R5 M2 - Contract : Part II Flashcards
(17 cards)
Under the Sales Article of the UCC, which of the following statements is correct regarding the creation of express warranties?
A. Express warranties must contain formal words such as warranty or guarantee. B. Express warranties must be part of the basis of the bargain between buyer and seller. C. Express warranties are not enforceable if made orally. D. Express warranties cannot be based on statements made in the seller's promotional materials.
Choice “B” is correct. To be an express warranty, the language must be part of the basis of the bargain.
Choice “A” is incorrect. An express warranty arises from any statement of fact or promise made by the seller, any description of the goods made by the seller, or any sample or model shown by the seller at a time when it could have become part of the basis of the bargain.
Choice “C” is incorrect. An express warranty may be made orally, in writing or by conduct (e.g., the showing of a model).
Choice “D” is incorrect. Express warranties can arise from any description of the goods given to the buyer before the contract is executed.
Under the Sales Article of the UCC, which of the following statements is correct regarding a good faith requirement that must be met by a merchant?
A. The merchant must adhere to all written and oral terms of the sales contract. B. The merchant must provide more extensive warranties than the minimum required by law. C. The merchant must charge the lowest available price for the product in the geographic market. D. The merchant must observe the reasonable commercial standards of fair dealing in the trade.
Choice “D” is correct. The UCC imposes an obligation of good faith on both parties to a contract. For merchants, this includes the duty to observe reasonable commercial standards.
Choice “A” is incorrect. Under the parol evidence rule, a merchant would not have to adhere to oral statements made before a written contract was made if the written contract appears to be a total integration of the entire deal.
Choice “B” is incorrect. A merchant need not go beyond the warranties required by law.
Choice “C” is incorrect. There is no rule requiring merchants to sell at the lowest prices.
On May 2, Handy Hardware sent Ram Industries a signed purchase order that stated, in part, as follows:
“Ship for May 8 delivery 300 Model A-X socket sets at current dealer price. Terms 2/10/net 30.”
Ram received Handy’s purchase order on May 4. On May 5, Ram discovered that it had only 200 Model A-X socket sets and 100 Model W-Z socket sets in stock. Ram shipped the Model A-X and Model W-Z sets to Handy without any explanation concerning the shipment. The socket sets were received by Handy on May 8.
Which of the following statements concerning the shipment is correct?
A. Ram’s shipment is an acceptance of Handy’s offer.
B. Ram’s shipment is a counteroffer.
C. Handy’s order must be accepted by Ram in writing before Ram ships the socket sets.
D. Handy’s order can only be accepted by Ram shipping conforming goods.
Choice “A” is correct. Under Article 2 an offer can be accepted by a promise to ship or by prompt shipment. Shipment of nonconforming goods constitutes both an acceptance and a breach unless a notice is sent prior to shipping that the goods are only an accommodation.
Choice “B” is incorrect. Shipment of nonconforming goods is not a counteroffer unless accompanied by a notice of accommodation. Here, Ram shipped the socket sets without any explanation concerning the shipment.
Choice “C” is incorrect. In a goods contract, acceptance of an offer can be made merely by shipping goods.
Choice “D” is incorrect. Shipment of goods is an acceptance, whether or not the goods conform. If they do not conform, the shipment is also a breach.
Jefferson Hardware ordered three hundred Ram hammers from Ajax Hardware. Ajax accepted the order in writing. On the final date allowed for delivery, Ajax discovered it did not have enough Ram hammers to fill the order. Instead, Ajax sent three hundred Strong hammers. Ajax stated on the invoice that the shipment was sent only as an accommodation. Which of the following statements is correct?
A. Ajax's note of accommodation cancels the contract between Jefferson and Ajax. B. Jefferson's order can only be accepted by Ajax's shipment of the goods ordered. C. Ajax's shipment of Strong hammers is a breach of contract. D. Ajax's shipment of Strong hammers is a counteroffer and no contract exists between Jefferson and Ajax.
Choice “C” is correct. The examiners were trying to trick you here. Under the Sales Article, an offer can be accepted by shipment, and shipment of nonconforming goods can constitute both an acceptance and an immediate breach unless the seller had notified the buyer that nonconforming goods would be shipped as an accomodation. The accomondation rules does not apply here since reasonable notice was not provided that nonconforming goods would be shipped as an accomondation to the buyer. Thus, the shipment of a different brand of hammers constitutes a breach of contract.
Choice “A” is incorrect. As explained above, the shipment here was not an accommodation because the contract had already been accepted by a letter. In any case, an accommodation shipment serves as a counteroffer; it does not cancel an existing contract.
Choice “B” is incorrect. Under the Sales Article, an offer to buy goods generally can be accepted by either an acceptance, such as the letter here, or by shipment of conforming of nonconforming goods.
Choice “D” is incorrect. This would be correct if Ajax had not already accepted Jefferson’s offer, because the shipment would have been considered an accommodation shipment. But because Ajax had already accepted Jefferson’s offer, the shipment of nonconforming hammers constituted a breach.
