plaintiff would win,because proper standard of care was not shown.

Answer 2

B

Question 3

A sends a package valued at $400.00 to B by means of the courier company X Co.In the contract between A and X Co. ,there is a limitation of liability clause that limits X Co.'s liability for damage or loss caused to the goods by any reason whatsoever,including the negligence of X Co.and/or its employees,to $20.00.When the goods reach B,they are damaged.If A sues X Co.for the full $400.00,

A)A will not succeed because the limitation of liability clause is effective to reduce A's damages to $20.00.
B)A will not succeed because A cannot prove that X Co.or its employees were negligent.
C)A will succeed because X Co.is a private carrier.
D)A will succeed because X Co.has a very high standard of care.
E)A will succeed because the court will strike out the limitation of liability clause.

Answer 3

A

Question 4

While A is staying in a hotel,A's room is broken into and her jewellery is stolen.The hotel provided state of the art security and the latest and most secure locks on all guest room doors.If A sues the hotel,at common law,

A)A will not succeed because A cannot show negligence on the part of the hotel or its employees.
B)A will only succeed by way of a quantum meruit claim.
C)A will not succeed because the hotel's duty is only to take reasonable care of the belongings of its guests.
D)A will succeed because innkeepers are liable for loss or theft of their guests' belongings.
E)all of the above

Question 5

A leases a harvesting machine from B to be used during the harvesting season in Ontario,which is from the beginning of August to the end of September.In this case,the lease is best described as

A)a financing lease.
B)an operating lease.
C)a purchase or capital lease.
D)a hire-purchase agreement.
E)none of the above

Question 6

Identify which of the following statements correctly describes a hire-purchase agreement.

A)The contract does not create a bailment and the hirer has no contractual obligation to pay the purchase price.
B)The contract gives the hirer a lien on the goods preventing the owner from selling the goods to another.
C)This is simply another name for a chattel mortgage on an automobile.
D)The contract creates a bailment,but the hirer has a contractual obligation to pay the purchase price.
E)The contract creates a bailment and the hirer has an option to purchase the item at the end of the stipulated term.

Question 7

In a bailment of common carriage,where the bailor proves that the goods were given to the bailee in good condition but were returned damaged,the bailee will be held liable unless it can show that the damage was caused by

A)the default of the bailor,an act of God,or the dangerous condition of the goods.
B)an act of God or dangerous condition of the goods only.
C)the default of the bailor or dangerous condition of the goods only.
D)the default of the bailor or an act of God only.
E)none of the above

Question 8

Given its importance,how does the accounting profession determine whether a lease is an operating lease or a purchase capital lease?

A)by observing what ledger account the transaction was recorded in
B)by determining the intentions of the lessee
C)based on whether the item being leased is a capital asset or not
D)based on whether title is likely to pass at the end of the lease period
E)by asking whether the asset is to be used short-term or long-term

Question 9

A reason to sue for breach of a contract of bailment rather than for negligence is that in a contract of bailment,

A)the bailee must disprove negligence.
B)no limitation clause will protect the bailee against liability for damage to the goods.
C)the bailee is strictly liable for any damage to the goods.
D)the bailee owes the bailor a higher standard of care.
E)all of the above

Question 10

Hilda rented a hospital bed from Medical Leasing Co.for her bedridden father.In the contract she was referred to as the ________ and Medical Leasing was referred to as the ________.

A)lessee;lessor
B)leasor;leasee
C)bailor;bailee
D)lessor;lessee
E)owner;renter

Question 11

A and B enter into an agreement for a car whereby A will make lease payments for a certain term,after which A will have the option of buying the car by a final payment of $5000.00.In this case,the lease is best described as

A)a hire-purchase agreement.
B)an operating lease.
C)a security lease.
D)a finance lease.
E)an agreement of purchase and sale.

Question 12

Marcus rented some scaffolding to aid in replacing the siding of his house.This type of lease would be referred to as

A)an operating lease.
B)a security lease.
C)a capital lease.
D)a performing lease.
E)a functioning lease.

Question 13

Quincy owns a metal fabricating company.He is desperately in need of working capital in order to carry out several large orders.Therefore he sells his heavy stamping equipment to Beneficial Leasing Inc.in a five-year purchase lease plan.This arrangement amounts to

A)a sale and leaseback.
B)an operating lease.
C)the mortgaging of assets.
D)the ducktail plan.
E)one of the highest costs in asset financing.

