#6 Contracts

Question 1

10

Can a seller avoid liability for personal injury by including a disclaimer in a product sale under the UCC?

Answer 1

No. Under UCC § 2-719, a seller cannot disclaim liability for personal injuries caused by a defective product.
Even if a disclaimer is written into the sale, it is ineffective if the product causes bodily harm.

Key Notes:

Privity is not required — injury victims don’t have to be the buyer

Disclaimers like “as is” are allowed for warranties, but not for physical injury

Seller will still be held liable for damages

Question 2

What is a novation, and how does it apply when forming a corporation?

Answer 2

novation replaces one party in a contract with a new one, with consent from all sides.

When a promoter signs a contract before forming a corporation, they stay personally liable until a novation occurs.

Once the corporation is formed and all parties agree, the corporation takes over the contract — the promoter is released.

🧠 Only a novation removes promoter liability. Assignment or delegation does not.

Question 3

When does the warranty of merchantability arise under the UCC?

Answer 3

It arises automatically when a merchant sells goods they normally sell.

• Goods must be fit for their ordinary purpose
• No written or spoken warranty needed — it’s implied by law

⚠️ Don’t confuse this with warranty of fitness, which requires buyer reliance on seller’s advice.

Question 4

What is a creditor beneficiary, and how is it different from a donee beneficiary?

Answer 4

A creditor beneficiary is owed money and benefits from a contract that pays their debt.
They can sue to enforce payment.

A donee beneficiary is given a gift through a contract.
They can only sue the promisor, not the other party, if the gift isn’t delivered.

🧠 Example:

• Egan buys Barton’s business and agrees to pay Barton’s debt to Ness.
  Ness = creditor beneficiary (can enforce payment).
• If Egan promised to give Ness $10,000 as a gift, Ness = donee beneficiary (can only sue Egan).

Key rule:
Creditor = debt enforcement
Donee = gift promise

Question 5

Can a minor disaffirm a contract after reaching the age of majority?

Answer 5

✅ Yes — but only if done within a reasonable time and before ratifying it.

📌 Rules:
- 🔓 Minor contracts are voidable, not void.
- ⏳ After turning 18, the contract becomes binding only if ratified.
- 🛑 Using or accepting benefits after 18 = ratification.
- ⏱️ Disaffirmation must happen soon after 18, or it’s too late.

📎 Example: A 16-year-old buys a laptop. At 18, they quickly return it. That’s valid disaffirmance.

Question 6

Gold agreed to sell Hatch a used computer for $150 but didn’t deliver it. What is Hatch entitled to?

Answer 6

💵 Remedy: Compensatory damages only

📘 Why:
- Puts Hatch in the position he would’ve been in if the contract was fulfilled.
- If Hatch paid $350 for a replacement, he can recover the $200 difference.

🚫 No:
- ❌ Specific performance – not allowed unless the item is unique.
- ❌ Consequential damages – none were foreseeable.
- ❌ Punitive damages – not awarded in contract law.

💡 Key Takeaway:
Contract law compensates, not punishes. If the item isn’t unique, the remedy is just the financial loss.

Question 7

Under UCC rules, when does risk of loss transfer in an FOB shipping point contract?

Answer 7

📦 Answer:
Risk of loss transfers to the buyer when the seller hands goods to the carrier (e.g. UPS, FedEx).

📘 Key Rule:
In FOB shipping point contracts, title and risk shift at the moment the carrier takes possession — not when goods leave the seller’s location.

🚚 Example:
Seller ships FOB New York to a buyer in LA — buyer bears the risk once the goods are given to the carrier in NY.

Question 8

What does the mirror image rule say about contract acceptance under common law?

Answer 8

🪞 Rule:
Acceptance must exactly match the offer. Any change creates a counteroffer, not a valid contract.

📘 Key Point:
A contract forms only if the response is a mirror of the original offer. A counteroffer voids the original offer.

🏠 Example:
Offer: “$150,000 for the house”
Response: “I’ll pay $145,000” → This is a counteroffer, not acceptance.

Question 9

What is the Statute of Frauds, and which contracts must be in writing?

Answer 9

It requires certain contracts to be in writing and signed to be enforceable.

📘 Use the acronym GROSS:
- 🛍️ G – Sale of Goods $500 or more
- 🏠 R – Real estate contracts
- ⏳ O – Over 1 year to perform
- 🤝 S – Surety (promise to pay someone else’s debt)
- 💍 S – Marriage-related promises
- ⚰️ E – Executor promises to pay estate debts personally

🧠 Key: If it’s long-term, high-value, or involves third-party risk, it likely must be in writing.

