CH 21 LSB

Orange Music, Inc., sells Pad-brand MP3 players to Quik Pik Stores and other retailers. Orange has an insurable interest in the players as long as:

Orange retains title to the goods.

course of dealing

Prior conduct between parties to a contract that establishes a common basis for their understanding.

intangible property

Property that cannot be seen or touched but exists only conceptually, such as corporate stocks. Such property is not governed by Article 2 of the UCC.

Tangible Property

Property that has physical existence and can be distinguished by the senses of touch and sight.

Beta Electronics orders 30 hard drives from Alpha Computers, Inc. The hard drives are stored in City Warehouse. Under the terms of the order, Alpha must give Beta a warehouse receipt for the goods, which Beta will then pick up. Title to the goods passes to Beta when:

Alpha gives Beta a warehouse receipt for the goods.

requirements contract

An agreement in which a buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires.

Output contract

An agreement in which a seller agrees to sell and a buyer agrees to buy all or up to a stated amount of what the seller produces.

If parties to a contract do not specify when identification of existing goods will take place, UCC provisions will apply.

True

When a title document is required, title passes to the buyer when and where the document is delivered.

True

A sale involving unborn animals that will be born within 12 months of contracting will have identification take place:

at the conception of the animals.

Owen buys light fixtures from an online merchant under a contract covered by the UCC. He first receives an insurable interest in the lamp:

at the moment the goods covered by the contract are identified.

When no document of title is required and delivery is made without moving the goods, title passes to the buyer:

at the time and place the sales contract is made, but only if the goods have already been identified.

Deep Storage Company holds goods for EZ Sales Corporation, which contracts to sell them to Fabric 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 Fabric Stores:

when Fabric Stores receives the bill of lading.

According to the UCC, the buyer has an insurable interest in contract goods:

from the moment the goods are identified to the contract.

Goods that are alike by physical nature, agreement or trade usage and usually stored in large containers are known as:

fungible goods.

Quality Farm Supply, Inc., sells farm machinery to Rip and other grain farmers. Of these products, fungible goods include:

grain only.

If a buyer breaches a contract, the risk of loss to __________ goods immediately shifts to the buyer.

identified

Office Equipment Leasing, Inc. (OEL), agrees to lease five computer workstations to Product Promotion Corporation (PPC). Before any interest in the workstations can pass from OEL to PPC, they must be:

in existence and identified as the goods in the contract.

A lessor retains an insurable interest in leased goods:

until the lessee exercises an option to buy and the risk of loss has passed to the lessee.

If a buyer unknowingly purchases goods from a thief, as to those goods the buyer has:

void title.

Blend Juice Company contracts to buy a fruit crop from Citrus Farms. Before an interest in the fruit can pass from Citrus to Blend, Citrus must:

none of these choices.

Lessor

property owner in a lease agreement

The UCC Rule that says when the seller turns over the goods to a merchant or leaves the purchased goods with a merchant, if that merchant deals in those goods, the merchant has the power to transfer all the rights to a buyer in the ordinary course of business is known as:

the entrustment rule.

Sale

the passing of title from the seller to the buyer for a price

Entrustment Rule

the transfer of goods to a merchant who deals in goods of that kind and who may transfer those goods and all rights to them to a buyer in the ordinary course of business

If a seller breaches a contract by supplying non-conforming goods, risk of loss will not immediately pass to the buyer.

True

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.

Sales Contracts

A contract for the sale of goods under which the ownership of goods is transferred from a seller to a buyer for a price.

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.

fully integrated contract

A contract that completely sets forth all the terms and conditions agreed to by the parties and is intended as a final statement of their agreement.

Which one of the following is NOT an example of fungible goods:

A group of blue jeans of different styles

good faith purchaser

A purchaser who buys without notice of any circumstance that would cause a person of ordinary prudence to inquire 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.

predominant-factor test

A test courts use to determine whether a contract is primarily for the sale of goods or for the sale of services.

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.

Document of title

A writing 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).

Firm offer

An offer (by a merchant) that is irrevocable without consideration for a period of time (not longer than three months). A firm offer by a merchant must be in writing and must be signed by the offeror.

Usage of trade

Any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.

When does identification take place for existing goods?

At the time the contract is made.

Radius Line, Inc., has ordered 40 gross of a promotional video to be shipped to its facility in Valdosta, Georgia, from the manufacturer's facility in Denver, Colorado. The invoice indicates that the goods are to be shipped F.O.B. (free on board) to Atlanta, Georgia. This means that Radius Line will pay shipping costs from:

Atlanta to Valdosta.

A seller can never have an insurable interest in goods after title passes to the buyer.

False

If the seller is a merchant, risk of loss to goods held by the seller passes to the buyer when the buyer signs the contract.

False

Someone who purchases goods for fair market value from a seller, but knew the goods were stolen, can still be considered a buyer in the ordinary course of business.

False

Void title means the seller has the power to transfer good title to a good faith purchaser for value.

False

When a buyer agrees to buy goods held by a bailee, unless otherwise explicitly agreed, the risk of loss passes to the buyer when the price is paid.

False

identification

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

Insurable Interest

In contract law, a property interest in goods being sold or leased that is sufficiently substantial to permit a party to insure against damage to the goods. In the context of insurance, an interest in a person's life or wellfare is sufficiently substantial that insuring against a person's death or injurty just not amount to a mere wagering contract.

lease agreement

In regard to the lease of goods, an agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) in exchange for rental payments.

Free on board

Indicated that the selling price of goods include transportation costs to a specific place named in contract. The seller pays the expenses and carries the insurance to the place named.

Jansen contracts with Boats R Us to purchase a party barge, but has not yet picked it up from Boats R Us; he has, however, paid the entire purchase price to Boats R Us. Before he can pick it up, the party barge is destroyed in a hurricane. Both parties maintained an insurance policy on the party barge. Which party or parties can recover from the insurance company?

