Business Law Final-Practice Exam

In general, a buyer's duty to pay for tendered goods becomes absolute before the buyer has had an opportunity to inspect the goods.

F

Only a statement made after a contract is entered into can be an express warranty.

F

Puffery creates an express warranty.

F

Real estate transactions are always governed by Article 2 of the UCC.

F

Tender of delivery requires that the seller or lessor hold the goods at the buyer's or lessee's disposal, but not that the goods be conforming.

F

The UCC requires that the mirror image rule be followed for all acceptances.

F

There are no circumstances under which a contract can be tendered by multiple deliveries of goods.

F

Under a destination contract, the risk of loss passes to the buyer when the goods are duly delivered to the carrier.

F

Under the UCC, if a contract does not designate the place of delivery for the goods, then the goods must be made available at a location halfway between the seller's and the buyer's places of business.

F

Under the UCC, parties to sales and lease contracts are not free to establish whatever terms they wish.

F

Under the UCC, there are no exceptions to the perfect tender rule.

F

Under the perfect tender rule, if tender is not perfect, the seller is obligated to try again.

F

Warranties of title do not arise in most sales contracts.

F

The doctrine of commercial impracticability only extends to problems that are unforeseen.

T

Under the UCC, an agreement modifying a contract needs no consideration to be binding.

T

Under the UCC, prompt shipment of goods is considered an acceptance of an offer to buy the goods.

T

Until the time for performance under a contract expires, the seller has a right to cure.

T

In a novation, only one of the original parties is replaced by a new party.

T

Promises of fact made during the bargaining process are express warranties.

T

The UCC imposes some different rules on merchants.

T

Commercial impracticability allows discharge of a contract only if it is actually impossible to perform.

F

Barry buys a bulldozer from Big Sandbox Equipment Company. Barry is unaware that there is a lien against the bulldozer when he buys it. Under the UCC, if the creditor reposes the bulldozer, Barry a. can recover from Big Sandbox Equipment for breach of warranty. b. can do nothing. c. can file criminal charges against Big Sandbox Equipment. d. can recover damages from the creditor.

A

For an item to be characterized as a "good" under the UCC, it must be intangible.

F

Goods must be of the highest quality possible to be merchantable.

F

If a buyer repudiates a contract, the seller cannot recover damages.

F

If there is no definite period stated, a firm offer by a merchant is irrevocable without the necessity of consideration for up to six months.

F

A shipment contract requires that the seller deliver the goods to a particular location.

F

Impossibility of performance occurs if the contract becomes subjectively impossible to perform by one of the parties.

F

Craft Engineering, Inc., contracts for a sale of technical instruments to Detail Design Company. Before the date on which performance is due, Craft notifies Detail that it will not perform. This is a. anticipatory repudiation. b. perfect tender. c. rejection of performance. d. revocation of acceptance.

A

Fancy's Feedlot orders one hundred sacks of cattle feed from Bovine Feeders, Inc. Each bag has the words "Twenty percent protein" printed on the front. This is a. an express warranty. b. an implied warranty. c. a warranty of title. d. puffery.

A

Jean buys a bike from Mike's Bike Shop. She wants to make sure that there is a warranty of title. Jean a. does not need to do anything because warranties of title arise automatically in most sales contracts. b. must request a written warranty of title. c. must request an oral warranty of title. d. must request both a written and an oral warranty of title.

A

Kim's Pony Rides orders ten saddles from Little Horse Saddles, Inc. The sales contract states that if the saddles are defective, Kim's will allow Little Horse Saddles to repair or replace them instead of rejecting the shipment. When the saddles arrive, they are defective. In this case, the perfect tender rule a. does not apply. b. applies to both parties. c. applies only to Little Horse Saddles. d. applies only to Kim's Pony Rides.

A

Krissa, a horse breeder, shows Maggie, a customer looking for a new stallion for her breeding program, a stallion and tells her that the stallion is very fertile and can easily breed twenty mares per year. Krissa's statement is a. an express warranty. b. an implied warranty. c. a warranty of title. d. puffery.