Question 10

What is the implied warranty of merchantability, when does it apply, and how can a seller cancel it?

Answer 10

🟩It ensures goods are fit for normal use (e.g., tires roll, toasters toast).

🛒 Applies automatically when:
- A merchant sells goods of the kind they normally sell.
- No need to mention it — it’s implied by law.

❌ How to cancel:
- Clearly say “as is,” “with all faults,” or use the word “merchantability” in the disclaimer.

🧠 Key: Protects buyers by default. But merchants can disclaim it only with clear language.

Question 11

Carson orally agrees to repair Ives’s book for $450. They later agree (orally) to raise it to $650. Ives refuses to pay. How much can Carson recover?

Answer 11

🛠️ This is a services contract, not sale of goods.
📆 Work was to be done within 1 year.
💵 $500+ rule only applies to sale of goods, not services.
✅ No Statute of Frauds violation — oral contract is valid.
💰 Carson can recover full $650.

Question 12

📄 The Parol Evidence Rule says prior or simultaneous agreements can’t contradict a final written contract.
Which types of outside agreements can still be admitted in court?

Answer 12

✅ Allowed:
- Subsequent agreements (oral or written)
- Clarification of ambiguous terms
- Evidence of fraud, duress, or mistake

❌ Not allowed:
- Prior deals that conflict with the signed contract

🧠 Tip: “What’s done before is barred. What’s changed after is fair game.”
Correct answer: B. Subsequent oral agreements

Question 13

🗣️ Under UCC §2-209, when is a verbal change to a sales contract enforceable?
Does a delivery date change need to be in writing?

Answer 13

📘 Rule: Verbal modifications are valid under the UCC if the overall contract doesn’t trigger the Statute of Frauds.

✅ If the contract is under $500 → no writing required
📦 Example: A $480 contract can be modified verbally (e.g., change of delivery date)

🚚 A delivery date change is enforceable without a new writing if the original contract didn’t need one.

❗Failure to deliver as agreed = breach.

Question 14

🛠️ When can a buyer sue for breach of the implied warranty of merchantability under the UCC?

Answer 14

📘 Rule: A buyer can sue if:
- The seller is a merchant of that kind of goods
- The goods are not fit for ordinary use
- The warranty was not clearly disclaimed (e.g., “as is”, “with all faults”)

🧾 No need to prove negligence or strict liability — just that the product was unfit and sold by a merchant.

Question 15

📝 When do sales of goods over $500 need to be in writing under the UCC? Any exceptions?

Answer 15

📌 Basic Rule:
- If you’re selling goods for more than $500, the agreement must be in writing to be legally enforced.

🚨 But there are 4 exceptions (use “SPAM” to remember):

1. Specially made items just for the buyer (can’t be sold to someone else)
2. Part of the deal was already done (like payment or delivery)
3. Admission in court (the seller admits there was a deal)
4. Merchant didn’t object to a written confirmation sent within 10 days

🔑 Bottom Line:
No writing = no enforcement… unless one of the SPAM exceptions applies.

Question 16

When a contract includes a daily penalty for late completion, what type of damages does that represent?

Answer 16

📌 Liquidated damages — not compensatory damages.

• Pre-agreed dollar amount written into the contract
• Estimates potential losses from a breach
• Enforceable if not excessive or punitive

🔑 Rule:
If both parties agree in advance to $X per day for delay, that amount governs—even if the project is eventually completed.

📍 Example:
- 30 days late × $100/day = $3,000 owed
- Enforceable as liquidated damages.

Question 17

What must a plaintiff prove to recover (be compensated) under strict product liability?

Answer 17

📌 No need to prove negligence or fault.

To recover, the plaintiff must show:
1. Product was sold in a defective condition
2. Product was used as intended
3. The defect caused injury

🔑 Key Points:
- No need to prove who was careless
- No privity of contract required
- Focus is on the dangerous defect, not the seller’s conduct

Question 18

When is the original party (assignor) no longer liable under a contract after assigning it to someone else?

Answer 18

Only when the other party to the contract expressly agrees to release the assignor — this is called a novation.

• Assignment alone does not release liability.
• The assignor remains liable unless there’s a clear agreement to substitute the new party.
• Novation = New contract where all parties agree to replace the assignor with the assignee.

Question 19

Under the UCC, what limits apply to liquidated damages in a sales contract?

Answer 19

📘 Liquidated damages must be a reasonable estimate of actual loss — not a penalty. If the amount is excessive or arbitrary, it won’t be enforced.

💵 Even without a liquidated damages clause, the UCC lets sellers keep up to $500 of the buyer’s deposit if the buyer breaches — but only if it’s fair.

