Chapter 11 MindTap

Buyer in the ordinary course of business

A buyer who, in good faith and without knowledge that the sale violates the ownership rights or security interest of a third party in the goods, purchases goods in the ordinary course of business from a person in the business of selling goods of that kind.

Merchant Zeppo offers to sell his sofa to Brian for $385. Brian says, "I'll take it, and I would like you to throw in the coffee table along with it." Under the Uniform Commercial Code, what kind of arrangement do Zeppo and Brian have?

A contract for the sofa only.

Destination contract

A contract in which the seller is required to ship the goods by carrier and deliver them at a particular destination. The seller assumes liability for any losses or damage to the goods until they are tendered at the destination specified in the contract.

Shipment contact

A contract in which the seller is required to ship the goods by carrier. The buyer assumes liability for any losses or damage to the goods after they are delivered to the carrier

good faith purchaser

A purchaser who buys without notice of any circumstance that would cause a person of ordinary prudence to inquire as to whether the seller has valid title to the goods being sold.

usage of trade

Any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.

Farmers Produce Inc. and Growers Market enter into a contract for the delivery of vegetables. Some of the produce spoils before the buyer can resell it. Growers refuses to pay for the spoiled goods. In a suit over the dispute, the seller claims that the buyer assumed the risk of spoilage. The court may allow evidence of this claim if it finds that the parties' contract is a. none of the choices. b. not fully integrated. c. fully integrated. d. a complete and final statement of their agreement.

B

Garden & Field stores order a specific assortment of rose bulbs from Hybrid Flora Company. Hybrid mistakenly ships a selection of annuals, which Garden & Field rejects and returns via Intra-state Transport, Inc. During the return, the annuals are lost. The loss is suffered by a. Garden & Field. b. Hybrid Flora. c. consumers by increases in the prices of other goods and shipping. d. Intra-state Transport.

B

Greg buys a skateboard from Hobby Shop. In a dispute arising from the sale, the shop will be considered to have the status of a merchant under the UCC if a. its owner enjoys skateboarding. b. it holds itself out by occupation as having knowledge and skill unique to the skateboard in the transaction. c. it subscribes to Boards, a biweekly trade magazine. d. it has sold any skateboards within the last year

B

Brooke is an art collector and hires a broker to buy and sell artworks on her behalf. Under the UCC, in those transactions, Brooke has the status of a. a consumer. b. an employer and manager. c. a merchant. d. an agent or other intermediary.

C

Candy Corporation orders Double Chocolate Bars from Edible Distribution Company. Edible identifies the goods. Before they are shipped to Candy, an insurable interest in the goods exists in a. Edible only. b. Candy only. c. both Candy and Edible. d. neither Candy nor Edible.

C

Statute of Frauds Requirements

Common law: All material terms must be included in the writing UCC: writing is required only for the sale of goods priced at $500 or more, but the contract is not enforceable beyond the quantity specified.

Acceptance

Common law: Mirror image rule applies. UCC: Additional terms will not negate acceptance unless acceptance is expressly conditioned on assent to the additional terms.

Contract term

Common law: contract must contain all terms UCC: Open terms are acceptable if parties intended to form a contract, but the contract is not enforceable beyond the quantity term.

Life Products Inc. enters into a contract to sell medical supplies to Med Clinic, which later sells some of the items to Nina, a patient and consumer. Article 2 of the UCC applies to a. the sale from Med Clinic to Nina only. b. none of the transactions. c. the sale from Life Products to Med Clinic only. d. both transactions

D

Skyscape LLC regularly engages in the business of leasing construction equipment, primarily to commercial contractors. Tilde, a consumer, leases a backhoe from Skyscape to landscape the property at her home. The price is less than the amount set by state statute. Under the UCC, the deal with Tilde is a. a construction lease. b. a commercial lease. c. none of the choices. d. a consumer lease

D

Gentry owns a jewelry store and Daphne agrees to buy a watch for $3,000 that Gentry orders from Germany. They fail to specify where delivery will take place. Under the UCC:

Daphne must take delivery of the watch at Gentry's store.

The UCC provides rules of construction for interpreting contracts. When the court considers a construction unreasonable, the UCC establishes the following order of priority. Which of the following expresses the correct order of priority?

Express terms, course of performance, course of dealing, usage of trade.

Delivery ex-ship

Means that risk of loss does not pass to the buyer until the goods are properly unloaded from the ship or other carrier

F.A.S. (free alongside)

Requires the seller, at his or her own expense and risk to deliver the goods alongside the carrier before risk passes to the buyer

C.I.F. or C.&F. (cost, insurance, and freight or just cost and freight)

Requires, among other things, that the seller, "put the goods in insurance of a carrier" before risk passes to the buyer

Insolvent

Under the Uniform Commercial Code, a term describing a person who ceases to pay "his debts in the ordinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of federal bankruptcy law" [UCC 1-201(23)].