Excusing performance of a contract due to very large unforeseen expenses not contemplated by the parties to the contract at the time of the formation of the contract is the definition of which of the following?
A. Tender of performance B. Anticipatory repudiation C. Commercial impracticality D. Impossibility of performance
Choice “C” is correct. Under the Sales Article of the UCC, a contract will be discharged for impracticability if it is extremely more burdensome than anticipated because of the occurrence of an unforeseen event.
Choice “A” is incorrect. A tender of performance is an offer or attempt to do what is required under a contract.
Choice “B” is incorrect. Anticipatory repudiation occurs when either the buyer or seller indicates in advance of performance that he or she will not perform.
Choice “D” is incorrect. Impossibility of performance occurs if an event takes place that makes the contract objectively impossible for anyone to perform.
Bond purchased a painting from Wool, who is not in the business of selling art. Wool tendered delivery of the painting after receiving payment in full from Bond. Bond informed Wool that Bond would be unable to take possession of the painting until later that day. Thieves stole the painting before Bond returned. The risk of loss:
A. Passed to Bond at Wool's tender of delivery. B. Passed to Bond at the time the contract was formed and payment was made. C. Remained with Wool because the parties agreed on a later time of delivery. D. Remained with Wool because Bond had not yet received the painting.
Choice “A” is correct. Where the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery of the goods.
Under the Sales Article of the UCC, which of the following statements is correct regarding a seller’s obligation under a F.O.B. destination contract?
A. The seller is required to arrange for the buyer to pick up the conforming goods at a specified destination. B. The seller is required to tender delivery of conforming goods at a specified destination. C. The seller is required to tender delivery of conforming goods at the buyer's place of business. D. The seller is required to tender delivery of conforming goods to a carrier who delivers to a destination specified by the buyer.
Choice “B” is correct. Under an F.O.B. destination contract, the seller has the risk of loss until he places conforming goods into the buyer’s hands at the named destination, not necessarily the buyer’s place of business.
Choices “A”, “C”, and “D” are incorrect, per the above.
Under the Sales Article of the UCC, in an F.O.B. place of shipment contract, the risk of loss passes to the buyer when the goods:
A. Are identified to the contract. B. Are placed on the seller's loading dock. C. Are delivered to the carrier. D. Reach the buyer's loading dock.
Choice “C” is correct. In an F.O.B. place of shipment contract, risk of loss passes when the goods are placed in the hands of a carrier at the seller’s loading dock.
Choice “A” is incorrect. Risk of loss would pass on identification only if the parties specifically so provided.
Choice “B” is incorrect. In an F.O.B. place of shipment contract, it is not sufficient just to get the goods to the loading dock; risk does not pass until the goods are placed in the hands of a carrier there.
Choice “D” is incorrect. In an F.O.B. place of shipment contract, risk of loss passes when the goods are placed in the hands of a carrier at the seller’s loading dock.
Under the Sales Article of the UCC, which of the following statements is correct regarding risk of loss and title to the goods under a sale or return contract?
A. Title and risk of loss are shared equally between the buyer and the seller. B. Title remains with the seller until the buyer approves or accepts the goods, but risk of loss passes to the buyer immediately following delivery of the goods to the buyer. C. Title and risk of loss remain with the seller until the buyer pays for the goods. D. Title and risk of loss rest with the buyer until the goods are returned to the seller.
Choice “D” is correct. In a sale or return, the buyer has title and risk of loss unless and until the goods are returned to the seller.
Which of the following statements applies to a sale on approval under the UCC Sales Article?
A. Both the buyer and seller must be merchants. B. The buyer must be purchasing the goods for resale. C. Risk of loss for the goods passes to the buyer when the goods are accepted after the trial period. D. Title to the goods passes to the buyer on delivery of the goods to the buyer.
Choice “C” is correct. In a sale on approval, risk of loss passes to the buyer on approval of the goods.
Choice “A” is incorrect. A sale on approval does not require that either party be a merchant.
Choice “B” is incorrect. If the buyer is purchasing for resale, it generally is a sale or return. In any case, there is no such requirement for a sale on approval.
Choice “D” is incorrect. In a sale on approval, title does not pass to the buyer on delivery; rather it passes when the buyer approves the goods.
Under the Sales Article of the UCC, the warranty of title:
A. Provides that the seller cannot disclaim the warranty if the sale is made to a bona fide purchaser for value.
B. Provides that the seller deliver the goods free from any lien of which the buyer lacked knowledge when the contract was made.
C. Applies only if it is in writing and signed by the seller.
D. Applies only if the seller is a merchant.
Choice “B” is correct. The warranty of title is a guarantee from the seller that the goods are delivered free of all liens of which the buyer is unaware.
Choice “A” is incorrect. The warranty of title can be disclaimed by specific language or circumstance.
Choice “C” is incorrect. The warranty of title arises automatically in every sale of goods; it need not be in writing.
Choice “D” is incorrect. The warranty of title arises automatically in every sale of goods; even when the seller is not a merchant.