🧠 Key Rule:
Liquidated damages must be fair and tied to actual harm, not punishment.

Question 20

Under UCC § 2-403, what happens if an owner entrusts goods to a merchant who accidentally sells them?

Answer 20

🔹 A good faith buyer in the ordinary course gets good title, even if the sale was a mistake.
🔹 The original owner can’t recover the goods from the buyer — only from the merchant.

📌 Example:
West gives a watch to a repair shop. A clerk mistakenly sells it to a customer.
➡️ Customer keeps the watch. West must sue the shop.

🧠 Rule:
Entrustment protects good faith buyers. Only the merchant is liable.

Question 21

Under the UCC, what can a party do if they prove the other side committed fraud in forming a contract?

Answer 21

✅ Cancel the contract (rescind) and sue for actual damages.
- The injured party can void the contract and recover losses caused by the fraud.
- Must return anything received (unless it’s part of the damages).
- No punitive damages under the UCC.
- Fraud must have actually influenced the decision.

📌 Example:
A seller lies about a product’s quality. The buyer relies on that and agrees.
➡️ Buyer can cancel the deal and sue for the loss — but not for extra punishment.

Question 22

When is a merchant’s offer to sell goods binding under the UCC without consideration?

Answer 22

The offer is binding if:
- It’s in writing
- Signed by the merchant
- States it will be held open
- Limited to 3 months maximum

📌 No consideration is required.
After 3 months, the offer can expire unless renewed.

Question 23

When will a personal services contract be discharged by operation of law?

Answer 23

A personal services contract is discharged by law if:

1) The performer dies or becomes incapacitated
2) The contract becomes illegal to perform
3) A court discharges it (e.g., bankruptcy)

Not discharged just because the recipient dies or files bankruptcy.

Key rule: Only death, incapacity, or illegality discharges a personal services contract automatically.

Question 24

Discharge of contractual duties graphic

Answer 24

Question 25

Statute of Frauds – Over One Year Rule

Answer 25

🟡 Contract must be in writing if it **can’t be completed within 1 year of signing** ✅ Oral contract is valid if **performance is possible** within 1 year ❌ Invalid if performance starts later and runs 1 year (over 1 year total) 🟡 Count from contract date, not start date 💡 Ask: “Can it be fully done within 1 year of today?” If not, writing required **Example:** Contract Dec 1 → work Jan 1–Jan 1 = 13 months → writing required

Question 26

SOF TABLE

Answer 26

Question 27

On the CPA exam, what language must be used to correctly describe a seller’s obligation under an FOB destination contract?

Answer 27

The seller is required to tender delivery of conforming goods at the destination specified by the buyer. 📌 Even though carriers are used in real life, the UCC requires that tender occur at the destination — not just to the carrier. ❌ Saying the seller tenders to a carrier (even if it’s headed to the destination) sounds like FOB shipping point, which is wrong for this question. 💡 Trap to avoid: Answer choices that say “tender to a carrier who delivers to the destination” will be marked wrong — even though they sound right — because they don’t state that the seller tenders at the destination. Key Rule for the CPA exam: FOB destination = seller must ensure delivery at the buyer’s location, not just hand off to a delivery service.

Question 28

When does the Parol Evidence Rule (PER) block a party from using oral agreements in court?

Answer 28

The Parol Evidence Rule blocks any oral or written statements made before or during signing if they contradict the final written contract. It does not block: Oral agreements made after the contract is signed Explanations of ambiguous terms Claims of fraud or mistake Example: If a signed contract says “Party A will provide all equipment,” and Party B says, “But we orally agreed I could use your computer,” that oral agreement cannot be used in court — it contradicts the written contract and was made at the same time. Key rule: If the oral agreement is contemporaneous and conflicts with the signed contract, it’s barred by the Parol Evidence Rule.

Question 29

Under UCC Article 2, who is required to perform contract obligations in good faith?

Answer 29

Both merchants and nonmerchants must perform their duties in good faith under Article 2. Good faith means honesty in fact for everyone. For merchants, it also includes reasonable commercial standards (like fair dealing in the trade). 🧠 Example: * A merchant must fairly honor a rain check for an advertised item. * A nonmerchant buyer must pay on time and accept conforming goods. 📌 Key rule: UCC Article 2 covers all sales of goods (tangible, movable personal property), and both parties — not just merchants — must act in good faith when performing contract duties.

Question 30

What must happen for an implied warranty of fitness for a particular purpose to apply?

