MODULE 24 SALES

Contracts for Sale of Goods

1. (c) Under the Sales Article of the UCC, acceptance is valid when sent if a
reasonable method is used; therefore answer (c) is correct as both
acceptances were sent prior to the end of the ten-day period.
2. (b) A firm offer is a written, signed offer concerning the sale of goods, by a
merchant, giving assurance that it will be held open for a specified time and
is irrevocable for that period, not to exceed three months. Answer (a) is
incorrect because if the firm offer does not state a period of time, it will
remain open for a reasonable period of time, not to exceed three months.
Answer (c) is incorrect as consideration is not required for a firm offer, but
for an option contract. Answer (d) is incorrect because under the firm offer
rule, only the offeror need be a merchant.
3. (c) Under the UCC, an oral modification of an existing contract for the sale of
goods for a price less than $500 is considered binding. Since the washer and
dryer Mason contracted to buy cost less than $500, Acme's oral agreement to
change the date of delivery would be enforceable. The fact that Mason is not a
merchant won't affect whether or not the oral modification is binding. In order
to have a firm offer, the offer must be made by a merchant in a signed writing
which gives assurance that the offer will be held open. In this situation, the
modification of an offer already accepted is being discussed rather than a firm
offer.
4. (a) Under the Sales Article of the UCC, both the seller and buyer are obligated
to perform a contract in good faith. Answer (b) is incorrect because certain
provisions, such as the battle of forms provision, only apply to merchants.
Answer (c) is incorrect because the Sales Article of the UCC applies to the
sale of goods without regard to the price of goods. Answer (d) is incorrect
because certain pro- visions of the UCC may be disclaimed by written or oral
agreement, such as warranty liability.
S. (a) Article 2 of the UCC applies to sales of goods. Common law generally
applies to contracts for services and real estate. Even though goods are used
in this service contract, the predominate feature of this contract is the service.
Article 2 of the UCC governs this contract even though it is oral and for a small
sum. Even though the chair at one time involved a lot of labor, it is still a sale
of goods. Also, whether the parties are merchants or not is not an issue on
whether Article 2 applies. The heater which is not yet in- stalled in the home is
a sale of goods. Once it is installed in the home, it becomes part of the real
estate for any future sale of the home. Common law rules would apply to any
such future sale.

6. (a)• Under common law, an acceptance must be un- equivocal and unqualified
in agreeing to the precise terms specified by the offer. However, the Uniform
Commercial Code alters this general rule as far as the sales of goods IS
concerned. Under the UCC, an acceptance containing additional terms is a
valid acceptance unless the acceptance is expressly conditional upon the
offertory's agreement to the additional terms. In this situation, a valid contract
has been formed between Cookie Co. and Distrib Markets. Distrib Markets'
acceptance was not conditional upon Cookie's agreement to the additional
term and, thus, a contract is formed regardless of Cookie's agreement or
~bjection to the additional term. This contract was for the sale of goods and is
governed by the UCC rather than by common law. Under common law, Distrib
Markets' reply would have been a rejection and counteroffer; but under the
UCC, a contract was formed.
 7. (c) This exception for specially manufactured goods, even if the contract is for
over $500, is one of the important exceptions found in the Statute of Fraud pr?
vsions of the Uniform Commercial Code. Answer (a) IS Incorrect because the
exception for specially manufactured goods applies to this fact pattern and
thus this contract need not be in writing. Answer (b) is incorrect because the
fire did not prevent the custom door contract from being performed. Answer (d)
is incorrect because the contract was fully enforceable and Art had no legal
right to cancel the contract.
S. (a) Ram may accept the offer by shipping the goods .. Under the UCC,
shipping nonconforming goods constitutes an acceptance, also unless the
seller notifies the buyer that the shipment is given only as an accommodation
to the buyer. Answer (b) is incorrect because this shipment counts as an
acceptance, not as a counteroffer. Answer (c) is incorrect because an order to
buy goods for prompt shipment allows the seller to accept by either a prompt
promise to ship or by the actual prompt shipment itself.
In order to have a contract, there must be both an offer and an acceptance. Even (d) .9
though an acceptance can occur in different ways, by speech, 'by writing, or by action, the actual
acceptance is a required element of a contract. Under the UCC Sales Article, a binding contract
may be present if the parties pad intended to form a contract even though certain elements of the
contract are missing. These open terms will be filled by specific provisions of the UCC, including
provisions for open price, open delivery, or op quantity. Note that in the case of quantity, output
contracts, requirements contracts, and exclusive dealing's contracts are enforceable though the
actual quantity may not be known in adma

