Business Law Today Study Set 1

Business

Quiz 16 :

Title and Risk of Loss

Quiz 16 :

Title and Risk of Loss

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Video Question. Go to this. text's Web site at www.thomsonedu.com/westbuslaw/blt and select "Chapter 16" Click on 'Video Questions" and view the video titled Risk of Loss. Then answer the following questions: 1. Does Oscar have a right to refuse the shipment because the lettuce is wilted? Why or why not? What type of contract is involved in this video? 2. Does Oscar have a right to refuse the shipment because the lettuce was not organic butter crunch lettuce? Why or why not? 3 Assume that you are in Oscar's position-that is, you are buying produce for a supermarket. What different approaches might you take to avoid having to pay for a delivery of wilted produce?
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Title and Risk of Loss In December, Mendoza agreed to buy the broccoli grown on 100 acres of Willow Glen's 1,000-acre broccoli farm. The sales contract specified F.O.B. Willow Glen's field by Falcon Trucking. The broccoli was to be planted in February and harvested in March of the following year. Using the information presented in the chapter, answer the following questions. 1. At what point is a crop of broccoli identified to the contract under the UCC? Explain. Why is identification significant? 2. When does title to the broccoli pass from Willow Glen to ir Mendoza under the terms of this contract? Why? 3. Suppose that while in transit, Falcon's truck overturned and spilled the entire load. Who bears the loss, Mendoza or Willow Glen? 4. Suppose that instead of buying fresh broccoli, Mendoza had contracted with Willow Glen to purchase one thousand cases of frozen broccoli from Willow Glen's processing plant. The highest grade of broccoli is packaged under the "FreshBest" label, and everything else is packaged under the "FamilyPac" label. Further suppose that although the contract specified that Mendoza was to receive FreshBest broccoli, Falcon Trucking delivered FamilyPac broccoli to Mendoza. If Mendoza refuses to accept the broccoli, who bears the loss?
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(a)The broccoli is going to be harvested in the following year. Thus, it comprises of future goods.
Since the contract calls for the sale of broccoli that have yet to be planted and harvested in accordance with the contract, identification of the goods would occur when the broccoli is shipped, marked, or otherwise designated by Glen for delivery to Mendoza.
(b)The sales contract specified F.O.B. Willow Glen's field by Falcon Trucking. F.O.B. stands for "free on board" implying a shipment contract.
A shipment contract requires the seller to ship the goods to the buyer by carrier. The seller is relieved from the liability for the goods once they are delivered to the carrier, and the title passes to the buyer at the time and place of shipment by the carrier.
(c)There was a shipment contract between Mendoza and Willow. Once the goods are delivered to the carrier, the risk of loss passes on to the buyer.
Since the Falcons truck overturned during the transit, the risk of the spilled load would be borne by Mendoza.
(d)The goods received by Mendoza did not meet the requirements of the goods. The contract required her to receive FreshBest Broccoli, but she received FamilyPac broccoli instead. That is, the shipment delivered to Mendoza comprises goods that were sufficiently non-conforming.
Since Mendoza refuses to accept the broccoli, risk of loss would be suffered by Willow.

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Answers for the even-numbered questions in this For Review section can be found in Appendix E at the end of this text. Risk of loss does not necessarily pass with title. If the parties to a contract do not expressly agree when risk passes and the goods are to be delivered without movement by the seller, when does risk pass?
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In a case when the goods are kept by the seller for being picked up, the documents of title generally are not used. In a case when the seller is actually a merchant, goods that are at a risk of being lost that have been held by the seller will be passed on to the buyer when the physical control of the goods has been transferred to the buyer. Precisely it means that the risk is borne by the merchant completely in between of the time period when the formulation of the contract has taken place and till the time the goods are received by the buyer. The risk of loss is borne by the seller until the particular person makes the goods accessible to the buyer and then informs the buyer that the goods are ready for being picked up. When concerned with the lease the risk concerning the loss will actually get passed on to the lessee on the receipt of the lessee of the good in a case where the merchant is actually a lessor. If not this then the risk gets passed on to the lessee on the delivery.