Answer 30

Two things: The buyer tells the seller they need the product for a special purpose The buyer relies on the seller’s advice in picking the product If the product doesn’t work for that purpose, and the seller knew the buyer was relying on them, the seller may be legally responsible. * This warranty does not need to be in writing * It applies to both merchants and nonmerchants * It’s based on trusting the seller’s advice 📌 Example: Buyer says, “I need paint for an airplane wing.” Seller recommends one, and it peels off mid-flight. → Breach of warranty if buyer relied on that advice.

Question 31

When is a liquidated damages clause unenforceable — and how can you tell if the amount is excessive?

Answer 31

A liquidated damages clause is unenforceable if: 1. Clearly excessive compared to the actual or anticipated harm 2. Intended to punish the breaching party (a penalty) rather than compensate To tell if it’s excessive, compare it to the harm actually suffered. Ask: Is this amount way beyond what the breach really cost? Would it feel unfair if I were charged this much for being late? Example: Rent is $400. Lease says $25 per day late fee. Paying 16 days late = $400 rent + $400 in fees. That’s like paying 100% interest in just over two weeks. The court would likely call that a penalty and throw it out. Key rule: Liquidated damages must be a fair estimate—not a threat or punishment.

Question 32

If a business owner sends a signed letter offering to sell goods and promises not to revoke it, but then tries to cancel before the other side accepts, is the offer still valid under the UCC? When is the contract officially formed if the buyer accepts by mail?

Answer 32

Under the UCC (which governs sales of goods), if a merchant (someone who regularly sells that kind of goods) sends a signed written offer that says they won’t revoke it, that’s called a firm offer. Even if no deadline is mentioned, the law says the offer can’t be revoked for a reasonable time (up to 3 months). So even if the seller later tries to cancel the offer, the cancellation has no effect — the offer is still valid. Also, the mailbox rule says that when someone accepts an offer by mail, the contract is formed the moment the acceptance is mailed, not when it’s received. ✅ So in this case: The seller couldn’t revoke the offer The buyer mailed their acceptance before hearing about the revocation A contract was formed the day the acceptance was mailed Bottom line: If a business makes a signed promise to keep an offer open, they can’t take it back right away. And if the buyer mails an acceptance, the deal is locked in as soon as they drop it in the mailbox.

Question 33

In a real estate deal, if the seller sends a signed written offer and the buyer accepts by phone (verbally), is a contract formed? And who can enforce it?

Answer 33

🟦Yes, a contract is formed — but it’s only enforceable against the party who signed something. Under the Statute of Frauds (common law rules), a contract to sell land must: 1 Be in writing, and 2 Be signed by the person being sued It does not need to be signed by both parties. Only the party you're trying to enforce the deal against must have signed. 📌 Example: Seller signs and sends a written offer to sell land. Buyer calls and says “I accept,” but sends nothing in writing. → A contract exists. → If buyer sues seller, it's enforceable (seller signed). → If seller sues buyer, it fails (buyer didn’t sign). Key rule: For land sales, a signed writing is required — but only by the person you’re holding legally accountable.

Question 34

The 6 types of contracts that must be in writing (GROSSE):

Answer 34

1 Goods worth $500 or more (UCC) 2 Real estate sales 3 Contracts that **cannot** be performed within 1 year 4 Suretyship (promise to pay someone else's debt) 5 Promises made in consideration of marriage 6 Executor promises to pay estate debts personally If your contract falls under one of these, you need a signed writing to enforce it.

Question 35

When does the Statute of Frauds not apply — meaning the contract can be enforceable even if it’s oral?

Answer 35

The Statute of Frauds does not apply to contracts that can be completed within one year, even if they are never completed that fast. As long as it’s possible to finish within one year, no written contract is required. Example: A verbal agreement to repaint someone’s house in 6 months is enforceable — because it can be done within a year. But if the contract cannot possibly be finished in under a year — like a 2-year lease or a 5-year payment plan — it must be in writing under the SOF. Key rule: The 1-year rule is about possibility, not probability.

Question 36

When can a third party enforce a contract they weren’t part of?

Answer 36

A third party can enforce a contract if they are an intended beneficiary. There are two main types: Creditor beneficiary – the contract is meant to help pay off a debt owed to the third party. Donee beneficiary – the contract is meant to give a gift or benefit to the third party. To qualify, the contract must clearly show intent to benefit the third party. This can include: Direct payment instructions to the third party Language showing the contract is meant to satisfy an obligation owed to them An incidental beneficiary (someone who benefits indirectly or by chance) cannot enforce the contract. Key Rule: Intent matters—only intended beneficiaries have legal standing to sue under a contract.

Question 37

What is "accord and satisfaction" in contract law?