Question 14

A and B are neighbours.B wants to trim his hedges,but his trimmer is broken.Being close neighbours,A and B often borrow things from each other,so B borrows A's trimmer from A's garage.This is an example of

A)a bailment of storage.
B)a bailment of common carriage.
C)a gratuitous bailment.
D)a bailment for reward or value.
E)none of the above

Question 15

Which of the following would NOT be a defence for a carrier that is sued for damage caused to goods during shipping when there is no contractual limitation of liability?

A)reasonable care
B)act of God
C)inherent vice
D)fault of the shipper
E)all of the above would be defences to liability

Question 16

Use the fact situation in Q3 to answer the related question that follows. Using the fact situation above,assume that just after B,the dealer,enters into the lease agreement with A,he assigns the lease to a financing company,which gives notice to A to make all payments to the company until the price has been paid in full,at which time the company will transfer the car to A.In this case,the lease is best described as

A)a security lease.
B)a finance lease.
C)an operating lease.
D)a hire-purchase agreement.
E)an agreement of purchase and sale.

Question 17

Use the facts of this situation to answer the related question that follows it. A enters into an agreement with B,an automobile dealer.A does not have the cash to buy the car,so a leasing arrangement is made under which each lease payment is a payment towards the purchase of the car.Ownership of the car remains with B until A makes the last payment,at which time it is transferred to A.
In the fact situation above,the lease is best described as

A)a hire-purchase agreement.
B)an operating lease.
C)a sale and purchase agreement.
D)a security lease.
E)none of the above

Question 18

A and B agree that A will lease a truck owned by B.The truck is valued at $30 000 and the term,which cannot be cancelled,is three years,by which time A will have paid slightly more than $22 500.00 in lease payments.In this situation,the lease is best described as

A)a hire-purchase agreement.
B)a security lease.
C)a financing lease.
D)an operating lease.
E)a purchase or capital lease.

Question 19

In leases,who is most likely to carry the insurance and bear the cost of maintenance and repairs?

A)In operating leases,it would be the lessee.
B)In a finance lease,this is done by the lessor.
C)In a three-year automobile lease,it would be the lessor.
D)These are usually the responsibility of the lessor in purchase leases.
E)In purchase leases,it would be the lessee.

Question 20

A takes his car into B's car repair shop.B does substantial repairs to A's car and presents A with an invoice for $1500.00.A says,"I'll come back later to pay you" and leaves.A couple of months go by and A has not returned to pay for the repairs.B has which of the following options?

A)B can sue A for the cost of repairs.
B)B has a lien on the car for the amount of repairs.
C)B can sell the car to recover the cost of repairs after a certain period of time.
D)B can retain possession of the car pending payment.
E)all of the above

Question 21

Regarding bailments,which of the following is true?

A)Articles held under bailment form assets available to creditors in bankruptcy.
B)Bailments are not confined to personal property.
C)Trusts are bailments because there is a transfer of property.
D)Chequing accounts at the bank are a form of bailment.
E)Contents in a safety deposit box are a form of bailment.

Question 22

A work associate leaves his bike each day in your garage while both of you commute to work in your car.(This associate pays $5 per day for riding in your car. )One day the bike is stolen out of your locked garage.Are you responsible for the loss of this bike?

A)No,you are not,because you met the standard of care required.
B)No,you are not,because your work associate automatically assumed this risk.
C)No,you are not,since it was gratuitous bailment with a low standard of care.
D)Yes,you are,because your home owner's insurance will pay for it.
E)Yes,you are,since it was stolen from your property.

Question 23

In relation to chattel leases,quiet possession means that the lessor will not interfere with the lessee's possession or use of the chattel so long as the lessee complies with the terms of the lease.

Question 24

Which of the following is true regarding bailments?

A)A change of ownership does not occur;the bailee is only putting his or her property in the bailor's custody.
B)The courts want to keep contracts alive,so they will often rescind a bailment.
C)Under a bailment arrangement,there can arise a time when the possessor can sell the goods against the owner's wishes.
D)If Sally were suing her dry cleaners for the loss of her coat,Sally must prove that the dry cleaners were negligent.
E)John put his house under the care of a neighbour until he returns from vacation.For John to take custody of it again is an example of a bailment.

Question 25

A bailor is better off on the insolvency of its bailee than a creditor is on the insolvency of its debtor.

Question 26

The operating lease tends to be a long-term lease,and the purchase lease tends to be a short-term lease.