A

Levi, a well-known lumber dealer with a good reputation, buys a load of lumber and pays for it with a check that is later dishonored. Sam, who is unaware of the bad check and paid a reasonable price, buys the lumber from Levi. Sam is a(n) a. good faith purchaser. b. bad faith purchaser. c. insolvent purchaser. d. bailee.

A

Peter, an agent for Zippy Cars, Inc., writes a letter to Cassandra on March 1 stating that he will sell her a 2011 Suburu Outback for $20,000 between March 1 and April 30. Peter's letter to Cassandra is a. a firm offer. b. an acceptance. c. a bilateral contract. d. a breach.

A

1. Stein, a mechanic, and Beal, a life insurance agent, entered into a written contract for the sale of Stein's tractor to Beal for $6,800 cash. It was agreed that Stein would tune the motor on the tractor. Stein fulfilled this obligation and on the night of July 1 telephoned Beal that the tractor was ready to be picked up on Beal's making payment. Beal responded, "I'll be there in the morning with the money." On the next morning, however, Beal was approached by an insurance prospect and decided to get the tractor at a later date. On the night of July 2, the tractor was destroyed by fire of unknown origin. Neither Stein nor Beal had any fire insurance. Who must bear the loss?

Answer: Risk of Loss. Beal must bear the loss. Since Stein was not a "merchant" within the meaning of Section 2-104, UCC, the risk of loss passes upon tender of delivery. Section 2-509(3). Therefore since Stein has held "conforming goods at the buyer's disposition" and has given Stein "notification reasonably necessary to enable him to take delivery" (Section 2-503(1)), Stein has made a proper tender and the loss falls on Beal.

2. On May 10, the Adair Company, acting through one Brown, entered into a contract with Clark for the installation of a milking machine at Clark's farm. Following the enumeration of the articles to be furnished, together with the price of each article, the written contract provided: "This outfit is subject to thirty days' free trial and is to be installed about June 1." Within thirty days after installation the entire outfit, except for a double utility unit, was destroyed by fire through no fault of Clark. The Adair Company sued Clark to recover the value of the articles destroyed. Explain who bears the risk of loss.

Answer: Sale on Approval/Sale or Return. This problem presents a question whether the transaction is a "sale on approval", or a "sale or return." Section 2-316 (1) of the UCC provides: "Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is (a) a 'sale on approval' if the goods are delivered primarily for use." As the milking machine was primarily for the use of the buyer, Clark, the transaction is therefore a sale on approval. Neither title nor risk of loss passed to Clark upon delivery and installation of the machine. The seller, Adair Company, bears the risk of loss until the buyer manifests his approval of the goods. The machine, except for the double utility unit, was destroyed though no fault of Clark and before Clark had signified his approval or acceptance to the Adair Company. If the goods had been delivered to the buyer primarily for the purpose of resale, under Section 2-316(b) of the UCC, the transaction would be a "sale or return." In such case, title and risk of loss would be transferred to Clark with the privilege of divesting himself thereof within the stated period of thirty days free trial. Decision in favor of Clark.

Bill orders 1,000 nails from Super Hardware, Inc. Super Hardware keeps its nails in packages of 100,000. Bill and the agent for Super Hardware both sign the contract for the sale of the nails on Monday. The agent separates 1,000 nails on Wednesday and puts Bill's name on the box holding the nails. The agent delivers the nails to Bill on Thursday morning, and Bill pays for the nails on Friday. Identification of the nails took place on a. Monday. b. Wednesday. c. Thursday. d. Friday.

B

Community Construction Corporation offers to buy from Solid Cement Company a certain quantity of cement for a certain price. Solid can accept the offer by a. doing nothing. b. promising to ship or promptly shipping the cement. c. promising to ship the cement only. d. promptly shipping the cement only.

B

Elizabeth buys a car from Silas, who is sixteen years old. Elizabeth then wants to sell the car to her neighbor, John. Elizabeth's title to the car is a. valid. b. voidable. c. void. d. good.

