Business Law Study Set 13

Business

Quiz 24 :

Title and Risk of Loss

Quiz 24 :

Title and Risk of Loss

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Felix DeWeldon is a well-known sculptor and art collector. He owned three paintings valued at $26,000 that he displayed in his home in Newport, Rhode Island. In 1991, he declared bankruptcy and DeWeldon, Ltd., purchased all of DeWeldon's personal property from the bankruptcy trustee. Nancy Wardell, the sole shareholder of DeWeldon, Ltd., sold her stock to Byron Preservation Trust, which then sold Felix an option to repurchase the paintings. At all times, the paintings were on display in DeWeldon's home. In 1994, DeWeldon's son Byron told Robert McKean that his father was interested in selling the paintings. After viewing them, McKean then purchased the paintings for $50,000. DeWeldon, Ltd., brought suit to have the paintings returned, claiming McKean did not have title because Byron did not have the authority to sell the paintings. Will McKean get the paintings? [DeWeldon, Ltd. v McKean, 125 F3d 24 (1st Cir)]
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Refer to the case DeWeldon, Ltd v McKean (125 F3d 24).
Case Issue
Trial court held for the defendant, buyer of the paintings. The plaintiff, painting's alleged owners, appealed their decision.
Relevant Terms, Laws, and Cases
R.I. Gen. Laws § 6A-2-403 - is a Rhode Island's state statute (adopted from UCC) concerning sales of goods. It states that when an owner entrusts their goods to a merchant, the merchant may sell the goods to a buyer, during ordinary course of business-buyer will gain title of the goods.
Opinion
Higher court affirmed the decision. Buyer has title to the art, even though he did not buy them from the owner directly.
The higher court based their decision on Rhode Island's law (see above), buyer may gain title of goods sold from merchant, in which the goods was entrusted to the merchant by the goods actual owners. The issue which the court decided was whether the art was entrusted to the seller, the artist, and whether the seller was a merchant. The court argued that it was entrusted to the seller, the owner allowed seller to retain possession of the goods and kept it at the seller's home. Furthermore, the court decided that seller was a merchant, as an artist the seller was someone who has expertise in the field regarding the transaction.

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Around June 2005, PPI purchased three pallets of computer wafers from Omneon Video Graphics. PPI requested that Omneon ship the wafers directly to the City University of New York, the end purchaser of the goods. Omneon and PPI agreed that Omneon would ship the wafers FOB Omneon's dock. Somewhere between the loading dock and City University, one pallet of the wafers disappeared. Who bears the loss for the lost pallet and why? [ OneBeacon Ins. Co. v. Hass Industries, Inc., 634 F.3d 1092 (9th Cir. 2011)]
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Case summary:
PP purchased three pallets of computer wafers from OVG. It was requested by PP that OVG deliver the three pallets directly to the end consumer, C University in New York. OVG and PP agreed to deliver the order somewhere between the loading dock of OVG and C University. It was found that one pallet of wafer disappeared.
Conclusion:
The pallet disappeared before C University took the delivery of it and signed the receiving receipt, thus in this case, it is OVG's fault and it has to bear the loss of that disappeared pallet. This is because as per the agreement between OVG and PP, until the end consumer receives the pallets, it is OVG's duty to take care of it and if any unwanted event takes place and the pallets disappear or gets ruined then it is OVG's duty to bear the loss.

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Bakker Brothers of Idaho agreed to buy Charles E. Graff 's 1989 onion seed crop. The contract required that the onion seeds have an 85 percent germination rate. Despite careful testing and advice from experts, Bakker Brothers could not get a germination rate on the seed tested higher than 62 to 69 percent. Bakker Brothers rejected the seed, notified Graff, and awaited instructions. Graff gave no instructions and the seed spoiled. Graff sought to recover the contract price from Bakker Brothers because the risk of loss had passed. The trial court granted summary judgment for Bakker Brothers, and Graff appealed. Was the trial court decision correct? Explain why or why not. [Graff v Bakker Brothers of Idaho, Inc., 934 P2d 1228 (Wash App)]
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Refer to the case Graff v Bakker Brothers of Idaho (934 P2d 1228).
Case Issue
The issue is whether the buyer or seller, defendant and plaintiff respectively, both merchants, bears the risk of loss for a defective good.
Relevant Terms, Laws, and Cases
Uniform Commercial Code (UCC) 2-602 and 2-603 - states the requirement for merchant buyers to reject goods. This includes requirements such as having the buyer to make a rejection in reasonable time, follow seller's instruction regarding the goods, and try to sell the goods if they are perishable.
Opinion
Higher court affirmed the decision in favor of the defendant, the buyers.
The court applied the duties required by the buyers under UCC 2-602 and 2-603. It found that the buyers had informed sellers of the defects in their goods. And having not heard from the sellers, the buyers made a good attempt to sell it. Therefore, the judgment remained in buyer's favor.