n
10. (a) The UCC provides that a confirmation satisfies the UCC Statute of Frauds,
if an oral contract between merchants is confirmed in writing within a
reasonable period of ume, and the confirmation is signed by the party sending
it and received by the other party. Both parties are bound unless the party
receiving the confirmation submits a written objection within ten days of
receipt. In this situation, a valid contract has been formed since Webster did
not object to Northrop's purchase order. In a sale-of-goods transaction, the
contract must be signed by the party to be charged to be enforceable.
However, in the case of a written confirmation of an oral agreement between
merchants, the confirmation need only be signed by the party sending the
confirmation. The use of a signed purchase order satisfies the UCC Statute of
Frauds.
11. (d) A firm offer is an offer for the sale of goods that is written and signed by a
merchant (or employee of the merchant) that agrees to keep the offer open.
This offer is valid without consideration for three months since no time was
specified in the fact pattern. Patch will win in a suit to enforce the rain check
because Patch tried to use it one month later. Answer (a) is incorrect because
the UCC specifies a three-month period when no time is detailed in the firm
offer. Answer (b) is incorrect because when no time is specified, the UCC
gives Patch three months to accept the offer. Answer (c) is incorrect because
there was no offer and acceptance when Patch first tried to purchase the
advertised item.
12. (a) An output contract is enforceable under the UCC even though an actual
quantity is not mentioned in the con- tract. The output contract is supported by
consideration because the seller has agreed not to sell that output to any ?
ther party. Answer (b) is incorrect because when the price IS orrutted, the
UCC construes it as the reasonable price at the time of delivery. The quantity
is construed as the output of the sheep rancher. Answer (c) is incorrect
because al-
 though quantity is an important term in the contract, the UCC allows the
quantity term to be defined by output. Answer (d) is incorrect because the
UCC allows price terms to be based on the reasonable price and quantity
terms to be defined by output.
B.l.a. Warranty of Title
13. (b) Under the warranty of title, the seller warrants good title, rightful transfer
and freedom from any security interest or lien of which the buyer has no
knowledge at the time of sale. Answer (a) is incorrect because the warranty of
title can be disclaimed by specific language or circumstances which give the
buyer reason to know s/he is receiving less than full title. Answer (c) is
incorrect because the warranty does not have to be in writing. Answer (d) is
incorrect because the seller does not have to be a merchant for the seller to
give the warranty of title.

B.1.b. Express Warranties

14. (d) In the Sales Article of the UCC, express warranties include warranties that
the goods will conform to any description used or any sample or model shown.
Answer (a) is incorrect because although usage of trade can help interpret
terms used in contracts, it is not a warranty. Answers (b) and (c) are incorrect
because the warranty of fitness for a particular purpose and the warranty of
merchant- ability are both implied warranties.

,B.1.e. Implied Warranties

15. (d) The implied warranty of merchantability, which guarantees that goods are
fit for ordinary purposes, arises as a matter of law when the seller is a
merchant who ordinarily sells the goods purchased. Answer (a) is incorrect
because the warranty is iIT,lplied, and therefore need not be in writing. Answer
(c) is incorrect because the warranty applies unless specifically disclaimed by
the merchant.
16. (c) The implied warranty of merchant ability is al- ways implied if the seller is a
merchant with respect to the type of good being sold. Since Ram is a
merchant, this warranty would apply. Also, under the UCC, the seller war-
rants good title, rightful transfer, and freedom from any security interest or lien
of which the buyer has no knowledge when the contract was made. This
warranty of title applies unless the merchant specifically disclaims it. In this
situation, both the implied warranty of merchantability and the implied
warranty of title apply. The implied warranty of fitness for a particular purpose
is created only when a seller has reason to know the buyer's particular
purpose and knows the buyer is relying on the skill and judgment of the seller
selecting the goods.
17. (a) The implied warranty of merchantability applies only when the seller is a
merchant with respect to the type of goods being sold. The seller must be a
merchant in order for the buyer to successfully sue under this warranty.
Answer (b) is incorrect because the buyer does not have to prove negligence
to be able to recover under this implied warranty. Answer (c) is incorrect
because the implied warranty of merchantability extends to parties other than
the purchaser even without privity of contract. Answer (d) is incorrect because
an action for a breach based on the warranty of merchantability would not
depend on the outcome of an action based on strict liability.
18. (b) The implied warranty of fitness for a particular purpose is created when a
seller (merchant or no merchant) has reason to know the buyer's particular
purpose and
 knows the buyer is relying on the skill and judgment of the seller selecting the
goods. Since the warranty of fitness for a particular purpose is an implied
warranty, there is no requirement that it be made in writing.