Answer 37

Accord and satisfaction is a way to discharge a contract by: Accord: Agreeing to a new, alternative duty in place of the original duty. Satisfaction: Performing that new duty. Once satisfaction occurs, the original obligation is fully discharged. Example: If someone owes money but the creditor agrees to accept something else (like a product or service) instead—and it is delivered—that’s accord and satisfaction. Only works if: The new duty is accepted voluntarily The substitute is actually delivered

Question 38

What are the 4 implied warranties under the UCC, and how do they apply to merchants vs. non-merchants?

Answer 38

**Title** – Applies to all sellers. The seller promises they own the goods and there are no hidden liens or claims. **Infringement** – Applies only to merchants. The goods must not violate any intellectual property rights. **Merchantability** – Applies only if the seller is a merchant (someone who regularly sells that type of product). A non-merchant (like someone selling their used lawnmower online) is not held to this warranty. **Fitness for a Particular Purpose** – Applies to both merchants and non-merchants if: – The buyer relies on the seller’s advice – The seller knows the buyer’s intended use – The seller says the goods will be suitable

Question 39

What is rescission in contract law, and how does it differ from release, novation, and revocation?

Answer 39

Rescission is when both parties agree to cancel a contract and return to their original positions—as if the contract never happened. It's used when the parties realize they should undo the deal entirely. By contrast: Release ends only the remaining duties under a contract but does not restore the parties to their pre-contract positions. Novation replaces one party with a new third party, creating a new contract. Revocation is the withdrawal of an offer before it’s accepted—not the cancellation of a contract. Use rescission when the goal is to cancel the contract completely and erase its effects.

Question 40

Which condition prevents a valid requirements contract? A. Open price B. Open delivery C. Open quantity D. Open acceptance

Answer 40

Answer: D – Open acceptance A contract isn’t valid unless both sides clearly agree. If one side hasn’t accepted yet, there’s no contract. Why the others don’t stop a valid contract: Open price – Law fills in a fair price. Open delivery – Law assumes delivery will be in a reasonable time/place. Open quantity – In a requirements contract, “all we need” is enough. Only open acceptance means no deal was ever formed.

Question 41

Under the UCC, what must be in writing for a contract to sell goods to be valid?

Answer 41

The writing must include a quantity term or something that clearly defines how much is being sold—like “all the buyer needs.” This doesn’t mean the quantity has to be a number (like “300 units”), but it must be clear or measurable from context. For example, a requirements contract saying “all the coffee we need this year” counts. Why the others are wrong: Price – Doesn’t have to be written; a fair price can be assumed. Signatures – Only the person being sued must have signed. Delivery date – Not required; a reasonable delivery time will be assumed. If quantity is completely missing and can’t be figured out, the contract is not enforceable.

Question 42

What is substantial performance, and which of these shows it?

Answer 42

Answer: B – Finished a job but left a small task undone Substantial performance means the main goal of the contract is complete, even if there are small mistakes or unfinished parts. The person still gets paid The other side can ask for a small reduction or fix Minor errors don’t cancel the whole contract This concept is used in court when one side argues they did enough of the job to still get paid, even if some small parts were left incomplete.

Question 43

Under the UCC, when does title and risk of loss pass to the buyer in a **shipment contract**? A. When goods are identified for shipment B. When goods are given to the carrier C. When goods arrive at their destination D. When goods are tendered to the buyer at destination

Answer 43

Answer: B – **When goods are given to the carrier** Under a shipment contract (the default under the UCC), the seller’s job is done once they hand the goods to the shipping carrier. That’s when title and risk of loss pass to the buyer—even if the goods are still in transit. Why the other choices are wrong: A – Identifying the goods isn’t enough; title doesn’t pass yet. C and D – These apply to a destination contract, where the seller keeps the risk until delivery. Note: Shipment and destination contracts are both allowed under the UCC. The key is knowing which one applies. If it says "shipment contract," assume risk passes at the shipping point unless told otherwise.

Question 44

Under the UCC, when does risk of loss pass from a merchant seller to the buyer when **no shipping terms are stated**?

Answer 44

**Only when the buyer receives the goods and takes them out of the seller’s control.** Tendering the goods or loading them on the seller’s truck is not enough. Risk stays with the seller until delivery is completed. This rule only applies to merchant sellers. For non-merchants, risk passes when the seller makes the goods available (tendered).

Question 45

Which type of mistake allows a contract to be rescinded (canceled)? A. Mutual mistake of material fact B. Unilateral mistake of material fact C. Mutual mistake of value D. Unilateral mistake of value

Answer 45

Correct: A – Mutual mistake of material fact **A contract can be canceled if both parties were wrong about something important**—like what the item is, whether it exists, or what’s being sold. Mistakes about value don’t count. Unilateral mistakes (only one side is wrong) usually don’t count either—unless the other side knew or took advantage of the mistake.

