Chapter 17 - Title, Risk, and Insurable Interest Flashcards Preview

Business Law for Accountants > Chapter 17 - Title, Risk, and Insurable Interest > Flashcards

Flashcards in Chapter 17 - Title, Risk, and Insurable Interest Deck (32):
1

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

2

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

3

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)

4

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 [UCC 2-403(2)]

5

fungible goods

- goods that are alike by physical nature, by agreements or by trade usage
- examples of fungible goods are wheat, oil, and wine that are identical in type and quality

6

good faith purchaser

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

7

identification

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

8

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 1-203(23)]

9

insurable interest

- an interest either in a person's life or well-being or in property that is sufficiently substantial that insuring against injury to (or the death of) the person or against damage to the property does not amount to a mere wagering (betting) contract

10

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 (or is satisfied with) the goods being sold

11

sale or return

- a type of conditional sale in which the 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

12

shipment contract

- a contract in which the seller us required to shop 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 contacts if nothing to the contrary is stated in the contract

13

SAMPLE TEST QUESTIONS
1. Megan, an agent for a department store, orders one hundred dresses from Sal's Clothing Shop for the Spring Blossom Sale. There is no specific agreement in the sale contract indicating when the title will pass to the department store. The title will pass to the department store when :
a. Megan signs the contract
b. Megan and the Sal's Clothing Shop agent sign the contract
c. Sal's Clothing Shop physically delivers the dresses to the department store
d. Megan pays Sal's Clothing Shop for the dresses

ANSWER :
(C)
CORRECT :
(C) Sal's Clothing Shop physically delivers the dresses to the department store

14

SAMPLE TEST QUESTIONS
2. Big Beef, Inc. raises calves to sell. Big Beef's breeds its cows in April, and the cows calve in February of the following year. In January, Andrea contracts with Big Beef to buy fifty calves. Identification takes place in :
a. January, when the contract is signed
b. April, when the calves are conceived
c. February, when the calves are born
d. a reasonable period of time

ANSWER :
(B)
CORRECT :
(B) April, when the calves are conceived

15

SAMPLE TEST QUESTIONS
3. Foster contracts with Golf Carts Unlimited, Inc., to buy five golf carts. The contract lists the five carts as GC001, GC002, GC003, GC004, GC005. Identification :
a. requires that Foster verify his identity to take possession of the carts
b. has taken place
c. cannot take place until the contract is reviewed by a court
d. will take place only when Foster pays for the golf carts

ANSWER :
(B)
CORRECT :
(B) has taken place

16

SAMPLE TEST QUESTIONS
4. Pipes & Culverts Company orders six irrigation pumps from Quality Pumping, Inc. The pumps are stored in Restorers Warehouse. Under the terms of the order, Quality must give Pipes & Culverts a warehouse receipt for the goods, which the buyer will then pick up. Title to the goods passes to Pipes & Culverts when :
a. Quality stores the drives
b. Pipes & Culverts orders the drives
c. Pipes & Culverts picks up the drives
d. Quality gives Pipes & Culverts a warehouse receipt for the drives

ANSWER :
(D)
CORRECT :
(D) Quality gives Pipe & Culverts a warehouse receipt for the drives

17

SAMPLE TEST QUESTIONS
5. Outdoor Outfitters Store contracts to buy fifty tenets from Pitched Camp, Inc. Unless the contract states otherwise, it is assumed to be :
a. none of the choices
b. a destination contract
c. a shipment contract
d. a delivery ex-ship

ANSWER :
(C)
CORRECT :
(C) a shipment contract

18

SAMPLE TEST QUESTIONS
6. Johan steals Krispin's car and sells it to Lamar. Krispin can recover the car from Lamar :
a. only if Lamar did not know the car was stolen
b. only if Krispin pays to Lamar the amount that Lamar paid to Johan for the car
c. only if Lamar knew that the car was stolen
d. under any circumstances

ANSWER :
(D)
CORRECT :
(D) under any circumstances

19

SAMPLE TEST QUESTIONS
7. Business Banners, Inc., and Cam's Auto & Truck Sales Dealership enter into a contract for a sale of thirty advertising banners emblazoned with Cam's logo. The terms do not explicitly or clearly indicate whether it is a destination or shipment contract. A court would normally presume that it is :
a. a delivery ex-ship
b. a destination contract
c. a shipment contract
d. none of the choices

ANSWER :
(C)
CORRECT :
(C) a shipment contract

20

SAMPLE TEST QUESTIONS
8. Quaff n' Quench Cafe buys twenty-five crates of oranges from Reynaldo Produce, Inc. The parties agree to ship the oranges "F.O.B. Quaff n' Quench" via Swiftline Trucking Company. The oranges rot in transit. The loss is suffered by :
a. Quaff n' Quench
b. Swiftline
c. Columbia
d. Reynaldo Produce

ANSWER :
(D)
CORRECT :
(A) Quaff n' Quench

21

SAMPLE TEST QUESTIONS
9. Drill Makers, Inc., and Edge Mine & Mill Supply Stores enter into a contract for a sale of mining drill bits. The contract indicates that the price includes transportation costs to a specific destination by including the term :
a. C.I.F.
b. delivery ex-ship
c. F.A.S.
d. F.O.B.

ANSWER :
(D)
CORRECT :
(D) F.O.B.