19. (a) The implied warranty of-merchantability may be disclaimed by a seller's

oral or written statement. This statement normally must contain some form of
the word "rnerchantability" to be effective. However, goods sold "as is" or "with
all faults" are an exception to that rule. Answer (b) is incorrect because the
implied warranty of merchantability arises whenever the seller is a merchant
with respect to the goods being sold. The status of the buyer is irrelevant.
Answer (c) is incorrect because the implied warranty of merchantability
guarantees that the goods are of an average fair quality and are fit for ordinary
purposes. Under this warranty, the seller does not guarantee that the goods
are fit for all purposes for which the buyer intends to use the goods. Answer
(d) is incorrect because this warranty is al- ways implied if the seller is a
merchant. It does not have to be a part of the basis of the bargain to be
binding on the seller.

B.3. Strict Liability

20. (b) Common carriers' liability is based on strict liability. As such, the common
carrier is liable for losses to property whether or not the common carrier was
negligent. Common law exceptions to strict liability include natural disasters
which are responsible for damages.
21. (d) Under the theory of strict liability, the plaintiff must establish the following:
(1) the seller was engaged in the business of selling the product, (2) the
product was defective, (3) the defect was unreasonably dangerous to the
plaintiff, and (4) the defect caused injury to the plaintiff. If the plaintiff can
prove these elements, then the seller will be liable regardless of whether the
seller was negligent or at fault for the defect. Thus, High cam recover even if
he can- not show any negligence was involved. Answer (a) is incorrect
because contributory negligence is not an available defense in a strict liability
case. Answer (b) is incorrect be- cause the manufacturer's only defenses are
misuse and as- assumption of risk by the buyer. The fact that the
manufacturer followed the custom of the industry is irrelevant under strict
liability. Answer (c) is incorrect because privity of contract is not a defense
under strict liability since the suit is not based on contract law:
22. (d) Under the theory of strict liability, the plaintiff must establish the. Following:
(1) the seller was engaged in the business of selling the product, (2) the
product was defective when sold, (3) the defect was unreasonably dangerous
to the plaintiff, and (4) the defect caused injury to the plaintiff. If the plaintiff
can prove these elements, then the seller will be liable regardless of whether
the seller was negligent or at fault for the defect.
23. (d) The standard of care required for a common carrier bailee is based on
strict liability rather than reason- able care. Common carrier bailees, however,
are not liable for acts of God, acts of the shipper, or acts of a public enemy. In
this case, the improper packing was done by the party doing the shipping.
Answer (a) is incorrect because acts or theft by other parties make the
common carrier liable. Answer (b) is incorrect because acts such as
negligence, by' others, still leave the common carrier liable. Answer (c) is
incorrect because acts of a railroad employee cause the common carrier to be
liable.
 C. Transfer of Property Rights
24. (c) Since Rio was a good-faith purchaser, Rio obtains good title to the rocking
chair. Therefore, the remedy, that Tills has left is to sue McGraw for money
damages. There are insufficient facts to show fraud.

25. (d) If a person entrusts possession of goods to a merchant who normally deals
in that type of goods, a good- faith purchaser obtains title to those goods. Jake
purchased' the bike as he was unaware that Pete did not own the bike. As a
good-faith purchaser, he obtains title to the bike. Answer (a) is incorrect
because Yancie cannot repossess the bike from Jake because Jake obtained
good title to the bike. Yancie can, however, get the value of the bike from Pete.
Answer (b) is incorrect because Jake obtains title to the bike and.ahus, Pete
cannot repossess it from him. Answer (c) is incorrect because Yankee can
recover the value of the bike from Pete, not Jake.
26. (b) A requirement needed for the title of goods to pass to the buyer is that the
goods must have been identified to the contract. Answers (a) and (c) are
incorrect because the seller can keep possession of goods and identify them
to the contract and still have title pass to the buyer. Answer (d) is incorrect
because title passes to the buyer based upon the terms of the agreement.
Payment can take place before or after.