Question 46

What must a plaintiff prove to win a strict liability case for a defective product?

Answer 46

To win a strict liability case, the plaintiff must show: **The seller was in the business of selling that product** – One-time or casual sellers (like a garage sale) are not liable – The seller doesn’t have to be the manufacturer **The product was defective when it left the seller’s control** – The defect can be in design, manufacturing, or warning – It doesn’t matter who caused the defect—the seller can be liable even if they didn’t design or create the product 🔑 Key distinction: The plaintiff does not have to prove that the seller designed the product or did anything wrong. Strict liability focuses on what was sold, not how or why it became defective. ✔️ No need to prove negligence ✔️ No need for a contract between buyer and seller (no privity required)

Question 47

Under the UCC, when does risk of loss pass to the buyer when the seller is not a merchant?

Answer 47

If the seller is not a merchant and no shipping terms are stated, risk of loss passes to the buyer when the seller tenders delivery—meaning the goods are made available for pickup. 🧠 Key point: It does not matter whether the buyer has picked up the goods yet. Once the non-merchant says, “It’s ready, come get it,” the buyer takes the risk. These rules only apply when the contract does not include specific shipping terms (like FOB)

Question 48

**Contract Assignment vs. Novation** Who is liable when contract duties are assigned?

Answer 48

- When duties are assigned, **both** the assignor (original party) and assignee (new party) are liable - A **novation** is required to release the assignor from liability - Novation requires agreement by all three parties - In absence of novation, the non-breaching party may sue **both** the assignor and assignee

Question 49

Which contract rights are generally assignable?

Answer 49

- **Option contract rights** → Yes (assignment doesn’t **materially change** the contract) - **Malpractice insurance rights** → No (assignment changes risk profile; **personal** in nature)

Question 50

What damages can a seller recover if a buyer breaches a contract for custom goods?

Answer 50

**Compensatory damages** – to cover actual costs like labor and materials ❌ No specific performance (only the buyer can usually demand that) ❌ No punitive damages (those apply to torts, not contracts)

Question 51

When is a contract modification unenforceable due to lack of consideration?

Answer 51

If one party agrees to do something they were already legally obligated to do (e.g., finish a job as originally agreed), there's no new consideration. So a promise (like a bonus) based on that is not enforceable.

Question 52

What is a sale or return contract under the UCC, and who holds risk of loss?

Answer 52

A **sale or return** contract lets the buyer take goods with the option to return them **if unsold** (common in resale situations). Once delivered, the **buyer holds title and risk of loss** during the resale period. If goods are returned, normal shipping terms apply. **Key Rule:** Buyer bears the risk unless and until goods are returned to the seller.

Question 53

When is an assignor (e.g., Baxter) NOT liable to the assignee after assigning contract rights?

Answer 53

**When the assignee (e.g., Clay) releases the obligor (e.g., Globe).** Even if the obligor doesn’t perform, the assignor is only off the hook if the assignee **formally releases** the obligor from the obligation. **Key Rule:** Assignor stays liable unless the assignee releases the original obligor.

Question 54

Party A assigns contract rights to Party B. Party C is the original obligor who must perform under the contract. **When is Party A no longer liable to Party B.**

Answer 54

If Party B (assignee) **releases Party C (obligor)**, then Party A (assignor) is also released.

Question 55

What are the three conditions required for a firm offer under UCC Article 2?

Answer 55

**S**igned: Offer must be in a signed writing. **U**p to three months: Offer must remain open for a reasonable time, not exceeding 3 months. **M**erchant: Offeror must be a merchant. No consideration from the offeree is required.

Question 56

In a breach of construction contract lawsuit, when does the statute of limitations period start?

Answer 56

The statute of limitations begins **on the date the contract is breached**. -The statute of limitations (SOL) is the legal deadline to file a lawsuit.

Question 57

Under the UCC, what is required to create an express warranty?

Answer 57

A seller’s specific oral or written statement that becomes **part of the bargain**. No need to say "warranty" or "guarantee."

Question 58

What is the status of contracts entered after someone is adjudicated incompetent?

Answer 58

**Void.** These contracts are unenforceable from the start due to legal incapacity.

Question 59

Can an incidental third-party beneficiary (like a general group member) sue to enforce a breached contract?

Answer 59

**No.** Only intended third-party beneficiaries specifically named in the contract can enforce it. Incidental beneficiaries have no right to sue.

Question 60

One party renounces their duty to perform before the due date. Can the other party sue immediately, and what rules apply?

Answer 60

- This is **anticipatory repudiation**, a **material breach**. - The nonbreaching party may **sue immediately or wait**. - The repudiating party may **retract** unless the breach was relied upon or treated as final. - The nonbreaching party must **mitigate damages**.

