Question 1

City Storage Company holds goods for Downtown Sales Corporation, which contracts to sell them to eStores, 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 eStores
A) if City refuses to honor the bill of lading.
B) if Downtown gives the bill of lading to City.
C) if the goods are lost due to an "act of God."
D) when eStores receives the bill of lading.

Accepted Answer

According to the given information, the risk of loss passes to eStores when they receive the bill of lading. Therefore, option D is the correct answer. Options A, B, and C are incorrect because they do not correctly represent when the risk of loss passes to eStores.

Question 2

Orange Computer Corporation sells Pad-brand MP3 players to Quik Discount Stores and other retailers. Orange will have an insurable in?ter?est in the players as long as
A) Orange remains in business.
B) Orange retains title to the goods.
C) the goods are in existence.
D) there is no risk of loss.

Accepted Answer

Orange will have an insurable interest in the MP3 players as long as it retains title to the goods. This means that Orange must own the products and have the legal right to sell them, which would give them a financial interest in the products and the ability to insure them against loss or damage. The other options are not relevant to insurable interest; A) Whether Orange remains in business or not is not directly related to their insurable interest in the products. C) The goods being in existence is important for the products to be insurable, but it does not define Orange's insurable interest in the products. D) No risk of loss is unrealistic; insurable interest typically insures against risk of loss.

Question 3

Little Jewelry Store orders display racks from Marketing Supplies, Inc. (MSI). MSI mistakenly ships racks of the wrong size and color, which Little rejects and returns via New Shipping Company. During the re?turn, the racks are lost. The loss is suffered by
A) Little only.
B) Little and MSI, but not New Shipping.
C) Little, MSI, and New Shipping.
D) MSI only.

Accepted Answer

The loss is suffered by MSI only because the goods were rejected by Little Jewelry Store due to MSI's mistake. Until the correct goods are delivered, the risk of loss remains with MSI.

Question 4

Diner's Cafe orders five gallons of transfat-free olive oil from EZ Distributors, Inc. EZ mistakenly ships soy oil, which Diner's keeps, despite the nonconform?ity. The oil is destroyed in a fire. The loss is suffered by
A) Diner's and EZ, but not Diner's customers.
B) Diner's, EZ, and Diner's customers.
C) Diner's only.
D) EZ only.

Accepted Answer

Diner's Cafe is the only party that suffers the loss because they accepted and kept the nonconforming shipment of soy oil from EZ Distributors, Inc. Diner's Café cannot hold EZ responsible for the loss because they accepted the wrong product without notifying EZ. Customers are not impacted since the loss occurred before any products were served.

Question 5

Office Corporation (OC) orders five inkjet printers from Print Products, Inc. (PPI), to be delivered by PPI. Before PPI's truck ar?rives with the goods, OC tells PPI it will not pay. The printers are de?stroyed in transit. The loss is suffered by
A) OC and PPI equally.
B) OC only.
C) OC to the extent of a deficiency in PPI's insurance coverage only.
D) PPI only.

Accepted Answer

The answer of Office Corporation (OC) orders five inkjet printers...

Question 6

Commercial Storage (CS), a bailee, holds goods for Delta Distributors, Inc., which has contracted to sell them to Eagle Company. The goods are to be delivered without being moved. The risk of loss will pass to Eagle when Eagle receives
A) a copy of Delta's contract with CS.
B) a copy of Delta's contract with Eagle.
C) a negotiable document of title.
D) a notice that Eagle's payment for the goods has cleared.

Accepted Answer

The passing of a negotiable document of title usually signifies the transfer of ownership and responsibility for the goods from the seller (Delta) to the buyer (Eagle). This means that the risk of loss passes from Delta to Eagle at the point when Eagle receives the negotiable document of title.

Question 7

NuStores accepts a shipment of DVD players from Open-Ur-Eyes Video, Inc. NuStores later discovers a defect in the players, revokes acceptance, and returns the players via Playback, Inc. During the return, the play?ers are lost. The loss is suffered by
A) NuStores only.
B) NuStores and Open-Ur-Eyes, but not Playback.
C) NuStores, Open-Ur-Eyes, and Playback.
D) Open-Ur-Eyes only.

Accepted Answer

When NuStores revoked acceptance due to a defect, the risk of loss shifted back to Open-Ur-Eyes Video, Inc. Therefore, Open-Ur-Eyes bears the loss when the players are lost during the return.

Question 8

Diamond Camera Shop receives lenses from Excel Optical, Inc., under a sale or return agreement. While the lenses are in Diamond's possession, title is held by
A) Diamond and Excel jointly.
B) Diamond only.
C) Diamond's creditors only.
D) Excel only.

Accepted Answer

The answer of Diamond Camera Shop receives lenses from Excel...

Question 9

Delta Products Corporation contracts with Excel Trucking Company to take goods to Flight Airlines, Inc., with Flight to transport the goods to a Geo Storage Company warehouse. Excel, Flight, and Geo each acknowl?edge possession of the goods by a document of title. Excel, Flight, and Geo are
A) bailees.
B) consignees.
C) lessees.
D) sellers.