22

SAMPLE TEST QUESTIONS
10. Stubbs buys a Tred-brand bicycle from his brother, Uriah. Uriah agrees to keep the bike at his house until Stubbs picks it up. During a storm, a tree falls from Victor's yard into Uriah's garage and destroys the bike. The loss of the bike is suffered by :
a. Stubbs
b. Uriah
c. Tred
d. Victor

ANSWER :
(A)
CORRECT :
(A) Stubbs

23

SAMPLE TEST QUESTIONS
11. QuickFreeze Storage, a bailee, holds goods for Restaurant Purveyor, Inc., which has contracted to sell the goods to SeaFood Dining Company. The goods are to be delivered without being moved. The risk of loss will pass to SeaFood Dining when it receives :
a. a copy of Restaurant Purveyor's contract with QuickFreeze Storage
b. a copy of Restaurant Purveyor's contract with SeaFood Dining
c. a negotiable document of title
d. a notice that SeaFood Dining's payment for the goods has cleared

ANSWER :
(C)
CORRECT :
(C) a negotiable document of title

24

SAMPLE TEST QUESTIONS
12. With a bill of lading, Interstate Transport Company acknowledges possession of certain goods and contracts to deliver the,. Interstate Transport is :
a. a bailee
b. a buyer in the ordinary course of business
c. a good faith purchaser for value
d. an F.O.B.

ANSWER :
(D)
CORRECT :
(A) a bailee

25

SAMPLE TEST QUESTIONS
13. Moving & Storage Company holds goods for National Distribution Corporation, which contracts to sell them to Omni 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 Omni Stores :
a. if Moving & Storage refuses to honor the bill of lading
b. if National Distribution gives the bill of lading to Moving & Storage
c. if the goods are lost due to an "act of God."
d. when Omni Stores receives the bill of lading

ANSWER :
(D)
CORRECT :
(D) when Omni Stores receives the bill of lading

26

SAMPLE TEST QUESTIONS
14. Roadtrip County Fairs Corporation orders from Stuffed Animal Sales, Inc., goods that are stored in a Toy Box Maxi-Storage warehouse. Roadtrip pays for the goods, delivery is via the transfer of a negotiable warehouse receipt, and Roadtrip moves the goods out of the warehouse. The risk of loss passes to the buyer when it :
a. orders the goods
b. pays for the goods
c. receives the negotiable warehouse receipt
d. moves the goods out of the warehouse

ANSWER :
(D)
CORRECT :
(C) receives the negotiable warehouse receipt

27

SAMPLE TEST QUESTIONS
15. Effortless Workout, Inc., offers to sell a treadmill to Farouk and sends it to him on a trial basis. This is :
a. a bailment
b. a delivery ex-ship
c. a sale on approval
d. a sale or return

ANSWER :
(C)
CORRECT :
(C) a sale on approval

28

SAMPLE TEST QUESTIONS
16. Quest Outdoor Store orders RiverRun-brand kayaks from Sports Merchandise, Inc. Sports Merchandise mistakenly ships of kayaks of the wrong size, which Quest rejects and returns via Trans-State Shipping Company. During the return, the kayaks are lost. The lost is suffered by :
a. Quest
b. Trans-State
c. RiverRun
d. Sports Merchandise

ANSWER :
(B)
CORRECT :
(D) Sports Merchandise

29

SAMPLE TEST QUESTIONS
17. Gas & Wood Stove Shop receives Hearthwarm-brand stoves from Independent Dealer, Inc., under a sale or return agreement. While the stoves are in Gas & Wood's possession, title is held by :
a. Independent Dealer
b. Gas & Wood
c. Gas & Wood's creditors
d. Hearthwarm

ANSWER :
(A)
CORRECT :
(B) Gas & Wood

30

SAMPLE TEST QUESTIONS
18. Organicos Cafe orders five gallons of PureMaid-brand transfat-free olive oil from Quico Cooking Supplies, Inc. Quico mistakenly ships soy oil, which Organico keeps, despite the nonconformity. The oil is destroyed in a fire. The loss is suffered by :
a. all of the parties as tenants in common in equal measure
b. PureMaid
c. Organicos Cafe
d. Quico Cooking Supplies

ANSWER :
(C)
CORRECT :
(C) Organicos Cafe

31

SAMPLE TEST QUESTIONS
19. Motor Vehicles Service Company orders NoBounce-brand shock absorbers from Parts & Tools, Inc., to be delivered by the seller. Before Parts & Tools' truck arrives with the goods, Motor Vehicles tells Parts & Tools it will not pay. The shock absorbers are destroyed in transit. The loss is suffered by :
a. all of the parties' insurance companies pro rata
b. NoBounce's insurance company
c. Motor Vehicles to the extent of a deficiency in Parts & Tools' insurance coverage
d. Parts & Tools to the extent of a deficiency in Motor Vehicles' insurance coverage.

ANSWER :
(D)
CORRECT :
(C) Motor Vehicles to the extent of a deficiency in Parts & Tools' insurance coverage

32

SAMPLE TEST QUESTIONS
20. Household Appliance Corporation sells Ideal-brand vacuum cleaners to Jolly Discount Stores and other retailers. Household Appliance will have an insurable interest in the players as long as :
a. Household Appliance remains in business
b. Household Appliance retains title to the goods
c. the goods are in existence
d. there is no risk of loss

ANSWER :
(B)
CORRECT :
(B) Household Appliances retains title to the goods