Question 61

What does the warranty of title guarantee in a sale of goods under the UCC?

Answer 61

- It’s an **implied warranty** in all sales, not just by merchants. - Guarantees the seller has **good title** and that there are **no undisclosed liens or claims**. - Does **not** require any express statement. - Can only be disclaimed with **specific language**; general "as is" disclaimers are **not sufficient**.

Question 62

**Under UCC Article 2, when is a firm offer valid and enforceable without consideration?**

Answer 62

A firm offer is **irrevocable** for up to 3 months if: - It is in **writing** - It is **signed by a merchant** - It states that it will be held open (or reasonably implies it) Even if acceptance includes **minor variations**, a binding contract may still be formed under UCC 2-207. **Priority takeaway:** **An acceptance with minor changes can still create an enforceable contract under the UCC.**

Question 63

**Who holds title and risk of loss in a UCC sale on approval contract before acceptance?**

Answer 63

They stay with the **seller** until the **buyer accepts** the goods or the approval period ends. **Priority takeaway:** **Seller keeps title and risk of loss until buyer accepts or time runs out.**

Question 64

**Which type of contract cannot be assigned without the other party’s consent?**

Answer 64

Contracts for **personal services** cannot be assigned because they involve **unique skills** and materially alter the agreement. - Examples: Singing, coaching, custom art - Assigning these duties would harm the expectations of the other party

Question 65

**Under UCC rules, what rights does a buyer have if the contract is silent on delivery, payment, or inspection?**

Answer 65

The buyer has the right to **inspect the goods before paying**. - Buyer must pick up the goods from the seller - Payment is due at the time of pickup - Checks are acceptable unless the seller requires otherwise This inspection right applies even if the contract is silent on it.

Question 66

UCC Article 2 – What contracts does it cover, and what does it exclude?

Answer 66

Covers: 1) **Sale of goods** – tangible, movable personal property (e.g., a used car), whether sold by a **merchant or nonmerchant**. Excludes: 1) **Stocks & investment securities** (Article 8 instead) 2) **Real property** (land, buildings) 3) **Services & construction contracts** Memory hook: “If it **moves**, it’s Article 2; if it’s **real estate, a service, or a security**, it’s not.”

Question 66

Barton sells his business to Egan on a 10-year plan and is named beneficiary on Egan’s life insurance. Barton assigns both rights to Vim. Egan dies. What is Vim entitled to?

Answer 66

**Both payments and insurance proceeds.** An assignee steps into the assignor’s shoes and can enforce all assigned rights.

Question 67

What contract defense applies when a party is pressured into a contract due to a relationship of trust or authority?

Answer 67

**Undue Influence.** Occurs when one party uses a **position of trust or dominance** to pressure another into a contract without free will. Common in relationships like caregiver/patient, parent/child, or attorney/client. (Not fraud, duress, or unconscionability — no lies, threats, or unfair terms are involved.)

Question 68

What happens to an offer if the offeror dies before acceptance?

Answer 68

The offer **automatically terminates** upon the **death or incapacity** of the offeror (or offeree) — even if the offeree hasn't received notice yet. No contract can be formed after the offeror’s death **unless** acceptance occurred **before** death.

Question 69

Under the UCC, what remedies are available to a buyer when a seller commits anticipatory breach?

Answer 69

The buyer can: - **Demand assurance of performance** - **Cancel the contract** if assurance is not given - **Sue for actual damages** **Punitive damages are NOT available** in contract cases — only in tort cases. Goal: restore the buyer to the same **economic position**, not punish the seller.

Question 70

What can a party do when the other party clearly states they will not perform their contract obligation before the due date?

Answer 70

This is an **anticipatory breach** (or repudiation). The non-breaching party may: - **Immediately treat the contract as breached** - **Cancel the contract** - **Sue for damages right away** No waiting period or notice is required. The breach becomes actionable the moment the repudiation is made clear.

Question 71

When does risk of loss transfer in a UCC sale-on-approval contract?

Answer 71

Risk of loss stays with the seller until the buyer **accepts the goods** or the **approval period expires**.

Question 72

What does the parol evidence rule prohibit?

Answer 72

It bars **prior or contemporaneous oral or written statements** that contradict a **final written contract**. It does **not** prohibit: - Subsequent modifications - Fraud in execution - Clarifying ambiguous or missing terms

Question 73

What remedy applies when a contractor installs the wrong (but still acceptable) fixtures under a construction contract?

Answer 73

This is a **minor breach**, so the non-breaching party (owner) is entitled to **monetary (compensatory) damages**, not specific performance. Damages = difference in value between what was promised and what was delivered.