Sales contracts between parties residing in the United States and foreign countries are typically governed by the

United Nations Convention on Contracts for the International Sale of Goods (CISG).

Gabby, who is planning to move, offers to sell her sofa to her friend Trent for $750. Trent says, "I'll take it, and I would like you to throw in the coffee table along with it." Under the UCC, Gabby and Trent have

a contract for the sofa only.

The Uniform Commercial Code (UCC) attempts to provide:

a framework of rules to deal with all aspects of commercial sales transactions.

If a sales contract prohibits any changes unless they are in a signed writing, then only those changes agreed to in a signed writing are enforceable.

true

In response to an order for a hundred baseballs, the shipment of a hundred basketballs is both an acceptance of the offer and a breach of the contract.

true

The UCC imposes certain special business standards on merchants because of their commercial expertise.

true

Under the United Nations Convention on Contracts for the International Sale of Goods, when the parties to an agreement do not specify a price term, or at least provide for its specification, normally no contract will exist.

true

Under the UCC, a contract that contains open terms will be:

valid if the parties intended to form a contract and there is a good basis for a court to grant a remedy.

The common law of contracts and the Uniform Commercial Code are exactly the same.

False

Generally, in the sale or lease of future goods, identification occurs when the seller or lessor ships, marks, or otherwise designates the goods as those to which the contract refers.

true

Generally, when an acceptance to a sales contract between merchants includes terms additional to those in the offer, the terms automatically become part of the deal.

true

Grains Inc., agrees to sell to Harvest Bread Company a certain quantity of refined grains. Some of the other terms in the deal are left open. In the case of a dispute, a court will presume a. whatever is reasonable. b. whatever favors the plaintiff. c. whatever favors the nonbreaching party. d. nothing.

A

Outdoor Outfitters Store contracts to buy fifty tents from Pitched Camp, Inc. Unless the contract states otherwise, this is assumed to be a. a shipment contract. b. a destination contract. c. a warehouse receipt. d. a bailment.

A

United Wear Inc. and Winter Gear stores enter into a contract for a sale of coats. Their contract can indicate that the price includes transportation costs to a specific destination by including the term a. F.O.B. b. delivery ex-ship. c. C.I.F. d. F.A.S.

A

A bailee is someone

who temporarily cares for your personal property without passage of title.

Janis owns a copper mine. She regularly sells the copper from her mine to Travis, who uses the raw materials in his factory. Their sales contracts are covered by

Article 2 of the UCC

Jill buys a refrigerator and pays the company to have it delivered. Her contract is governed by:

Article 2 of the UCC.

Bert's Bagels, Inc., and other bakeries refer to a "baker's dozen" as consisting of a collection of thirteen baked goods. According to the UCC, this is a. a course of dealing. b. none of the choices. c. a course of performance. d. a usage of trade.

D

Clean Clinic offers to buy from Dental Supplies Company a specific quantity of a certain type of floss for a stated price. Dental can accept the offer by a. a material alteration of the terms within a reasonable time. b. a prompt shipment of the goods only. c. a promise to ship only. d. a promise to ship or a prompt shipment of the goods.

D

F.O.B. (free on board)

Indicates that the selling price of goods includes transportation costs to the specific place named in the contract. The seller pays the expenses and carries the insurance to the place named

Oscar owns a jewelry store. Maura agrees to buy a watch for $3,150 that Oscar has ordered from Germany. Oscar and Maura fail to specify where delivery will take place. Under the UCC

Maura must take delivery of the watch at Oscar's store.

Three of the most common open terms for which the UCC provides numerous provisions to fill the gaps in a contract are: (select all that apply)

Price Payment Delivery

course of dealing

Prior conduct between parties to a contract that establishes a common basis for their understanding.

course of performance

The conduct that occurs under the terms of a particular agreement; such conduct indicates what the parties to an agreement intended it to mean.

Any party purchasing insurance must have a sufficient interest in the insured item to obtain a valid policy. Insurance laws—not the UCC—determine sufficiency.

True

In contracts involving the sale of both goods and services, once a court decides that such a contract is primarily a goods contract, any dispute, even over the services portion, will be decided under the UCC.

True

Ed offers to sell to Nicole a hand-carved chest of drawers worth more than $2,000. Nicole agrees to buy the chest and signs a contract for the purpose, but the price of the chest is left out of the contract. Ed and Nicole have:

a valid contract as long as the court can determine a reasonable price

Collins offers to sell to Phillip an hand-carved chest of drawers worth more than $2,500. Phillip agrees to buy the chest and signs a contract for the purchase. The price of the chest, however, is left out of the contract. Collins and Phillip have

a valid contract as long as the court can determine a reasonable price at the time for delivery.

The Uniform Commercial Code has been adopted by:

all of the states in whole or in part.

Requirements contract

an agreement in which a buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires

Output contract

an agreement in which a seller agrees to sell and a buyer agrees to buy all or up to a stated amount of what the seller produces

The CISG is similar to _____ of the UCC

article 2

Owen buys a light fixture from an online merchant under a contract covered by the UCC. He first receives an insurable interest in the lam

at the moment the goods covered by the contract are identified.