Question 27

Temporary custody of a car belonging to a friend who has no garage and is going away on a business trip is an example of

A)a bailment service.
B)bailment borrowing.
C)bailment for value.
D)bailment benefiting bailor.
E)gratuitous bailment-bailee benefit.

Question 28

Bailment

A)requires transfer of possession of personal property.
B)arises only from a contract between bailor and bailee.
C)is a consignment with transfer of title.
D)alters ownership of a specific item.
E)cannot include a chattel.

Question 29

An example of a gratuitous bailment for the benefit of the bailee would be

A)the lending of a car for the bailee to take a trip.
B)giving a friend your camera so he can take pictures for you on his trip.
C)a lawnmower left with a friend who had offered to repair it.
D)valuables left in a relative's safe.
E)a pet left with a neighbour during vacation.

Question 30

A finder,in the legal sense,is

A)a keeper,if she or he owns the land the goods are found on.
B)not bound to take possession of what he or she finds;but once he or she does,he or she becomes a bailee for the owner.
C)obligated,regardless of how valueless the goods are,to find the owner of the goods.
D)a keeper,as long as property has no monetary value.
E)a gratuitous bailor of the goods found.

Question 31

Bailment is the transfer or deposit of personal property such that the party to whom the property is transferred becomes the owner.

Question 32

In both chattel leases and bailment,ownership remains with the property owner who gives possession of the property to another for a period of time on the understanding that it will be returned.

Question 33

Miles acquires a power generator under a two-year lease with the manufacturer.After four months,Miles realizes he no longer needs the generator.He delivers the generator back to the supplier,hoping that his lease payments will stop,but to his dismay,he is informed that he will be expected to pay the remaining twenty payments.Will Miles legally be required to finish all the lease payments?

A)Yes,he will,because this is an operations lease.
B)No,he won't,because the lessor has the chattel in his possession.
C)No,he won't,since he is no longer receiving benefits under the lease.
D)Yes,he will,since the contract made no provision for early termination.
E)No,he won't,since he no longer requires the use of the generator.

Question 34

A gratuitous bailment can only be for the benefit of the bailee,never for the benefit of the bailor.

Question 35

Where a licence is given,unlike with a bailment,the licensee assumes responsibility for safekeeping.

Question 36

Lucy brought her badly stained Persian rug in to be cleaned.The cleaners gave her a receipt in which a clause disclaimed all liability for damage arising from normal handling.When Lucy returned for the rug,it was in an advanced state of deterioration.The cleaners claimed it was exempted from damages by its written disclaimer.The courts would

A)exempt the cleaners from liability based on the exemption clause.
B)interpret the clause most strongly against the plaintiff.
C)side with Lucy's claim for damages.
D)explain why the exemption clause would not apply.
E)require a reasonable explanation as to why the damage was not the result of negligence.

Question 37

Sid asks his neighbour Carl to take care of his lawnmower while Sid is on holidays.While he's gone,Carl uses the lawnmower to mow his brother's lawn across town.In the legal sense,Sid is the ________ and Carl is the ________.

A)bailee;bailor
B)consignee;user
C)lessor;lessee
D)owner;renter
E)bailor;bailee

Question 38

For $5600,Jackstone Inc.agreed to repackage and ship nine container loads of toys from China.These containers from China were to be received during the next three months.Two containers arrived and were serviced according to the contract.The other seven containers never arrived and neither did any payment.What is Jackstone legally entitled to?

A)Since a lien is no longer possible,Jackstone should sue on price.
B)He is entitled to the entire $5600 since a fundamental breach has occurred.
C)He is entitled to $1200,since that is the proportion serviced.
D)He is entitled to quantum meruit on two containers plus loss of profits on the rest of the containers.
E)Since this is a service,it warrants specific performance.

Question 39

Which of the standards of care listed below describe the standard of care required by a business that hires out equipment?

A)care equivalent to what a prudent and diligent person would take in the use of his or her own property
B)care equivalent to a gratuitous bailment for the benefit of the bailor
C)care equivalent to a gratuitous bailment for the benefit of both parties
D)bailment standards set by the Universal Commercial Code
E)care equivalent to bailment of a common carrier

Question 40

A hire-purchase agreement gives only possession of the chattel,not ownership.

Question 41

The relationship of bailment may occur without any contract between the bailor and the bailee.Explain,giving an example.