B

On January 10, Winchester Pet Supplies orders fifty small dog collars from Quality Collars, Inc. to be delivered by January 15. On January 13, Quality Collars tenders fifty large dog collars. Winchester Pet Supplies rejects the shipment. Quality Collars has a. no right to cure. b. until January 15 to cure. c. until the end of the business day on January 13 to cure. d. unlimited time to cure.

B

Screen Perfect, Inc., and TV Stores enter into a contract for a sale of high-definition television sets. Screen Perfect ships goods that do not exactly conform to the contract in some details. TV Stores a. cannot reject the entire shipment. b. can reject the entire shipment. c. must accept the entire shipment. d. must reject the entire shipment.

B

Mineral Resource Company contracts to provide several manufacturers with tin. When a cartel of tin-producing countries suddenly embargoes future shipments of tin to Mineral Resource so that it cannot fulfill its contracts, the distributor a. can substitute some other material for the tin. b. is likely excused from the performance of its contracts. c. is liable for breach of contract. d. must still supply the tin needs of its customers.

B (commercial impracticability)

Big Red Drinks, Inc. contracts to buy two tons of cranberries from Super Fruits, Inc. The contract states that Super Fruits is required to ship the cranberries to Big Red Drinks by Speedy Wind Air Freight. The contract is a. a bill of lading. b. a destination contract. c. a shipment contract. d. a warehouse receipt.

C

Clear Day Company, which is based in Delaware, agrees to sell fifty windows, currently stored in Florida, to Far Vu, Inc., which is based in Hawaii. Absent an agreement to the contrary, the place of delivery is in a. California. b. Delaware. c. Florida. d. Hawaii.

C

Dan, a computer programmer, holds a garage sale to sell a lawnmower, some clothes, some CDs and some old clothes. Will, a lawyer, sells Thelma his collection of seashells. Philip, a CEO of a successful company, sells George his pet parakeet. Judy, an expert horse trainer, sells Bob a horse. Which person would be considered a merchant under the UCC? a. Dan b. Will c. Judy d. Philip

C

Food Packaging, Inc., agrees to sell 50,000 6-ounce yogurt containers to Golden Dairy Company. Food can obtain only 20,000 of the 6-ounce contain-ers, but also ships 30,000 more expensive 8-ounce containers for the same price. Under these circumstances, Golden a. cannot reject delivery, and Food cannot later replace the containers. b. cannot reject delivery, but Food can later replace the containers. c. may reject delivery, and notice to Golden of Food's intent to cure will give Food a reasonable time to replace the containers. d. may reject delivery, but Food cannot later replace the containers.

C

Grace purchases three tons of fine merino wool on behalf of Woolen Creations. Woolen Creations wants the wool to remain in the warehouse where it is being stored until it is needed. Grace makes an offer for the wool on Monday. The offer is accepted on Tuesday. The warehouser gives Woolen Creations a warehouse receipt on Wednesday. Woolen Creations picks up the wool from the warehouse three months after the sale. Title for the wool passed to Woolen creations a. on Monday. b. on Tuesday. c. on Wednesday. d. three months after the sale.

C

Megan, an agent for a department store, orders one hundred dresses from Sal's Clothing Shop for the Spring Blossom Sale. There is no specific agreement in the sale contract indicating when title will pass to the department store. The title will pass to the department store when a. Megan signs the contract. b. Megan and the Sal's Clothing Shop agent sign the contract. c. Sal's Clothing Shop physically delivers the dresses to the department store. d. Megan pays Sal's Clothing Shop for the dresses.

C

The release of one contractual party and the substitution of another party for the released party is called a(n): a. substitution by law. b. removal and replacement. c. novation. d. adjudication. e. accord and satisfaction.

C

What is a condition in connection with a contractual promise? a. A limitation on the manner in which the promise is performed. b. A limitation on the remedy available in the event that the promise is not properly performed. c. Something that must occur (or not occur) in order for there to be a duty to perform the promise. d. The reason that the promise was initially made. e. A and B.

