Chapter 21 Worksheet

Good faith purchaser

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

Insolvent purchaser

a purchaser 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"

Under the UCC, a bill of lading is:

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

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

Under a shipment contract, title passes from the seller to the buyer:

when the goods are delivered to the carrier

Tender of delivery is:

when the seller places or holds conforming goods at the buyer's disposal

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

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

Shipment 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

Destination 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.

Under the UCC, fungible goods are:

alike naturally or considered alike by agreement or trade usage

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

an insurable interest

When does identification take place for existing goods if the parties do not otherwise agree?

at the time the contract is made

A purchaser is a buyer in the ordinary course of business if that person buys goods in good _____ (honestly), without that the sale violates the rights of another person in the goods, the goods are purchased in the _____ course from a _____ (other than a pawnbroker) in the business of selling goods of that kind, and if the sale to that person is consistent with the usual or _____ practices in the kind of _____ in which the seller is engaged [UCC 1-201(9)].

faith, knowledge, ordinary, merchant, customary, business

Goods that are of a similar but slightly different grade or quality are considered fungible.

false

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.

false

In a destination contract, the seller is required to deliver the goods to a particular destination, usually directly to the carrier of the goods.

false

Prior to the creation of the Uniform Commercial Code, title, the right to ownership, was mostly irrelevant.

false

Risk of loss is determined by passage of title and not by the agreement of the parties.

false

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

Fungible goods

goods that are alike by physical nature, by agreement, or by trade usage

Existing goods

goods that are created before the contract is made

Future goods

goods that will be created after the contract is made

Generally, a buyer has an insurable interest in _____ goods and a seller has an insurable interest as long as the seller retains _____ or if the seller has _____ in the goods.

identified, title, a security interest

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

immediately, identified, commercially, learned, deficiency, insurance

In a lease contract, the _____ of the goods retains title.

lessor-owner

Risk of loss passes to the buyer when goods are held by a bailee, if the buyer receives a _____ document of title for the goods, OR the bailee _____ the buyer's right to the goods, OR the buyer receives a _____ document of title, and the buyer has had a _____ time to present the document to the bailee and demand the goods. If the bailee _____ to honor the document, the risk of loss remains with the seller.

negotiable, acknowledges, possess, nonnegotiable, reasonable, refuses

Void title

no title exists

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

nonconforming, reject, accepts

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)

The UCC replaces the common law concept of title with all of the following EXCEPT:

product liability

Voidable title

seller may eliminate the title at will

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

shipment

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

shipment

With a negotiable document of title, a party can transfer its rights in the property by:

signing and delivering the document

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

tendered

Before any interest in specific goods can pass from the seller or lessor to the buyer or lessee, two things must be true. Those two things are (select two):

the goods must be in existence, the goods must be identified to the contract

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

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

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 goods are transferred from their owner to another by _____, the _____ acquires no ownership rights and has a _____ title. In this case, the true owner can recover the goods from any buyer who bought them. If the transfer is by _____, then the transferee acquires a _____. In this case, a later _____ purchaser for _____ can acquire good title and the original owner cannot recover the goods.

theft, thief, void, fraud, voidable title, good faith, value

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.

true

A warehouse receipt is a receipt issued by a warehouse for goods stored in a warehouse.

true

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

true

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

true

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

true

The UCC's provisions relating to passage of title do not apply to leased goods.

true

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.

true

Under a shipment contract, the seller is required only to deliver the goods into the hands of a carrier, and title passes to the buyer at the time and place of shipment.

true

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

true

Without an explicit agreement to the contrary, title passes to the buyer at the time and the place the seller performs by delivering the goods.

true