D. Risk of Loss and Title

27. (c) In an FOB place of shipment contract, the buyer obtains the risk of loss
once the goods are delivered to the carrier.
28. (d) The title of goods generally passes to the buyer when the seller completes
performance with respect to the physical delivery of the goods. Because the
shipping terms of the contract are FOB Parco's warehouse, the title of ' goods
passes to ParGO on tender at the destination. This is true even if the goods
are nonconforming. However, Parco's rejection of the appliances will revert the
title of the goods back to Lace at the time of the rejection.
29. (a) Under the Sales Article of the Uniform Commercial Code and the United
Nations Convention for the Inter- national Sale of Goods, generally the risk of
loss of the goods sold will pass to the buyer when the seller delivers goods to
the first carrier for transmission to the buyer. Answers (b), (c), and (d) are
incorrect because these would result in risk of loss to the buyer only if the
contract specifically stated so, thus changing the general rule.
30. (c) The purchase of goods on a sale on approval allows the buyer to return the
goods even if they conform to the 'contract. Therefore, the seller retains the
title and the risk of loss until the buyer accepts the goods.
31. (d) Risk of loss transfers from a merchant seller to a buyer upon the buyer's
physical receipt of goods. There- fore, neither tender of the goods at the
seller's place of business, nor use of the seller's truck to deliver the goods are
events which transfer risk of loss to the buyer as the merchant seller still
retains possession of the goods.
32. (d) The UCC places risk of loss on the breaching party. Since Cey shipped
nonconforming goods, it breached the contract and would have risk of loss
until the nonconforming goods were accepted by the buyer or until the goods
were cured by Cey. Since Deck rejected the goods and Cey did not cure the
goods, risk of loss remained with Cey. Shipping terms have no bearing on risk
 of loss in this situation because the goods did not conform to the contract,
Answer (a) .is incorrect because Deck would only bear risk of loss if the goods
conformed to the contract. Answer (b) is incorrect because the risk of loss was
never transferred to Deck since the goods were nonconforming. Answer (c) is
incorrect because if the goods were conforming, risk of loss would pass to
Deck at Cey's warehouse based on the shipping. Terms "FOB Cey's
warehouse."
33. (b) The parties to the contract may agree as to which party bears risk of loss.
In the absence of this, under the UCC, the shipping terms determine who
bears risk of loss.
34. (a) In this situation, since Wool is not a merchant seller, the risk of loss passed
to Bond on Wool's tender of delivery. If Wool had been a merchant seller, then
the risk of loss would not have passed until the buyer received the goods.
Answers (c) and (d) are incorrect because the risk of loss passed when the no
merchant seller (Wool) tendered delivery of the painting. Answer (b) is
incorrect because the risk of loss would not pass at the time the contract was
formed since the seller still had possession of the painting and had not
attempted to deliver it to the buyer.
35. (b) Common carriers are not liable for losses due to causes deemed acts of
God. Although a common carrier may limit its damages to a dollar amount
specified in the contract, it is not liable at all in this case. Funston, not the
customer, had the risk of loss due to the FOB terms.

E.5. Seller's Remedies

36. (b) Statement I is incorrect because a liquidated damages provision is
enforced if it is not punitive but amounts to a reasonable estimate of what the
loss will be in the event of a breach of contract. If a reasonable estimate of the
loss from a breach of contract cannot be estimated with a reasonable degree
of certainty, the parties can agree on an amount, but still the amount cannot
be punitive. Statement IT is correct because a seller is allowed to retain a
deposit of up to $500 when a buyer defaults even if the parties had not agreed
to a liquidated damages clause.
37. (b) The seller generally discharges his obligation to the buyer by placing
conforming goods at the buyer's disposition and giving the buyer reasonable
notice to enable the buyer to take delivery.
38. (a) Under the Sales Article of the UCC, the seller has the following remedies
against the buyer upon breach: withhold delivery of the goods; stop delivery of
the carrier of the goods; resell the goods; recover compensatory and
incidental damages; recover the goods from the buyer upon the buyer's
insolvency; cancel the contract. Therefore, answer (a) is correct as the seller
has the rights' of contract cancellation and damage recovery available to
himlher.
39. (a) The UCC gives the seller a choice of many remedies when the buyer
breaches the contract.involvingea sale of goods. These remedies include
allowing the seller to resell the goods identified to the contract and to recover
the amount that the seller receives that is less than the contract price. Also,
once the buyer breaches, the seller may suspend his/her performance and
may prevent the carrier from making the delivery of the goods.
40. (b) A seller has the right to resell goods to another if the buyer refuses to
accept the goods upon delivery. Answer (a) is incorrect because specific
performance is not a remedy available to the seller. Baker cannot force Lazur
 to accept the word processor. Answer (c) is incorrect because Baker has a
couple of additional remedies available. Baker can recover the full contract
price plus incidental damages if he is unable to resell the identified goods.
Alternatively, if the difference between the market value and contract price is
inadequate to place Baker in as good a position as performance would have,
then Baker can sue for lost profits plus incidental damages. Answer (d) is
incorrect because Baker could sue for consequential damages that Lazur had
reason to know Baker would incur as a result of Lazur'sbreach41. (a) By
advising Mazur on June 1 that it would not accept or pay for the wheat, Good
has engaged in anticipa- tory repudiation. Anticipatory repudiation occurs
when a party renounces the duty to perform the contract before the party's
obligation to perform arises. Anticipatory repudiation discharges the
nonrepudiation party (Mazur) from the contract and allows this party to sue for
breach immediately. In this situation, Mazur could successfully sue Good for
the difference between the resale price and the contract price on June 2.
Answer (b) is incorrect because Mazur was dis- charged from the contract on
June 1 and would not have to wait until after June 23 to resell the wheat.
Answer (c) is incorrect because Good would only be allowed to retract its
anticipatory breach if.Mazur had ignored this breach and awaited performance
at the appointed date. Answer (d) is incorrect because specific performance is
only allowed for unique goods or for other situations in which monetary dam-
ages are not appropriate.