C

William steals a valuable collection of baseball cards from Phillip. William then sells the cards to Darrel, who does not know that the cards are stolen. Phillip discovers that Darrel has the cards. Which of the following best describes the rights and liabilities of the parties involved? a. Darrel has the right to keep the cards if he compensates Phillip monetarily. b. Phillip has the right to reclaim the cards from Darrel, but is liable to Darrel for damages. c. Phillip has the right to reclaim the cards from Darrel and William is liable to Darrel for damages. d. Darrel has the right to keep the cards without compensating William.

C

Elegant Carpets, Inc., and Fantastic Floors Stores enter into a contract for a sale of carpeting. Under a shipment contract, the seller must a. allow the buyer to reject the goods for any reason. b. deliver the goods to a particular destination. c. inspect the goods before shipping them. d. place the goods into the hands of a carrier.

D

Nature's Products, Inc., sends its standard order form to Interbusiness Distribution Corporation (IDC) to evidence a sale of packing materials. IDC responds with its own standard purchase order form. Additional terms in the purchase order automatically become part of the contract unless a. the terms materially alter the original contract. b. the original offer expressly required acceptance of its terms. c. the offeror objects to the new terms within a reasonable time. d. any of the choices.

D

Sweets Store buys chocolate from Tasty Candies, Inc. The parties agree that the chocolate will be shipped "F.O.B. Sweets" via United Railroad Corporation. The chocolate is lost in transit. The loss is suffered by a. Sweets and Tasty, but not United. b. Sweets only. c. Sweets, Tasty, and United. d. Tasty only.

D

Trend-Rite Clothiers, Inc., sells t-shirts to Brand Name Stores, Inc., under an existing contract. When textile costs increase, Brand agrees to a price increase, but later wants to cancel the contract. Brand may a. cancel the contract immediately. b. cancel the contract only after accepting a final shipment. c. cancel the contract only on reasonable notice. d. not cancel the contract.

D

What is the significance of a contract clause stating that "time is of the essence?" a. It creates a legal goal for the parties. b. It puts a duty on the parties to a contract to perform as soon as possible. c. It means that the contract is ineffective if the time for performance is not expressly stated. d. It means that performance by the stated time is an express condition. e. It means that if performance of the contract is completed within a short time of the stated time, it will be considered performed at essentially the proper time.

D

A buyer may reject a seller's goods under any circumstances.

F

A firm offer by a merchant may be oral.

F

If goods identified to a contract are destroyed through no fault of either party, both parties are excused from performance.

T

If the contract requires the occurrence (or nonoccurrence)of an event before a party is obligated to perform a contractual duty, there is a condition precedent.

T

If the goods or their tender fail to conform to the contract, the buyer can accept part and reject part.

T

A buyer who obtains substitute goods to replace goods that a seller did not deliver can also recover damages from the seller.

T

A condition subsequent exists when a contract provides that the occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing duty to perform.

T

A merchant is a person who deals in goods of the kind involved in the sales contract or who holds herself or himself out as having skill or knowledge peculiar to the practices or goods being purchased or sold.

T

A seller does not have to provide a written warranty for consumer goods.

T

A seller does not have to use words such as "warrant" to make an express warranty.

T

Entrusting goods to a merchant who deals in goods of the kind gives the merchant the power to transfer all rights to a buyer in the ordinary course of business.

T

Generally, acceptance of an offer to lease goods may be made in any reasonable manner and by any reasonable means.

T

If a buyer wrongfully refuses to accept goods that conform to a contract, the seller can recover damages.

T

If a nonmerchant-seller's offer expressly conditions acceptance on a nonmerchant-buyer's agreement to the terms of the offer, the buyer's positive response is an acceptance even if it contains additional terms.

T

If a party to a contract intentionally alters the contract materially, the innocent party may opt either to discharge the contract or to enforce it.

T

If a seller is not a merchant, and the goods are not to be moved, the risk of loss passes to a buyer on tender of delivery.

T