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Question 104

Milton Edwards leased an automobile from First National Bank. The lease contained a provision whereby Milton would be liable for the automobile at the end of the lease based on its fair market value. At the end of the lease, the bank notified Milton that the value of the automobile, based on industry publications, was

$10,500 and required him to pay that amount to obtain ownership of the property. Milton objected and requested that the car be individually appraised. What must the bank do?

Nothing; an estimate of the value based on industry standards is sufficient

Hire an independent appraiser to appraise the automobile (both parties agree to be bound by the appraisal)

Allow Milton to hire an independent appraiser to appraise the automobile (both parties agree to be bound by the appraisal)

Use the average of the car value as determined by a third party appraiser Milton hires with the original bank appraisal

Correct Answer: A

If the lease agreement specifies that the value of the automobile at the end of the lease is to be determined based on industry publications or standards, then the bank's estimate based on those publications is sufficient. Milton’s request for an individual appraisal would not be necessary unless it was specifically mentioned in the lease agreement.

Discussion

Cam22Option: C

C is correct. This question is in the study guide