Deck 17: Leasing and Bailment

Question 1

Regarding bailments, which of the following is TRUE?

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

Answer 1

D

Question 2

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

Answer 2

D

Question 3

A finder, in the legal sense, is

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

Answer 3

C

Question 4

Bailment

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

Question 5

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

Question 6

Miles acquires a power generator under a two- year lease with the manufacturer. After four months, Miles realises he no longer needs the generator. He delivers the generator back to the supplier hoping that his lease payments would 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) No, since he is no longer receiving benefits under the lease.
B) Yes, because this is an operations lease.
C) No, since he no longer requires the use of the generator.
D) No, because the lessor has the chattel in his possession.
E) Yes, since the contract made no provision for early termination.

Question 7

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

Question 8

Sid asks his neighbour Carl to take care of his lawnmower while 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) bailor; bailee
B) owner; renter
C) bailee; bailor
D) lessor; lessee
E) consignee; user

Question 9

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

Question 10

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

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

Question 11

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

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

Question 12

According to your text, leasing has become a common alternative to purchasing on credit; in business probably more than 25% of capital equipment is being leased. How do you explain this phenomenon?

A) Leasing is a direct substitution to the conditional sale contract.
B) Chattels under lease can easily be moved where real property stays put.
C) Now there are modern systems of registration for property rights.
D) Personal property leasing dates back to Roman times and has been popular ever since.
E) Today's fast changing technology requires business to use the latest equipment.

Question 13

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

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

Question 14

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

Question 15

The tax advantage in leasing arrangements is most apparent

A) for the Lessor.
B) where payments are being expensed rather than capitalised.
C) for the Lessee.
D) for the government.
E) in the off- balance- sheet financing.

Question 16

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

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

Question 17

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 pet left with a neighbour during vacation.
D) lawnmower left with a friend who had offered to repair it.
E) valuables left in a relative's safe.

Question 18

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

Question 19

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

Question 20

Which of the following is TRUE regarding bailments?

A) A change of ownership does not occur; the bailee is only putting his property in the bailor's custody.
B) The courts want to keep contracts alive so they will often rescind a bailment.
C) If Sally were suing her dry cleaners for the loss of her coat, Sally must prove that the dry cleaners were negligent.
D) 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.
E) Under a bailment arrangement there can arise a time when the possessor can sell the goods against the owner's wishes.

Question 21

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

Question 22

His responsibilities are to take reasonable care of the goods, to do the required work in the time promised, not to charge for any unauthorised work (like installing new parts when not needed), and to possess the skills he claims to have:

A) licensee.
B) lessee.
C) bailor.
D) bailee for value.
E) pawnbroker.

Question 23

Which of the following statements describes when a bailee may return goods of the same description but not the identical goods?

A) when the bailor is given a warehouse receipt
B) when the original goods have been destroyed by fire and it is determined that the bailee was negligent
C) when the goods have been pledged
D) when the bailor is in breach of the bailment contract
E) when the goods are fungible

Question 24

Common carriers are practically insurers for the goods they carry. Consolidated Shipping is a common carrier and is transporting two new ferry guidance systems to Singapore. During the shipping, both were damaged by corrosion. It was determined that the cause was "inadequate packaging". Is the carrier liable for these damages?

A) No, because this is inherent vice.
B) Yes, since this is not an act of God nor act of war.
C) No, because both parties were aware of the poor packaging.
D) Yes, since this is not an available defence for common carriers.
E) No, since a standard exemption clause would protect it.

Question 25

Jim's neighbour barrows a card table and four chairs for a party that Jim and his wife will be attending. Regarding the table and chairs, the neighbour

A) has a high standard of care since he is getting the benefit.
B) has a low standard of care since Jim and his wife are getting benefits.
C) is a bailee with a medium standard of care.
D) has a low standard of care since they are friends.
E) Is a bailor with a high standard of care.

Question 26

For $5,600, Jackstone Inc. agreed to repackage, and ship nine container loads of zipthrow 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) He is entitled to quantum meruit on two containers plus loss of profits on the rest of the containers.
B) The entire $5,600 since a fundamental breach has occurred.
C) Since a lien is no longer possible, Jackstone should sue on price.
D) Entitled to $1,200, since that is the proportion serviced.
E) Since this is a service, it warrants specific performance.

Question 27

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

Question 28

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

Question 29

If an unpaid bailee loses his lien on bailed goods, which would he be wisest to sue for?