Accepted Answer

Excel Trucking Company, Flight Airlines, Inc., and Geo Storage Company are all in possession of the goods and have acknowledged possession by a document of title. This means they are acting as bailees, or parties who temporarily possess someone else's property for a particular purpose.

Question 10

Town Style Stores orders leather jackets from Unique Clothing Company. Unique mistakenly ships denim jackets, which Town re?jects and returns via Value Transport, Inc. During the return, the jack?ets are lost. The loss is suffered by
A) Town and Unique, but not Value.
B) Town only.
C) Town, Unique, and Value.
D) Unique only.

Accepted Answer

Unique Clothing Company is responsible for the mistake in shipping the wrong jackets, and since Town Style Stores rejected and returned the jackets, the risk of loss remains with Unique until the jackets are properly received back. Value Transport, Inc. is just the carrier and not liable for the loss unless there was negligence on their part.

Question 11

Essen Corporation buys from Fallow Farms, Inc., a rice crop that Fallow plans to plant and harvest during the next growing season. Essen plans to sell the rice to Gourmet Grocery Stores. After the rice is planted, but before it is harvested, an insurable interest in the rice ex?ists in
A) Essen and Fallow, but not Gourmet Grocery.
B) Essen, Fallow, and Gourmet Grocery.
C) Essen only.
D) Fallow only.

Accepted Answer

An insurable interest exists in the rice for Essen and Fallow since they have a financial stake in the crop. Gourmet Grocery does not have an insurable interest until they take possession of the rice, after it has been harvested.

Question 12

Crest Jewelers buys diamonds from Excel Gems to resell with the right to return the unsold stones in lieu of payment. This is
A) a bailment.
B) a consignment.
C) a sale on approval.
D) a sale or return.

Accepted Answer

This transaction is a sale or return, as Crest Jewelers has the option to return the unsold diamonds in lieu of payment. A bailment would involve the temporary transfer of possession without transferring ownership, a consignment would involve Excel Gems retaining ownership until the diamonds are sold, and a sale on approval would involve Crest Jewelers having the option to purchase the diamonds after a trial period.

Question 13

Perfect Furnishings, Inc., agrees to lease a desk to Research Resources, Inc. (RRI), which requests that the desk be left outside Streetside Warehouse for RRI to pick up. Before RRI retrieves the desk, it is stolen. The loss is suf?fered by
A) Perfect Furnishings and RRI, but not Streetside Warehouse.
B) Perfect Furnishings only.
C) Perfect Furnishings, RRI, and Streetside Warehouse.
D) RRI only.

Accepted Answer

The risk of loss typically transfers to the lessee (RRI) once the lessor (Perfect Furnishings) has delivered the goods to the specified location, in this case, outside Streetside Warehouse. Since RRI requested this arrangement, they bear the risk of loss once the desk is left at the designated location.

Question 14

Leo buys a bicycle from his brother, Mike, who is a used car dealer. Mike agrees to keep the bike at his house until Leo picks it up. A tree falls on Mike's garage and destroys the bike. The loss is suffered by
A) Leo and Mike.
B) Leo only.
C) Mike only.
D) neither Leo nor Mike.

Accepted Answer

Since the agreement was for Mike to keep the bike until Leo picks it up, the responsibility for the bike was still with Leo. Therefore, the loss is suffered by Leo only, as he had not yet taken physical possession of the bike.

Question 15

Eagle Company sells new and used motorcycles. Some of the motorcycles are held on consignment, including six consigned by Fine Cycles, Inc. While the Fine cycles are in Eagle's possession, title to them is held by
A) Eagle and Fine jointly.
B) Eagle only.
C) Eagle's creditors only.
D) Fine only.

Accepted Answer

The answer of Eagle Company sells new and used motorcycles....

Question 16

My-Tee Purchasing Corporation orders from National Sales, Inc., goods that are stored in a Outstate Properties, Inc., warehouse. My-Tee pays for the goods, delivery is via the transfer of a negotiable warehouse receipt, and My-Tee moves the goods out of the warehouse. The risk of loss passes to My-Tee 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.

Accepted Answer

The risk of loss passes to My-Tee when it receives the negotiable warehouse receipt, as this signifies the transfer of ownership and control over the goods.

Question 17

Great Workouts, Inc., offers to sell a home gym to Ida and sends it to her on a trial basis. This is
A) a consignment.
B) a delivery ex-ship.
C) a sale on approval.
D) a sale or return.

Accepted Answer

This is a sale on approval, where the buyer has the option to either keep the gym or return it.

Question 18

Relax Recreation Toys, Inc., allows Sandy to take a Relax boat for a "test run." Sandy tries the boat for a few hours, returns, and buys it. This is
A) a bailment.
B) a consignment.
C) a sale on approval.
D) a sale or return.

Accepted Answer

Sandy was allowed to take the boat for a "test run," indicating that this was a "sale on approval," where the buyer has the option to return the goods within a certain period. In this case, Sandy tried the boat for a few hours and then decided to buy it, so it became a regular sale.