Bart orders 20,000 Class A widgets from Salvatore. Salvatore promptly ships to Bart 20,000 Class B widgets instead. Under the UCC, the Salvatore has

both accepted and breached the contract.

Common law

controls primarily contracts for services and real estate

Article 2 of the UCC governs

contracts for the sale of goods

Statutory Law (UCC Article 2 and 2A)

controls contracts for the sales and lease of goods

Kacey purchases custom windows from Custom Windows, Inc., and wants to ensure that the goods are shipped by common carrier and that title does not pass until the windows are tendered to her address. The contract should specify that it is a:

destination contract.

The following are times when additional terms do not become part of a contract: 1) The original offer _____ acceptance to its terms; 2) The new or changed terms _____ the contract; 3) The offeror _____ to the new or changed terms within _____

expressly limited materially alter objects a reasonable period of time

All countries have adopted the CISG

false

On a contract—"F.O.B. New York"—for a sale of almonds by a broker in California, the risk of loss passes to the buyer when conforming goods are placed in the possession of the carrier.

false

The Uniform Commercial Code requires parties to form sales and lease contracts with the same formality used in forming other types of contracts.

false

When a buyer breaches a sales contract, the risk of loss remains with the seller to the extent of any deficiency in the buyer's insurance coverage.

false

When a sales contract contemplates shipment of the goods but does not specify the arrangements, either party can make those arrangements.

false

Kevin signs a contract to purchase 10,000 bushels of grain from Gene's grain elevator which has a 100,000-bushel capacity. Kevin's bushels are classified as

fungible goods.

Article 2 of the UCC deals with the sale of _____. In some situations, the rules can vary depending on whether the is _____ a merchant.

goods buyer or seller

Victor is an inventor who has patented and sold many products. To earn a living from his designs, he sells the prototypes to Kenny, who then manufactures and markets the products. Victor is in need of cash, so he offers to sell Kenny the designs for the next five prototypes he will invent in exchange for an immediate lump-sum payment. For the UCC to control, Victor's next five prototypes must be

in existence.

A merchant is a person who: 1) deals with goods of the kind _____ the sales contract or 2) by occupation, holds himself or herself out as having _____ and skill unique to the practices or goods involved in the transaction

involved in special knowledge

When goods are held by a bailee, risk of loss passes to the buyer when any one of the following occurs: a) The buyer receives _____ a document of title for the goods; b) The bailee _____ the buyer's right to _____ the goods; c) The buyer receives a _____ document of title, and the buyer has had _____ to present the document to the bailee and demand the goods. If the bailee _____ to honor the document, the risk of loss remains with the seller.

negotiable acknowledges possess nonnegotiable a reasonable time refuses

Adele decides to purchase several silver tea sets from Vaughn's gift store. In their sales contract, Adele and Vaughn do not specify how many silver tea sets Adele will purchase. They now have

no contract at all.

Tyler, who runs his business in the United States, enters into a contract with Abigail, a business owner in Australia. Tyler offers to sell factory equipment to Abigail for $30,000. Abigail responds that she will "take it, but you have to give me a warranty on top of it." Under the CISG, Tyler and Abigail have

no contract because of the mirror image rule.

Leesee

one who acquires the right to the possession and use of good under a lease

Lessor

one who transfers the right to the possession and use of goods under a lease

An oral contract for the sale or lease of custom-made goods will be enforceable if: a) The goods are specially manufactured for a _____ buyer or specially manufactured or obtained for a particular lessee; b) The goods are not _____ for resale or lease to others in the ordinary course of the seller's or lessor's business; c) The seller or lessor has _____ started to manufacture the goods or has made commitments for the manufacture or procurement of the goods.

particular suitable substantially

For the rules contained in the UCC to apply to a contract for the sale of goods, the goods must be

tangible

Dillan contracts with Al's Tree Service for the purchase and installation of six maple trees along the edge of his property line. The trees cost $4,000 under the contract and installation labor is $2,000. This contract will be governed by

the UCC because it is a mixed contract predominately for the sale of goods.

Entrustment rule

the transfer of goods to a merchant who deals in goods of that kind and who may transfer those goods and all rights to them to a buyer in the ordinary course of business

An excessive price for the goods and unequal bargaining power can indicate to a court that a sales contract is unconscionable.

true

If a seller supplies ten white dishwashers in response to an order for ten black washing machines—"F.O.B. the seller's warehouse"—and the goods are damaged in transit to the buyer's store, the loss falls on the seller.

true

If an additional term relates to payment, quality, quantity, price, time, and place of delivery, the CISG considers the added terms as material alterations

true

In a sales contract, the passage of risk of loss from a seller to a buyer gives the buyer the right to insure the goods and the right to recover from third parties who damage them.

true

The UCC promotes commerce by simplifying and streamlining commercial transactions.

true