Jansen only, because he sustained an actual loss.

Leo buys a boat from his neighbor Moe, who is a fishing guide. Moe agrees to keep the boat in his storage shed until Leo picks it up. A tree falls on Moe's shed and destroys the boat. The loss is suffered by:

Leo only.

Delivery ex-ship (delivery from the carrying vessel)

Means that the risk of loss does not pass to the buyer until the goods are properly unloaded from the ship or other carrier.

Mica buys 1,000 bales of hay from Nuevo Farms. The parties agree that the hay will be transported F.A.S. via Overland Transport, Inc. Nuevo Farms' truck carrying the hay explodes before reaching Overland Transport. The loss is suffered by:

Nuevo Farms only.

CIF or C&F (Cost, Insurance, Freight; Cost and Freight)

Requires among other things, that the seller "puts the goods in the insurance of the carrier" before risk passes to the buyer."

Free Alongside

Requires the seller, at his or her own expense and risk, to deliver the goods alongside the carrier before risk passes to the buyer.

Silky Material Corporation in New Jersey sells 50 tons of fabric to Tattered Clothing, Inc., in Ohio, "F.O.B. New Jersey." The cost of transporting the fabric to Ohio will be paid by:

Tattered Clothing.

A buyer has an insurable interest in identified goods.

True

A seller may have an insurable interest in goods even after title passes to the buyer.

True

Absent an agreement stating otherwise, title passes to the buyer at the time and place the seller delivers the goods.

True

Any goods that are not in existence at the time of the contracting are known as future goods.

True

Any party purchasing insurance must have a sufficient interest in the insured item to obtain a valid policy. Insurance laws—not the UCC—determine sufficiency.

True

Generally, in the sale or lease of future goods, identification occurs when the seller or lessor ships, marks, or otherwise designates the goods as those to which the contract refers.

True

Identification is significant because it gives the buyer or lessee the rights to insure the goods.

True

cured

Under the UCC, the right of a party who tenders nonconforming performance to correct his performance within the contract period.

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" [UCC 1-201(23)].

Seasonably

Within a specified time period or, if no period is specified, within a reasonable time.

With a bill of lading, Cartage Common Carrier Company acknowledges possession of certain goods and contracts to deliver them. Cartage is:

a bailee.

Aromatic Tea Company contracts to sell tea to Savory Stores, Inc. The contract includes the term "F.O.B. Upriver City," which is Savory's location. This means that the contract is:

a destination contract.

Lessee

a person who acquires the right to possession and use of goods under a lease

Merchant

a person who is engaged in the purchase and sale of goods. Under the UCC, a person who deals in goods of the kind involved in the contract.

Kip, a representative for Lite-Weight Shipping Company, delivers a bill of lading to Meg, the owner of Capacity Storage Warehouse. A bill of lading is:

a receipt for goods signed by a carrier.

Under the UCC, a bill of lading is:

a receipt of goods signed by a carrier and a contract for transportation of the goods.

When goods are held by a bailee, risk of loss passes to the buyer when any one of the following occurs:

a) The buyer receives a negotiable document of title for the goods; b) The bailee acknowledges the buyer's right to possess the goods; c) The buyer receives a nonnegotiable document of title, and the buyer has had a reasonable time to present the document to the bailee and demand the goods. If the bailee refuses to honor the document, the risk of loss remains with the seller.

Alaskan salmon that fill the hold of Bill and Carla's fishing boat are fungible if the salmon are:

alike naturally or by agreement or trade usage.

Under the UCC, fungible goods are:

alike naturally or considered alike by agreement or trade usage.

With regard to insurable interests:

both buyers and sellers can have insurable interests in goods.

In a destination contract, title passes to the buyer when the goods are _______ to that destination

delivered

A contract for the sale of goods in which the seller is required or authorized to ship the goods by carrier and tender the delivery of the goods at a particular destination is called a:

destination contract.

The sufficiency of an interest in goods is determined by:

insurance laws.

If a buyer unknowingly purchases goods from a seller who has void title, the real owner

may reclaim the goods from the buyer

Isis Foods in St. Louis wanted to buy a shipment from Pocasset Food Sales. The sale was initiated by a purchase order from Isis to Pocasset stating that the shipment was to be "F.O.B. St. Louis." All of Pocasset's invoices stated "Our liability ceases upon delivery of merchandise to carrier." Pocasset delivered the goods to a common carrier, but the shipment was destroyed in transit before reaching St. Louis. The court had to determine whether Isis or Pocasset was liable for the loss. The court most likely held that the risk of loss:

remained with Pocasset, because Isis did not consent to the liability clause.

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

shipment

Phillipa contracts with Cocoa Makers, Inc., for the purchase of 50 cases of special cocoa powder. The cocoa powder must be acquired from Cocoa Makers' headquarters in New York. Phillipa's coffee shop, where she will use the cocoa powder, is located in New Jersey. The contract specifies that Phillipa or her agent will need to pick up the cocoa powder. Phillipa goes to the New York headquarters where the warehouse manager gives her a warehouse receipt for the cases of cocoa powder. Phillipa leaves the cases in the warehouse while she arranges for a carrier to transport the cases by truck to New Jersey. Two days later, the carrier's truck arrives at the warehouse and the cocoa powder is loaded onto the truck. Later the same day, the cases are unloaded from the truck at Phillipa's coffee shop in New Jersey. Title to the cocoa powder passed to Phillipa:

when Phillipa received the warehouse receipt.

In a shipment contract title passes to the buyer:

when the goods are delivered to a common carrier.

A bailee is someone:

who temporarily cares for your personal property without passage of title.