Question 74

Is an oral guaranty to pay another’s debt enforceable?

Answer 74

No — under the **Statute of Frauds**, a **suretyship agreement** (guaranteeing someone else’s debt) must be **in writing** to be enforceable, even if the debt is repayable within one year.

Question 75

Why is a promise to pay a minor $500 to paint a garage enforceable, but the others are not?

Answer 75

The minor gives **new consideration** (painting). It's enforceable unless the minor disaffirms. The others fail because: - **Past act** (real estate agent) = no consideration - **Family support** = preexisting duty - **Police work** = public duty

Question 76

What is an example of an express warranty under the UCC, and why are the other options wrong?

Answer 76

Express warranty = **specific seller statement, model, or sample** forming the basis of the bargain. Correct: **Conformity to sample** is a clear, express promise. Wrong because: - **Usage of trade** = not a warranty, just business custom - **Fitness for purpose** and **merchantability** = **implied warranties**, not express

Question 77

When can a minor disaffirm a contract?

Answer 77

A minor can disaffirm any time while underage and within a **reasonable time after turning 18**. - A: Wrong — Repair requests before 18 don’t count as ratification. - B: Wrong — Good title doesn’t stop disaffirmance. - D: Wrong — Can’t disaffirm anytime; must act reasonably after 18.

Question 78

Which oral contract over $500 is most likely unenforceable under UCC?

Answer 78

**A contract to sell a work of art** — not covered by UCC Article 2 exceptions, so must be in writing. - B: Wrong — Specially manufactured goods are an exception to the Statute of Frauds. - C: Wrong — If the contract is admitted in court, it’s enforceable. - D: Wrong — If part of the goods were received and accepted, that part is enforceable.

Question 79

Under the parol evidence rule, when can oral statements be admitted in court?

Answer 79

The PER allows **evidence of modifications made after signing** but blocks **prior or same-time statements** that contradict the written contract. Why the others are wrong: - Statements made before or at the time of signing that contradict the contract aren’t allowed—even if the contract didn’t need to be in writing. - Oral agreements made at the same time as the written contract are still barred if they conflict with the contract. - It doesn’t matter if an oral agreement happened right as the contract was signed—if it contradicts the writing, it’s excluded.

Question 80

When can goods be withdrawn from an auction **without reserve** under the UCC?

Answer 80

- **Only if no bid is made within a reasonable time**

Question 81

Foster offered to sell his garage to Lebow, then sold it to someone else without telling him. Lebow accepted on day 5. What is Lebow entitled to?

Answer 81

- **Damages**, because the offer was still open when Lebow accepted - Revocation must be communicated to be valid

Question 82

Kram signed a written offer to sell land to Fargo. Fargo accepted by phone. Who is the contract enforceable against?

Answer 82

- **Only Kram**, because under the Statute of Frauds, the writing must be signed by the party being sued - Oral acceptance is valid, but without Fargo’s signature, the contract isn’t enforceable against him

Question 83

Under a UCC F.O.B. destination contract, what delivery obligation does the seller have?

Answer 83

The seller must **tender delivery of conforming goods at the specified destination** (not just to a carrier). Title transfers **only when the buyer receives the goods**. - F.O.B. **destination** = seller bears risk until goods arrive at buyer's location. - F.O.B. **shipping point** = seller's obligation ends when goods are handed to the carrier. **Key phrase to remember:** Seller delivers *to* buyer’s location, not just *to* a carrier.

Question 84

What implied warranties apply when a seller substitutes goods without buyer’s reliance?

Answer 84

**Merchantability** and **Title** apply. **Fitness for a particular purpose** does **not** apply because the buyer didn’t rely on the seller’s judgment. - Merchantability = ordinary use - Title = rightful ownership - Fitness = only if buyer relies on seller’s skill (not present here)

Question 85

In a UCC **sale or return** contract, who bears title and risk of loss once goods are delivered?

Answer 85

**The buyer** holds both title and risk of loss while attempting to resell the goods. If the buyer returns them, shipping terms (e.g., FOB) apply to determine risk during return transit. - Sale or return = buyer resells goods but can return unsold ones. - Risk stays with buyer unless/until goods are returned.

Question 86

Does UCC Article 2 apply to oral contracts for the sale of goods priced under $500?

Answer 86

**Yes**, Article 2 applies to **all contracts for the sale of goods**, regardless of: - **Price** - Whether the contract is **oral or written** - However, under the **Statute of Frauds**, only contracts **$500 or more must be in writing** to be enforceable - If under $500, oral contracts may still be valid and governed by **UCC Article 2**