Question 19

Twyla buys a bicycle from U-Pik-It Bike Store, which agrees to keep the bike for Twyla until she picks it up. Before Twyla gets the bike, a fire destroys the store and the bike. The loss is suffered by
A) neither Twyla nor U-Pik-It
B) Twyla and U-Pik-It.
C) Twyla only.
D) U-Pik-It only.

Accepted Answer

U-Pik-It Bike Store retains the risk of loss until Twyla picks up the bike, as they agreed to keep it for her. Therefore, U-Pik-It suffers the loss from the fire.

Question 20

Quik Sales Corporation orders goods from Re Stock Company. Re plans to market the goods to consumers generally. Re identifies the goods. Before they are shipped to Quik, an insurable interest in the goods exists in
A) Quik and Re, but not consumers generally.
B) Quik only.
C) Quik, Re, and consumers generally.
D) Re only.

Accepted Answer

Both Quik and Re have an insurable interest in the goods. Quik has an interest because they have ordered the goods, and Re has an interest because they own the goods until they are shipped. Consumers generally do not have an insurable interest as they have not yet purchased or contracted for the goods.

Quiz 21: Title, Risk, and Insurable Interest

City Storage Company holds goods for Downtown Sales Corporation, which contracts to sell them to eStores, 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 eStores

Orange Computer Corporation sells Pad-brand MP3 players to Quik Discount Stores and other retailers. Orange will have an insurable in?ter?est in the players as long as

Little Jewelry Store orders display racks from Marketing Supplies, Inc. (MSI) . MSI mistakenly ships racks of the wrong size and color, which Little rejects and returns via New Shipping Company. During the re?turn, the racks are lost. The loss is suffered by

Diner's Cafe orders five gallons of transfat-free olive oil from EZ Distributors, Inc. EZ mistakenly ships soy oil, which Diner's keeps, despite the nonconform?ity. The oil is destroyed in a fire. The loss is suffered by

Office Corporation (OC) orders five inkjet printers from Print Products, Inc. (PPI) , to be delivered by PPI. Before PPI's truck ar?rives with the goods, OC tells PPI it will not pay. The printers are de?stroyed in transit. The loss is suffered by

Commercial Storage (CS) , a bailee, holds goods for Delta Distributors, Inc., which has contracted to sell them to Eagle Company. The goods are to be delivered without being moved. The risk of loss will pass to Eagle when Eagle receives

NuStores accepts a shipment of DVD players from Open-Ur-Eyes Video, Inc. NuStores later discovers a defect in the players, revokes acceptance, and returns the players via Playback, Inc. During the return, the play?ers are lost. The loss is suffered by

Diamond Camera Shop receives lenses from Excel Optical, Inc., under a sale or return agreement. While the lenses are in Diamond's possession, title is held by

Delta Products Corporation contracts with Excel Trucking Company to take goods to Flight Airlines, Inc., with Flight to transport the goods to a Geo Storage Company warehouse. Excel, Flight, and Geo each acknowl?edge possession of the goods by a document of title. Excel, Flight, and Geo are

Town Style Stores orders leather jackets from Unique Clothing Company. Unique mistakenly ships denim jackets, which Town re?jects and returns via Value Transport, Inc. During the return, the jack?ets are lost. The loss is suffered by

Essen Corporation buys from Fallow Farms, Inc., a rice crop that Fallow plans to plant and harvest during the next growing season. Essen plans to sell the rice to Gourmet Grocery Stores. After the rice is planted, but before it is harvested, an insurable interest in the rice ex?ists in

Crest Jewelers buys diamonds from Excel Gems to resell with the right to return the unsold stones in lieu of payment. This is

Perfect Furnishings, Inc., agrees to lease a desk to Research Resources, Inc. (RRI) , which requests that the desk be left outside Streetside Warehouse for RRI to pick up. Before RRI retrieves the desk, it is stolen. The loss is suf?fered by

Leo buys a bicycle from his brother, Mike, who is a used car dealer. Mike agrees to keep the bike at his house until Leo picks it up. A tree falls on Mike's garage and destroys the bike. The loss is suffered by

Eagle Company sells new and used motorcycles. Some of the motorcycles are held on consignment, including six consigned by Fine Cycles, Inc. While the Fine cycles are in Eagle's possession, title to them is held by

Great Workouts, Inc., offers to sell a home gym to Ida and sends it to her on a trial basis. This is

Relax Recreation Toys, Inc., allows Sandy to take a Relax boat for a "test run." Sandy tries the boat for a few hours, returns, and buys it. This is

Twyla buys a bicycle from U-Pik-It Bike Store, which agrees to keep the bike for Twyla until she picks it up. Before Twyla gets the bike, a fire destroys the store and the bike. The loss is suffered by

Quik Sales Corporation orders goods from Re Stock Company. Re plans to market the goods to consumers generally. Re identifies the goods. Before they are shipped to Quik, an insurable interest in the goods exists in