Question 42

Common carriers may limit the amount of their liability when the shipper does not declare the value of goods.Usually these terms must be approved by the Canadian Transportation Agency,which has jurisdiction over the common carrier.Discuss the benefit to both the shipper and the common carrier with this arrangement.

Question 43

A bailee (a hotel)is liable for damage to goods of guests only if the damage was caused by the negligence of the hotel's employees.

Question 44

Hotelkeepers and common carriers are both insurers of their customers' goods.What is the liability distinction between these two insurers?

Question 45

Some texts,like this one,separate most chattel leases from bailment,while others suggest that many forms of chattel lease are included in bailment.Based on the characteristics of both bailment and the majority of chattel leases,discuss whether the distinction between them should be maintained.

Question 46

What defences are available to a common carrier to avoid liability against a bailor whose goods were damaged when in the possession of the common carrier?

Question 47

Explain the difference between an operating lease and a purchase lease.

Question 48

When can a warehousing firm that has issued a warehouse receipt for goods avoid liability in not returning the exact goods stored?

Question 49

What are the bailment rights of the lessee?

Question 50

Why is a bailor better off on the insolvency of its bailee than a creditor on the insolvency of its debtor?

Question 51

Provide one example of a gratuitous bailment and one example of a bailment for value.

Question 52

Under the rules of what general area of law is there a duty imposed on all bailees to take care of property bailed to them?

Question 53

The notion of an "inherent vice" is a defence.

Question 54

The majority of chattel leases are merely forms of bailment.Discuss.

Question 55

A gratuitous bailment is one where one party pays a nominal fee or gratuity as consideration for the other keeping personal property.

Question 56

Marie drove her car to a parkade.The attendant took her keys,saying that he would park the vehicle and that he needed the keys because the vehicle might be required to be moved.In the parkade,vehicles were parked in two tiers.To remove a vehicle from the second tier,it was necessary to move the vehicle immediately in front of it in the first tier.Marie paid for the parking and was given a ticket with her vehicle licence number written on it.At the entrance to the parkade,two signs were prominently displayed,one requesting that the conditions on the ticket be read and the other stating that the car with its contents were left at the owner's risk.The conditions on the ticket repeated that the car was parked at the owner's risk and that charges were only for parking space use and that the parkade assumed no responsibility for loss through fire,theft,collision,or otherwise to the car or its contents,whether due to the parkade's negligence or otherwise.During the day Marie's vehicle was temporarily parked on the street immediately in front of the parkade to accommodate the removal of several vehicles.The attendant threw the keys under the front seat and left the car unlocked.The vehicle was stolen and never recovered.Marie said she did not see the signs nor read the conditions on the ticket.Identify the issues raised by these facts.Should Marie succeed in an action against the parkade?

Question 57

Define Bailment.

Question 58

If goods are damaged while in the possession of a bailee,the bailee is strictly liable.

Question 59

Explain why the duty of care and hence resulting liability is greater in bailments for reward or payment than in gratuitous bailments.

Question 60

A gratuitous bailment is always for the benefit of the bailee.

Question 61

Zed went into a café located on the third floor of a department store.The café was in an enclosed room with no provision for storing parcels or coats.Immediately outside the café,however,was a rack with hangers and a shelf overhead.Once inside the café,one could not see the rack or shelf.Zed hung his coat on the rack and placed his hat on top of the rack.When Zed finished his meal and came out of the café,he discovered that his hat and coat were missing.Identify the issues.Should Zed be able to successfully sue the department store for his losses?

Question 62

Yale took a $900 three-piece suit into ABC Drycleaning Inc.When he returned to pick it up,he was advised that it had been stolen,along with the clothing of a number of other customers.The dry cleaning building had metal bars covering the windows,and the clothes of Yale and the other customers were in a locked room.The thief had,with a lot of effort,removed the bars to one of the windows and smashed off the lock to the room containing the clothes.Should Yale be able to succeed in an action against ABC Drycleaning? Give reasons for your opinion.

Question 63

Lila gives her watch to Josh for repair.Josh has Lila sign a work order that says that Josh's maximum liability in case the watch is lost or damaged will be $100.Josh is unable to repair the watch himself,and so takes it to Fritz,who specializes in repair of watches of this type.Unfortunately Fritz drops the watch down a heating duct,and it cannot be found.The value of the watch was $2000.Fritz has offered to pay Lila $100,but she claims he is responsible for the value of the watch.Is she correct?