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Coppola, who collected coins, joined a coin club, First Coinvestors, Inc. The club would send coins to its members, who were to pay for them or return them within 10 days. What was the nature of the transaction? [First Coinvestors, Inc. v Coppola, 388 NYS2d 833 (Misc)]
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C. Clark, using the alias Thomas Pecora, rented a 1994 Lexus from Alamo Rent-A-Car on December 21, 1994. Clark did not return the car and, using falsified signatures, obtained a California so-called "quick" title. Clark advertised the car for sale in the Las Vegas Review Journal. Terry and Vyonne Mendenhall called the phone number in the ad and reached Clark. He told them that he lived at a country club and could not have people coming to his house to look at the car. He instead drove the car to their house for their inspection the next morning. The car title was in the name of J. C. Clark Enterprises. The Mendenhalls bought the car for $34,000 in cash. They made some improvements on the car and registered it in Utah. On February 24, 1995, Alamo reported the car stolen. On March 21, 1995, the Nevada Department of Motor Vehicles seized the car from the Mendenhalls. The car was returned to Alamo and the Mendenhalls filed suit. The lower court found for the Mendenhalls, and Alamo appealed. Who gets the car and why? [Alamo Rent-A-Car v Mendenhall, 937 P2d 69 (Nev)]
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Future Tech International, Inc., is a buyer and distributor of Samsung monitors and other computer products. In 1993, Future Tech determined that brand loyalty was important to customers, and it sought to market its own brand of computer products. Future Tech, a Florida firm, developed its own brand name of MarkVision and entered into a contract in 1994 with Tae II Media, a Korean firm. The contract provided that Tae II Media would be the sole source and manufacturer for the MarkVision line of computer products. The course of performance on the contract did not go well. Future Tech alleged that from the time the ink was dry on the contract, Tae II Media had no intention of honoring its commitment to supply computers and computer products to Future Tech. Future Tech alleged that Tae II Media entered into the contract with the purpose of limiting Future Tech's competitive ability because Tae II Media had its own Tech Media brand of computers and computer products. Future Tech, through threats and demands, was able to have the first line of MarkVision products completed. Tae II Media delivered the computers to a boat but, while in transit, ordered the shipping line (Maersk Lines) to return the computers. The terms of their contract provided for delivery "FOB Pusan Korea." Future Tech filed suit, claiming that Tae II Media could not take the computer products because title had already passed to Future Tech. Is this interpretation of who has title correct? [Future Tech Int'l, Inc. v Tae II Media, Ltd., 944 F Supp 1538 (SD Fla)]
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Without permission, Grissom entered onto land owned by another and then proceeded to cut and sell the timber from the land. On learning that the timber had been sold, the owner of the land brought an action to recover the timber from the purchaser. The purchaser argued that he was a good-faith purchaser who had paid value and therefore was entitled to keep the timber. Decide. [Baysprings Forest Products, Inc. v Wade, 435 So2d 690 (Miss)]
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Using a bad check, B purchased a used automobile from a dealer. B then took the automobile to an auction at which the automobile was sold to a party who had no knowledge of its history. When B's check was dishonored, the dealer brought suit against the party who purchased the automobile at the auction. Was the dealer entitled to reclaim the automobile? [Greater Louisville Auto Auction, Inc. v Ogle Buick, Inc., 387 SW2d 17 (Ky)]
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Would buying a car from a mechanic who works at a car dealership qualify as purchasing a car in the ordinary course of business? [Steele v Ellis, 961 F Supp 1458 (D Kan)]
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Larsen Jewelers sold a necklace to Conway on a layaway plan. Conway paid a portion of the price and made additional payments from time to time. The necklace was to remain in the possession of Larsen until payment was fully made. The Larsen jewelry store was burglarized, and Conway's necklace and other items were taken. Larsen argued that Conway must bear the risk of loss. Conway sought recovery of the full value of the necklace. Decide. [Conway v Larsen Jewelry, 429 NYS2d 378 (Misc)]
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a pawnbroker who purchases property in good faith acquire good title to that property? Can the pawnbroker pass good title? [Fly v Cannon, 813 SW2d 458 (Tenn App)]
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Brown Sales ordered goods from Eberhard Manufacturing Co. The contract contained no agreement about who would bear the risk of loss. There were no shipping terms. The seller placed the goods on board a common carrier with instructions to deliver the goods to Brown. While in transit, the goods were lost. Which party will bear the loss? Explain. [Eberhard Manufacturing Co. v Brown, 232 NW2d 378 (Mich App)]
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Schock, the buyer, negotiated to purchase a mobile home that was owned by and located on the sellers' property. On April 15, 1985, Schock appeared at the Ronderos' (the sellers') home and paid them the agreed-on purchase price of $3,900. Shock received a bill of sale and an assurance from the Ronderos that the title certificate to the mobile home would be delivered soon. Also on April 15 and with the permission of the sellers, Schock prepared the mobile home for removal. His preparations included the removal of skirting around the mobile home's foundation, the tie-downs, and the foundation blocks, leaving the mobile home to rest on the wheels of its chassis. Schock intended to remove the mobile home from the Ronderos' property a week later, and the Ronderos had no objection to having the mobile home remain on their premises until that time. Two days later, the mobile home was destroyed by high winds as it sat on the Ronderos' property. Schock received a clear certificate of title to the mobile home in the mail. Thereafter, Schock sued the Ronderos for return of his money on the ground that when the mobile home was destroyed, the risk of loss remained with the Ronderos. Who should win the lawsuit? [Schock v Ronderos, 394 NW2d 697 (ND)]
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Helen Thomas contracted to purchase a pool heater from Sunkissed Pools. As part of the $4,000 contract, Sunkissed agreed to install the pool heater, which was delivered to Thomas's home and left in the driveway. The heater was too heavy for Thomas to lift, and she was forced to leave it in the driveway because no one from Sunkissed responded to her calls about its installation. Subsequently, the heater disappeared from the driveway. Sunkissed maintained that the risk of loss had passed to Thomas. Thomas maintained that the failure to install the heater as promised is a breach of contract. Who should bear the risk for the stolen pool heater? [In re Thomas, 182 BR 774 (Bankr SD Fla)]
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