Worksheet 21.3: Risk of Loss and Insurable Interest

14. Generally, a buyer has an insurable interest in ___(1)___ goods and a seller has an insurable interest as long as the seller retains ___(2)___ or if the seller has ___(3)___ in the goods.

(1) identified (2) title (3) a security interest

11. If the buyer or lessee breaches the contract, the risk of loss ___(1)___ shifts to the buyer or lessee. Limitations to this rule are as follows: a. The seller or lessor must have already ___(2)___ the contract goods. b. The buyer or lessee bears the risk for only a ___(3)___ reasonable time after the seller or lessor has ___(4)___ of the breach. c. The buyer or lessee is liable only to the extent of any ___(5)___ in the seller's or lessor's ___(6)___ coverage.

(1) immediately (2) identified (3) commercially (4) learned (5) deficiency (6) insurance

8. Risk of loss passes to the buyer when goods are held by a bailee, if the buyer receives a ___(1)___ document of title for the goods, OR the bailee ___(2)___ the buyer's right to ___(3)___ the goods, OR the buyer receives a ___(4)___ document of title, and the buyer has had a ___(5)___ time to present the document to the bailee and demand the goods. If the bailee ___(6)___ to honor the document, the risk of loss remains with the seller.

(1) negotiable (2) acknowledges (3) possess (4) nonnegotiable (5) reasonable (6) refuses

10. If the seller or lessor breaches by tendering ___(1)___ goods that the buyer or lessee has a right to ___(2)___, the risk of loss does not pass to the buyer or lessee until the defects are cured or the buyer ___(3)___ the goods (thus waiving the right to reject).

(1) nonconforming (2) reject (3) accepts

9.

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

2.

C.I.F. or C.&F. (cost, insurance and freight or just cost and freight): The seller "puts the goods in possession of a carrier" and keeps the risk of loss until that occurs., Delivery ex-ship (delivery from the carrying vessel): Goods must be properly unloaded from the ship or other carrier and seller keeps the risk of loss until that occurs., F.A.S. (free alongside): The seller pays the expenses and carries the goods to a destination alongside the carrier and keeps the risk of loss until that occurs., F.O.B. (free on board) The seller pays the expenses and carries the goods to the F.O. B. place named and keeps the risk of loss until delivery to that place occurs.

13. To determine if a party has a sufficient interest in the insured item to obtain a valid policy, insurance laws, not the UCC, are used. a. True b. False

a

3. Under a shipment contract, title passes from the seller to the buyer: a. when the goods are delivered to the carrier. b. when the goods are delivered to the buyer's office. c. when the goods are identified in the contract for sale.

a

5. A bailment is a temporary delivery of personal property, without passage of title, into the care of another who is obligated to return the bailed property to the bailor or dispose of it as directed. a. True b. False

a. true

12. A party to a contract with a sufficient interest in the property subject to the contract may have ______.

an insurable interest

1. Risk of loss is determined by passage of title and not by the agreement of the parties. a. True b. False

b. False

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

b. False (The risk of loss for goods held by a merchant seller passes to the buyer when the buyer actually takes physical possession of the goods.)

7. With a negotiable document of title, a party can transfer its rights in the property by: a. delivering the goods. b. signing the document. c. signing and delivering the document.

c

4. If the parties do not agree otherwise, and the contract is not clear, courts generally will presume that the contract is a ______ contract.

shipment