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The following multiple-choice question is representative of the types of questions available in one of the four sections of ThomsonNOW for Business Law Today. ThomsonNOW also provides feedback for each response option, whether correct or incorrect, and refers to the location within the chapter where the correct answer can be found. Under a shipment contract, title passes from the seller to the buyer
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Answers for the even-numbered questions in this For Review section can be found in Appendix E at the end of this text. At what point does the buyer acquire an insurable interest in goods subject to a sales contract? Can both the buyer and the seller have an insurable interest in the goods simultaneously?
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Answers for the even-numbered questions in this For Review section can be found in Appendix E at the end of this text. What is the significance of identifying goods to a contract?
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Sales by Non-owners. Julian Makepeace, who had been declared mentally incompetent by a court, sold his diamond ring to Golding for value. Golding later sold the ring to Carmichael for value. Neither Golding nor Carmichael knew that Makepeace had been adjudged mentally incompetent by a court. Farrel, who had been appointed as Makepeace's guardian, subsequently learned that the diamond ring was in Carmichael's possession and demanded its return from Carmichael. Who has legal ownership of the ring? Why?
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Risk of Loss. H.S.A. II, Inc., made parts for motor vehicles. Under an agreement with Ford Motor Co., Ford provided steel to H.S.A. to make Ford parts. Ford's purchase orders for the parts contained the term "FOB Carrier Supplier's [Plant]." GMAC Business Credit, L.L.C., loaned money to H.S.A. under terms that guaranteed payment would be made, if the funds were not otherwise available, from H.S.A.'s inventory, raw materials, and finished goods. H.S.A. filed for bankruptcy on 2,2000, and ceased operations on June 20, when it had in its plant more than $1 million in finished goods for Ford. Ford sent six trucks to H.S.A. to pick up the goods. GMAC halted the removal. The parties asked the bankruptcy court to determine whose interest had priority. GMAC contended in part that Ford did not have an interest in the goods because there had not yet been a sale. Ford responded that under its purchase orders, title and risk of loss transferred on completion of the parts. In whose favor should the court rule, and why? [In re H.S.A. II, Inc., 271 Bath. 534 (E.D.Mich. 2002)]
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Case Problem with Sample Answer. Philip and Genevieve Carboy owned and operated Gold Hill Service Station in Fairbanks, Alaska. Gold Hill maintained underground storage tanks on its property to hold gasoline. When Gold Hill needed more fuel, Phillip placed an order with Petroleum Sales, Inc., which delivered the gasoline by filling the tanks. Gold Hill and Petroleum Sales were separately owned companies. Petroleum Sales did not oversee or operate Gold Hill and did not construct, install, or maintain the station's tanks, and Gold Hill did not tell Petroleum Sales' personnel how to fill the tanks. Parks Hiway Enterprises, LLC, owned the land next to Gold Hill. The Alaska Department of Environmental Conservation determined that benzene had contaminated the groundwater under Parks Hiway's property and identified the gasoline in Gold Hill's tanks as the probable source. Gold Hill promptly removed the tanks, but because of the contamination, Parks Hiway stopped drawing drinking water from its well. Parks Hiway filed a suit in an Alaska state court against Petroleum Sales, among others. Should the court hold the defendant liable for the pollution? Who had title to the gaso-line when it contaminated the water? Explain. [Parks Hiway Enterprises, LW v. CEM Leasing, Inc., 995. P.2d 657 (Alaska 2000)]
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on Approval. Chi Moy, a student, contracts to buy a high, definition television from Ted's Electronics. Under the terms of the contract, Moy is to try out the TV for thirty days, and if he likes it, he is to pay for the TV at the end of the thirty-day period. If he does not want to purchase the TV after thirty days, he can return it to Ted's Electronics with no obligation. Ten days after Moy takes the TV home, it is stolen from his apartment, although he was not negligent in his care of the TV in any way. Ted's Electronics claims that Moy must pay for the stolen TV. Moy argues that the risk of loss falls on Ted's Electronics. Which party will prevail?
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Sales by Non-owners. In the following situations, two parties lay claim to the same goods sold. Explain which party would prevail in each situation. 1. Terry steals Dorn's iPod and sells it to Blake, an innocent purchaser, for value. Dom learns that Blake has the iPod and demands b return. 2. Karlin takes her laptop computer for repair to Orken, a merchant who sells new and used computers. By accident, one of Orken's employees sells Karlin's laptop computer to Grady, an innocent purchaser-customer, who takes possession. Karlin wants her laptop back from Grady.
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Answers for the even-numbered questions in this For Review section can be found in Appendix E at the end of this text. If the parties to a contract do not expressly agree on when title to goods passes, what determines when title passes?