A) rescission of the contract
B) quantum merit
C) the contract price
D) loss of profits
E) consequential damages

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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, since it was gratuitous bailment with a low standard of care.
B) Yes, since it was stolen from your property.
C) No, because you met the standard of care required.
D) Yes, because your home owner's insurance will pay for it.
E) No, because your work associate automatically assumed this risk.

Question 35

Common carriers are practically insurers for the goods they carry. Consolidated Shipping is a common carrier and is transporting two new ferry guidance systems to Singapore. During the shipping, both were damaged by corrosion. It was determined that the cause was "inadequate packaging". Is the carrier liable for these damages?

A) No, since a standard exemption clause would protect it.
B) No, because both parties were aware of the poor packaging.
C) Yes, since this is not an available defence for common carriers.
D) No, because this is inherent vice.
E) Yes, since this is not an act of God nor act of war.

Question 36

Fruitland Packing Co. has a lien on 2,000 boxes of apples. The bailor has become insolvent and can't pay the charges. What rights does Fruitland have regarding the apples?

A) Under bankruptcy, will loose the benefit of a lien.
B) They have acquired the right to sell as a term of the bailment contract or through a provincial statute.
C) They have the right to sell the apples quickly before they become rotten.
D) They have the right of sale under the Public Auction Act.
E) They have the Right of Sale under common law.

Question 37

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 bailment of a common carrier
C) care equivalent to a gratuitous bailment for the benefit of both parties
D) care equivalent to a gratuitous bailment for the benefit of the bailor
E) bailment standards set by the Universal Commercial Code

Question 38

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

Question 39

Identify the statement that correctly sets out the common carriers' liability for fire.

A) They are only liable for damage to goods caused by fire when it is proved that the carrier was negligent.
B) They are liable for damage to goods caused by fire, except where the fire is caused by lightning.
C) They are liable for damage to goods caused by fire, even when there is no negligence provable against it.
D) They are not liable for damage to goods caused by fire, as the shipper must separately insure for that peril.
E) They are never liable for damage caused by fire as fire is an act of God.

Question 40

Which of the following have the right to a lien over the goods to pay for services?

A) an innkeeper
B) a warehouseman
C) a common carrier
D) a repairer
E) all of the above

Question 41

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

Question 42

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 damages 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 dropped 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?

Question 43

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 Transport Commission that has jurisdiction over the common carrier. Discuss the benefit to both the shipper and the common carrier with this arrangement.

Question 44

In the following circumstances, identify the type of bailment created and state what standard of care is imposed on the bailee.
a. X being a friend of Y, borrows Y's computer to use its word- processing program to perform an assignment for which Z is paying X.
b. X being a friend of Y, borrows Y's computer to help Y complete a project for which Y is solely responsible.
c. X being a friend of Y, borrows Y's computer to complete a project for which both X and Y are jointly responsible for completing.
d. Y delivers his computer to Computer Warehouse Inc. in order to store it for six months and enters into a storage contract with Computer Warehouse.
e. Y delivers his computer to a common carrier in order for it to be shipped to a relative in another province.

Question 45

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

Question 46

Marie drove her car to a parkade and the attendant took her keys saying he would park the vehicle and he needed the keys since 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 license 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 47

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 48

Define Bailment.

Question 49

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

Question 50

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

Question 51

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 52

Zed went into a cafe´ located on the third floor of a department store. The cafe´ was in an enclosed room with no provision for storing parcels or for the storage of coats. Immediately outside the cafe´, however, was a rack with hangers and a shelf overhead. Once inside the cafe´, 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 cafe´, he discovered his hat and coat were missing. Identify the issues. Should Zed be able to successfully sue the department store for his losses?

Question 53

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 54

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

Question 55

Identify which three of the following statements are FALSE.

A) A finder generally acquires a good title against everyone except the owner, but this rule has been disqualified by the courts so that it applies only to things found in what the courts have chosen to call non- public places.
B) When goods are damaged in the hands of a business acting as a bailee, the burden of proving it was not negligent is placed upon the bailee as it is difficult for the bailor to ascertain exactly how the loss occurred.
C) At common law a warehousing firm obtained a lien upon goods.
D) An act of God is a natural catastrophe and will not include fire unless it has been started by lightning.
E) A hotel may refuse to accept the goods of a guest for safe deposit and retain the benefit of reduced liability under the applicable provincial legislation.

Question 56

What are the bailment rights of the lessee?