Business Law 2, Test 1 - Chapter 21

Fungible goods are goods that are different naturally, by agreement, or by trade usage.

False

Title and risk of loss can pass to the buyer from the seller before the goods are identified to the contract.

False

Under a destination contract, the risk of loss passes to the buyer when the goods are duly delivered to the carrier.

False

When a bailee is holding goods that are to be delivered under a contract without being moved, the risk of loss cannot pass to a buyer.

False

The contract term "delivery ex-ship" means that the risk of loss does not pass to the buyer until the goods are properly unloaded from the ship or other carrier.

True

The contract term "free on board" indicates that the selling price of goods includes transportation costs to the specific F.O.B. place named in the contract.

True

The entrustment rule basically allows innocent buyers to obtain legitimate title to goods purchased from merchants even if the merchants do not have good title.

True

When a buyer breaches a contract, the risk of loss remains with the seller.

False

When an agreement is ambiguous as go whether it is a shipment or a destination contract, courts will normally presume that it is a destination contract.

False

Identification

In a sale of goods, the express designation of the specific goods provided for in the contract.

Document of title

Paper exchanged in the regular course of business that evidences the right to possession of goods (for example, a bill of lading or a warehouse receipt).

Identification takes place when specific goods are designated as the subject mater of a sales or lease contract.

True

In a sale or return, a buyer has an option to return the goods and undo the sale.

True

The right to cure is the right of a party who tenders nonconforming performance to correct his or her performance within the contract period.

True

When a seller keeps the goods for pickup, if the seller is not a merchant, the risk of loss passes to a buyer on tender of delivery.

True

When the risk of loss for goods passes from a seller to a buyer is generally determined by the contract between the parties.

True

Sale on approval

A type of conditional sale in which the buyer may take the goods on a trial basis. The sale becomes absolute only when the buyer approves of (or is satisfied with) the goods being sold.

Sale or return

A type of conditional sale in which title and possession pass from the seller to the buyer; however, the buyer retains the option to return the goods during a specified period even though the goods conform to the contract.

Insurable interest

An interest either in a person's life or well-being or in property that is sufficiently substantial that insuring against injury to (or the death of) the person or against damage to the property does not amount to a mere wagering (betting) contract.

Buyer in the ordinary course of business

A buyer who, in good faith and without knowledge that the sale violates the ownership rights or security interest of a third party in the goods, purchases goods in the ordinary course of business from a person in the business of selling goods of that kind.

Destination contract

A contract in which the seller is required to ship the goods by carrier and deliver them at a particular destination. The seller assumes liability for any losses or damage to the goods until they are tendered at the destination specified in the contract.

Shipment contract

A contract in which the seller is required to ship the goods by carrier. The buyer assumes liability for any losses or damage to the goods after they are delivered to the carrier. Generally, all contracts are assumed to be shipment contracts if nothing to the contrary is stated in the contract.

Good faith purchaser

A purchaser who buys without notice of any circumstance that would put a person of ordinary prudence on inquiry as to whether the seller has valid title to the goods being sold.

Bailment

A situation in which the personal property of one person (a bailor) is entrusted to another (a bailee), who is obligated to return the bailed property to the bailor or dispose of it as directed.

A bill of lading is a receipt signed by a warehouse for goods stored in a warehouse.

False

A buyer has an insurable interest in identified goods only if he or she has title to the goods.

False

Fungible goods

Goods that are alike by physical nature, by agreement, or by trade usage. Examples of fungible goods are wheat, oil, and wine that are identical in type and quality.

A seller has an insurable interest in goods as long as he or she retains title to the goods.

True

A seller with voidable title has the power to transfer good title to a good faith purchaser for value.

True

Any explicit understanding between the buyer and the seller determines when title passes.

True

Generally, all contracts are assumed to be shipment contracts if nothing to the contrary is stated in the contract.

True

Insolvent

Under the Uniform Commercial Code, a term describing a person who ceases to pay his debts in the ordinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of federal bankruptcy law.

Quaff n' Quench Café buys twenty-five crates of oranges from Reynaldo Produce, Inc. The parties agree to ship the oranges "F.O.B. Quaff n' Quench " via Swiftline Trucking Company. The oranges rot in transit. The loss is suffered by

a. Quaff n' Quench.

Stubbs buys a Tred-brand bicycle from his brother, Uriah. Uriah agrees to keep the bike at his house until Stubbs picks it up. During a storm, a tree falls from Victor's yard onto Uriah's garage and destroys the bike. The loss of the bike is suffered by

a. Stubbs.