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Hypothetical Question with Sample Answer. When will risk of loss pass from the seller to the buyer under each of the fob lowing contracts, assuming the parties have not expressly agreed on when risk of loss would pass? 1. A New York seller contracts with a San Francisco buyer to ship goods to the buyer F.O.B. San Francisco. 2. A New York seller contracts with a San Francisco buyer to ship goods to the buyer in San Francisco. There is no indication as to whether the shipment will be F.O.B. New York or F.O.B San Francisco. 3. A seller contracts with a buyer to sell goods located on the seller's premises. The buyer pays for the goods and arranges to pick them up the next week at the seller's place of business. 4. A seller contracts with a buyer to sell goods located in a warehouse.
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Critical Legal Thinking. Under the Uniform Commercial Code, passage of title does not always occur simultaneously with passage of risk of loss. Why is this? What might result if risk of loss and tide always passed from the seller to the buyer at the same time?
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Conditional Sales. Corvette Collection of Boston, Inc. (CCB), was a used Corvette dealership located (despite its name) in Pompano Beach, Florida. In addition to selling used. Corvettes, CCB serviced Corvettes and sold Corvette parts. CCB owned some of its inventory and held the rest on consignment, although there were no signs indicating the consignments. In November 2001, CCB filed a petition for bankruptcy in a federal district court. At the time, CCB possessed six Corvettes that were consigned by Chester Finley and The Corvette Experience, Inc. (TCE). Robert Furr, on CCM behalf, asked the court to declare that COB held the goods under a contract for a sale or return. Finley and TCE asserted that the goods were held under a contract for a sale on approval. What difference does it make? Under what circumstances would the court rule in favor of Finley and TOE? How should the court rule under the facts as stated? Why? [In re Corvette Collection of Boston, Inc., 294 Bait. 409 (S.D.Fla. 2003)]
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Answers for the even-numbered questions in this For Review section can be found in Appendix E at the end of this text. Under what circumstances will the seller's tide to goods being sold be void? Under what circumstances will a seller have voidable title? What is the legal effect on a good faith purchaser of the goods of the seller's having a void title versus a void able tide?
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Title. William Bisby gave an all-terrain vehicle (ATV) to Del City Cycle in Enid, Oklahoma, to sell on his behalf. Joseph Maddox bought the ATV, but paid for it with a check written on a closed checking account. The bank refused. to honor the check. Before Del City or Bisby could reclaim the ATV, however, Maddox sold it to Aaron Jordan, who sold it to Shannon Skaggs. In November 2003, the Enid Police Department seized the ATV from Skaggs. Bisby filed a suit in an Oldahoma state court against the state and Skaggs, claiming that he was the owner of the ATV and asking the court to return it to him. Skaggs objected. Is there a distinction between the ownership interests of a party who steals an item and a party who acquires the item with a check that is not honored? What was the status of Skaggs's title, if any, to the ATV? Which of the many parties involved in this case should the court rule has "good" title to the ATV? Why? [State v. Skaggs, 140 P.3d 576 (Okla.Civ.App. Div. 3 2006)]
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A Question of Ethics: Void and Voidable Titles. img Kenneth West agreed to sell his car, a 1975 Corvette, to a man representing himself as Robert Wilson. In exchange for a cashier's check, West signed over the Corvette's title to Wilson and gave him the car. Ten days later, when West learned that the cashier's check was a forgery, he filed a stolen vehicle report with the police. The police could not immediately locate Wilson or the Corvette, however, and the case grew cold. Nearly two and a half years later, the police found the Corvette in the possession of Tammy Roberts, who also had the certificate of title. She said that she had bought the car from her brother, who had obtained it through an ad in a newspaper. West filed a suit in a Colorado state court against Roberts to reclaim the car. The court applied Colorado Revised Statutes Section 4-2-403 (Colorado's version of Section 2-403 of the Uniform Commercial Code) to determine the vehicle's rightful owner. [West v. Roberts, 143 P.3d 1037 (Colo. 2006)] (See page 404.) (a) Under UCC 2-403, what title, if any, to the Corvette did "Wilson" acquire? What was the status of Roberts's title, if any, assuming that she bought the car without knowledge of circumstances that would make a person of ordinary prudence inquire about the validity of the seller's title? In whose favor should the court rule? Explain. (b) If the original owner of a vehicle relinquishes it due to fraud, should he or she be allowed to recover the vehicle from a good faith purchaser? If not, which party or parties might the original owner sue for recovery? What is the ethical principle underlying your answer to these questions? Discuss.
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