E.6. Buyer's Remedies

42. (c) Pickens has committed an anticipatory breach of contract. Thus, Crocket,
as the aggrieved party, has different options. Crocket may treat it as a present
breach of contract with the remedies available for breach of contract. One of
these remedies is that the aggrieved party (Crocket) may cancel the contract.
Another option is that Crocket may wait for a reasonable time to see if Pickens
will change hislher mind and still deliver. ,
43. (b) The buyer has the following rem~dies against the seller: upon receipt of
nonconforming goods, the buyer may reject the goods, accept the goods, or
accept any unit and reject the remainder; the buyer has the right to cover
(purchase goods elsewhere upon the seller's breach); the buyer may recover
damages (not punitive) for no delivery of goods or repudiation of the sales
contract by the seller; the buyer may recover damages (not punitive) for
breach in regard to accepted goods; the buyer may recover goods identified in
the contract in possession of the seller upon the seller's insolvency; the buyer
may sue for specific performance when the goods are unique; the buyer has
the right of replevin (form of legal action to recover specific goods from the
seller which are being withheld from the buyer wrong- fully); the buyer can
cancel the contract; the buyer has a security interest in the goods after the
seller's breach; the buyer can recover liquidated damages.
44. (d) UCC Section 2-719(3) states that a limitation of damages for personal
injury in the case of consumer goods is considered to be unconscionable and
thus not allowed. Although limitations of damages for personal injury in the
case of no consumer goods can be allowed, answer (d) is correct since one
limits "personal injury" to the stove which was apparently being used for
consumer use in this fact pat- tern. Answer (a) is incorrect because under the
UCC, the spouse, being a member of the household expecting to use the
stove, may recover for damages. Answer (b) is incorrect because Larch was
notified shortly after the explosion. This notice, however, was not required.
Answer (c) is incorrect because even though the disclaimer did not disclaim
allli- ability, it did attempt to disclaim personal injury. This dis-claimer for
 personal injuries, however, is not allowed for the reasons mentioned above.
Answer (d) is chosen as being more specific than answer (c).
45. (d) Either party in a sales contract under the Sales Article of the UCC may
demand adequate assurance of performance when reasonable grounds for
insecurity exist with respect to the performance of the other party. Refusal to
give written assurance will release the other party from all obligations from the
sales contract. Answer (a) is incorrect because the buyer has assumed the
risk of loss. Answer (b) is incorrect because a seller may substitute another
reason- able delivery method if the method of delivery specified in the contract
has been made impracticable. A seller may recover damages based on a
buyer's repudiation of the agreement, but here the repudiation has been
retracted and the obligations of buyer and seller remain intact.
46. (c) The Sales Article of the Uc'C provides that a ' buyer has the right to reject
goods which are not in conformity with the terms of contract between seller
and buyer. The buyer also has the option to accept nonconforming goods and
recover damages resulting from the nonconformity. The UCC allows the buyer
to inspect the goods before payment except when they are shipped COD.
When goods are shipped COD, the buyer's payment for the goods is required
for delivery.

E.7. Statute of Limitations

47. (c) The statute of limitations for the sale of goods is generally four years;
however, the parties may agree to reduce the statute to a period of not less
than one year. There- fore, Sklar will lose because the clause providing that
the statute of limitations would be limited to eighteen months is enforceable,
and the action was not brought within the re- quired time period. Answer (b) is
incorrect because a breach of warranty occurs upon the tender of delivery, not
upon the discovery of the defect, and the statute begins running at the time
the breach occurs. Answer (d) is incorrect because the statute is eighteen
months as outlined in the contract. ,
.