Which of the following factors result(s) in an express warranty with respect to a sale of goods?
I.The seller’s description of the goods as part of the basis of the bargain.
II.The seller selects goods knowing the buyer’s intended use.
A. I only. B. II only. C. Both I and II. D. Neither I nor II.
Choice “A” is correct. An “express” warranty is created by the seller’s description of the goods which forms part of the basis of the bargain between the parties. The “express” warranty does not require that the seller select goods knowing the buyer’s intended use.
Choices “B”, “C”, and “D” are incorrect, per the above explanation.
Under the Sales Article of the UCC, most goods sold by merchants are covered by certain warranties. An example of an express warranty would be a warranty of:
A. Usage of trade. B. Fitness for a particular purpose. C. Merchantability. D. Conformity of goods to sample.
Choice “D” is correct. Under the UCC, any affirmation of fact or promise constitutes an express warranty. Any model, sample, or description also gives rise to an express warranty that the goods will be in conformity with the sample, model, or description.
Choice “A” is incorrect. A usage of trade is a business practice common in a particular industry; it is not a warranty.
Choice “B” is incorrect. The warranty of fitness for particular purpose arises when a seller knows of a particular purpose for the goods being sold and the buyer relies on the seller to choose goods suitable for that purpose. It is an implied warranty and not an express warranty.
Choice “C” is incorrect. “Merchantability” is an implied warranty that arises in every sale of goods by a merchant. Among other things, it is a warranty that the goods sold will be fit for their ordinary purposes.
Under the Sales Article of the UCC, which of the following statements is correct regarding the warranty of merchantability arising when there has been a sale of goods by a merchant seller?
A. The warranty must be in writing. B. The warranty arises when the buyer relies on the seller's skill in selecting the goods purchased. C. The warranty cannot be disclaimed. D. The warranty arises as a matter of law when the seller ordinarily sells the goods purchased.
Choice “D” is correct. The warranty of merchantability is implied whenever a merchant (one who ordinarily sells goods of the kind sold) sells goods. UCC 2-314
Choice “A” is incorrect. The warranty of merchantability is an implied warranty—it need not be in writing.
Choice “B” is incorrect. The warranty of merchantability is implied whenever a merchant (one who ordinarily sells goods of the kind sold) sells goods. The warranty that can arise from reliance is the warranty of fitness for particular purpose.
Choice “C” is incorrect. The warranty of merchantability can be specifically disclaimed or by words such as “as is.”
If a party to a contract engages in an anticipatory repudiation of the contract, which of the following statements is correct?
A. The repudiation is a material breach of the contract.
B. The repudiating party cannot retract the anticipatory repudiation.
C. The other party never has a duty to mitigate any losses resulting from the repudiation.
D. The other party cannot take action against the repudiating party until the time for performance has passed and performance has not occurred.
Choice “A” is correct. Anticipatory repudiation is considered a material breach of contract, giving the nonbreaching party the right to sue immediately (among other options).
Choice “B” is incorrect. The repudiating party can withdraw the repudiation before the other party relies on it.
Choice “C” is incorrect. As a general rule, a nonbreaching party cannot recover for avoidable losses. This is sometimes referred to as a duty to mitigate.
Choice “D” is incorrect. The nonbreaching party has three choices: sue immediately, cancel, or await the time for performance and sue if the other party does not perform.
A business entered into a contract with a construction company to remodel the office of the business. The contract called for the remodeling to be completed by October 1, Year 1. On July 1, Year 1, the construction company sent an email to the business informing the business that it will not finish the job. What recourse does the business have?
A. The business can consider the construction company to be in breach of contract on July 1, Year 1, and immediately seek remedies.
B. The business can consider the construction company to be in breach on July 1, Year 1, but cannot seek remedies until October 1, Year 1.
C. The business cannot consider the construction company to be in breach of contract until October 1, Year 1, and may not seek any remedies until then.
D. The business must notify the construction company on or after July 1, Year 1, of its intent to hold the contractor in breach, and the contractor has 30 days to respond before the contract is breached.
Explanation
Choice “A” is correct. The business can consider the construction company to be in breach of contract on July 1, Year 1, and immediately seek remedies.
Anticipatory repudiation occurs when the promisor clearly indicates before the time for performance that the promisor will not perform. An express statement by the promisor that the party will not finish the job constitutes anticipatory repudiation. The breach of contract is effective when the anticipatory repudiation occurs. The nonbreaching party can sue immediately for breach of contract and seek remedies.
Choice “B” is incorrect. The business does not have to wait until the time for performance occurs to seek remedies.
Choice “C” is incorrect. The construction company is considered to be in breach of contract when the anticipatory repudiation occurs. The business can immediately sue for breach of contract and seek remedies.
Choice “D” is incorrect. There is no requirement that the nonbreaching party, the business, notify the promisor construction company of its intent to hold the contractor in breach, or that the contractor has 30 days to respond before the contract is breached. The breach of contract is effective when the anticipatory repudiation occurs.