With a bill of lading, Interstate Transport Company acknowledges possession of certain goods and contracts to deliver them. Interstate Transport is

a. a bailee.

Big Beef, Inc. raises calves to sell. Big Beef breeds its cows in April, and the cows calve in February of the following year. In January Andrea contracts with Big Beef to buy fifty calves. Identification takes place in

b. April, when the calves are conceived.

Gas & Wood Stove Shop receives Hearthwarm-brand stoves from Independent Dealer, Inc., under a sale or return agreement. While the stoves are in Gas & Wood's possession, title is held by

b. Gas & Wood.

Motor Vehicles Service Company orders NoBounce-brand shock absorbers from Parts & Tools, Inc., to be delivered by the seller. Before Parts & Tools' truck arrives with the goods, Motor Vehicles tells Parts & Tools it will not pay. The shock absorbers are destroyed in transit. The loss is suffered by

c. Motor Vehicles to the extent of a deficiency in Parts & Tools' insurance coverage.

Roadtrip County Fairs Corporation orders from Stuffed Animal Sales, Inc., goods that are stored in a Toy Box Maxi-Storage warehouse. Roadtrip pays for the goods, delivery is via the transfer of a negotiable warehouse receipt, and Roadtrip moves the goods out of the warehouse. The risk of loss passes to the buyer when it

c. receives the negotiable warehouse receipt.

Household Appliance Corporation sells Ideal-brand vacuum cleaners to Jolly Discount Stores and other retailers. Household Appliance will have an insurable interest in the players as long as

b. Household Appliance retains title to the goods.

Foster contracts with Golf Carts Unlimited, Inc. to buy five golf carts. The contract lists the five carts as GC001, GC002, GC003, GC004, GC005. Identification

b. has taken place.

Organicos Café orders five gallons of PureMaid-brand transfat-free olive oil from Quico Cooking Supplies, Inc. Quico mistakenly ships soy oil, which Organicos keeps, despite the nonconformity. The oil is destroyed in a fire. The loss is suffered by

c. Organicos Café.

Megan, an agent for a department store, orders one hundred dresses from Sal's Clothing Shop for the Spring Blossom Sale. There is no specific agreement in the sale contract indicating when title will pass to the department store. The title will pass to the department store when

c. Sal's Clothing Shop physically delivers the dresses to the department store.

QuickFreeze Storage, a bailee, holds goods for Restaurant Purveyor, Inc., which has contracted to sell the goods to Seafood Dining Company. The goods are to be delivered without being moved. The risk of loss will pass to Seafood Dining when it receives

c. a negotiable document of title.

Effortless Workouts, Inc., offers to sell a treadmill to Farouk and sends it to him on a trial basis. This is

c. a sale on approval.

Business Banners, Inc., and Cam's Auto & Truck Sales Dealership enter into a contract for a sale of thirty advertising banners emblazoned with Cam's logo. The terms do not explicitly or clearly indicate whether it is a destination or shipment contract. A court would normally presume that it is

c. a shipment contract.

Outdoor Outfitters Store contracts to buy fifty tents from Pitched Camp, Inc. Unless the contract states otherwise, it is assumed to be

c. a shipment contract.

Drill Makers, Inc., and Edge Mine & Mill Supply Stores enter into a contract for a sale of mining drill bits. The contract indicates that the price includes transportation costs to a specific destination by including the term

d. F.O.B.

Pipes & Culverts Company orders six irrigation pumps from Quality Plumbing, Inc. The pumps are stored in Restorers Warehouse. Under the terms of the order, Quality must give Pipes & Culverts a warehouse receipt for the goods, which the buyer will then pick up. Title to the goods passes to Pipes & Culverts when

d. Quality gives Pipes & Culverts a warehouse receipt for the drives.

Quest Outdoor Store orders RiverRun-brand kayaks from Sports Merchandise, Inc. Sports Merchandise mistakenly ships kayaks of the wrong size, which Quest rejects and returns via Trans-State Shipping Company. During the re- turn, the kayaks are lost. The loss is suffered by

d. Sports Merchandise.

Johan steals Krispin's car and sells it to Lemar. Krispin can recover the car from Lemar

d. under any circumstances.

Moving & Storage Company holds goods for National Distribution Corporation, which contracts to sell them to Omni Stores, Inc. The goods are to be delivered without being moved and are represented by a negotiable bill of lading. The risk of loss passes to Omni Stores

d. when Omni Stores receives the bill of lading.