Acme Pharmaceutical Company (APA) has discovered, after years of research, that the bark of the samosa tree,

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Question:

Acme Pharmaceutical Company (APA) has discovered, after years of research, that the bark of the samosa tree, found only in the highlands of Papua New Guinea, has remarkable curative effects on some forms of cancer when processed under a variety APA’s patented processes.

Rain Forest, Inc. provides APA with the procuring and shipping of the raw bark to APA’s production labs in St. Louis. The bark, by the way, can also be used for beautiful furniture accessories such as wood trim, table veneers, and picture frames.

On January 1, APA orders 700 pounds of bark from Rain Forest. Rain Forest harvests one ton of the bark on January 20 and ships the ton of bark, via freighter, to the port of Long Beach CA. At its facilities in Long Beach, Rain Forest divides up the bark into rail cars: 700 pounds to be shipped to APA FOB St. Louis and the remainder shipped via rail FOB Long Beach to High Point, North Carolina, to High Point Fine Furniture.

En route to their respective destinations, both trains coincidentally derail. The one to St. Louis due to a lightning strike; the one to High Point due to the negligence of an Overland Railway employee who flipped a switch causing the rail car to separate and thus causing the derailing.

Multiple Choice Question:

1. The loss caused by the St. Louis-bound train derailment falls on Rain Forest since it had title, risk of loss, and an insurable interest.

2. Since the shipment on the train to High Point was designated FOB Long Beach, the risk of loss remained back in Long Beach with the seller Rain Forest, though Rain Forest can hold Overland Railway liable for the employee’s negligence.

3. What APA is unaware of is that Rain Forest stole the bark from a private forest reserve. APA entered into the contract with Rain Forest in good faith and completely unaware of the theft. Once delivered, APA paid Rain Forest in full. As such, APA now has good title to the bark under the good faith rule.