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1.(T/F)ThescopeofArticle2includessecuredtransactions,i.e.thoseinwhichthe sellerretainsasecurityinterestinthegoods. 1.False.2102. 2. (T/F) Goods include all things which are movable at the time of contract formation. 2.True2105(1). 3.AndyownsahotdogcartinBalboaPark.Hehasalicensefromtheparkauthority tooperatethestandataveryvisibleandbusylocationinfrontofoneofthemuseums. Andycontractstosellthehotdogstandbusiness,includingthecart,theinventory,and thelicense,toBill.Billrepudiates.Atasubsequenttrialfordamages,whichportionsof thesale(i.e.,thecart,theinventory,thelicense)willbegovernedbyArticle2? 3.Theanswerdependsonthelocalcaselaw.By2102,Article2appliestotransactionsin goods.2105(1)definesgoodsasallthings...whicharemovableatthetimeofidentification tothecontract.2501(1)(a)definesidentificationasoccurringwhenthecontractismadeif itisforthesaleofgoodsalreadyexistingandidentified.Here,thegoodsarethecartandthe inventory, butnotthe license. The license is an intangible. Andsince the goods were in existenceatthetimeofcontractformation,theyhavebeenidentifiedtothecontract,andmovable atthetimeofidentificationtothecontract.Somecourtswillusetheprimarypurposetestto determinewhethertheentirecontractisgovernedbyArticle2.Here,theintentoftheparties appearstobemorethanthesaleofgoodsbecausethehotdogcartandthehotdogsthemselves areworthlesswithoutthelicensetoselltheminthelucrativelocation.Insuchacase,thesaleof thecartandinventorywouldbeviewedasincidentaltothesaleoftheintangibles.However, othercourtshavebrokenthetransactiondownintocomponentparts. Inthatcase,Article2 wouldapplyonlytothecartandinventory,butnotthelicense. 4.(T/F)Asaleisthepassingoftitlefromthesellertothebuyerforaprice. 4.True.2106(1) 5.(T/F)Acontractforthesaleofcropsisacontractforthesaleofgoodsregardlessof whetherthecropsaretobeharvestedbythefarmerorthebuyer. 5.True.2107(2). 6.(T/F) Acontractforthesaleofoilisacontractforthesaleofgoodsregardlessof whethertheoilistobeextractedfromthegroundbythesellerorthebuyer.

RogerW.Martin

6.False.2107(1). 7. (T/F) A contract fails for indefiniteness unless one party can prove when the momentofcontractformationoccurred. 7.False.2204(2) 8.OnTuesday,ahobbyshopownerreceivesanorderforacustomtoytrainthatwill need to be specially manufactured. That same day, the hobby shop owner begins building the toy train. On Friday, the buyer calls to cancel the order. During the conversation,thehobbyshopownerinsistsongoingthroughwiththedeal,andtells thebuyer(forthefirsttime)thathehasalreadystartedmakingthetrain.Isthebuyer legallyboundbyacontracttobuythetoytrain? 8.Under 2206(1)(a),unlessunambiguouslyindicated,anoffertomakeacontractshallbe construed as inviting acceptance in any manner...reasonable under the circumstances. Specifically,under 2206(2),wherethebeginningofarequestedperformanceisareasonable modeofacceptance,anofferorwhoisnotnotifiedofacceptancewithinareasonabletimemay treattheofferashavinglapsedbeforeacceptance.Here,itisprobablyreasonableforthehobby shopownertorelyinthecustomorderinbeginningtobuildthetrain.Thus,bybeginningto buildthetrain,hehasboundthebuyercontractuallyunlesshedoesnotnotifythebuyerofhis acceptancewithinareasonabletime.Here,threedayshaselapsedsincethehobbyshopowner beganbuilding. Itisaquestionoffactastowhetherthatisareasonabletimeunderthese circumstances,butitprobablyis.Thus,thebuyerislegallyboundtobuythetoytrain. 9.TheUniversitycalledtheJollyJellyDonutCo.lateFridaynightleftanorderfor100 jellydonutsfordeliverythefollowingdayontheiransweringmachine.Whilemaking the donuts,Jellyemployees realized thatthey didnothaveenough jelly forall 100 donuts,andsoitdeliveredonly50jellydonuts,and50cakedonuts. TheUniversity sued forbreach. Attrial,Jolly denied existence ofacontract because they hadnot acceptedtheoffer. Specifically,Jollyarguedthatwedidnotgivethemwhatthey ordered,andsoweneveracceptedtheoffer.Whatresult? 9.Jellyisattemptingtopulltheunilateralcontracttrick.2206(1)(b)providesthatanorder or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance...bythepromptorcurrentshipmentofconformingornonconforminggoods.Here, theshipmentbyJellyofnonconforminggoodsdoesnotprecludeacceptancebecausetheorder invitedpromptshipment.Thus,Jellyisboundbycontractandhasbreachedbyshippingnon conforminggoods.

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10.Whatif,inQuestion9above,Jellyhadincludedaletterwiththeshipmentstating, although we are unable to fill your order completely, we are forwarding 50 cake donutsand50jellydonutsinhopesthattheywillbeabletomeetyourneedsonsuch shortnotice.Howwouldthatchangetheoutcome,ifatall? 10.Yes.2206(1)(b)furtherprovidesthattheshipmentofnonconforminggoodsinresponseto an order does not constitute acceptance if the seller seasonably notifies the buyer that the shipmentisofferedonlyasanaccommodationtothebuyer. Here,thenoticeisseasonable because it was included in the shipment. Also, the notice indicates that it is merely an accommodation,andthereforenotanacceptanceoftheoffermadebytheorder. 11.StockNet,Inc.isaninternetbasedstockbrokerthatprovidesfullservicesecurities transactionstocustomersbyemailandtheWorldWideWeb.Periodically,StockNet poststhefollowingadvertisementonthenewsgroupmisc.investintendedtostimulate immediatebusinessfromnewcustomers: StockNet,aleaderininternetstocktrading,invitesnewclientstomakeaone timestockpurchaseatnocommission.Justplaceyourelectronicorderviaour WorldWide Web site at: http://www.stocknet.com before the close of the markettoday. JoeNetsurferseesthepost,andcallsthebrokerbytelephoneandsaysthathewould liketopurchase100sharesofIBM.Whenhegetsthepurchaseorderconfirmationfrom StockNet, itincludes acharge for commission. Joe is upset and refuses to pay the commission,insistingthatStockNetiscontractuallyboundtowaivethecommissionfee basedontheadvertisement.IsJoeRight? 11. No. 2206(1) providesthatanoffermaybeacceptedinanyreasonablemannerunless otherwiseunambiguouslyindicatedbythelanguage.Here,thelanguageunambiguouslystates thatinordertogetthecommissionfreeservice,thecustomermustplacetheelectronicorder overtheweb.Joeplacedhisorderbyphone,andsohisactwasnotanacceptanceofthelanguage oftheoffer.Thus,therewasnocontractforanoncommissionsale. 12.ContractorBillmakesabidonahomeremodelingjobtosupplymaterialsatagiven cost.Onhisstandardbidform,whichhesigned,isastatementthatthisofferistobe consideredopenforsixmonthsfromthedateofitspreparation.HomeownerHarry, afterconsideringseveralotherbids,finallygetsaroundtocallingBilltoaccepthisbid fourmonthslater.Onthephone,Billrefusestohonortheoriginalbidclaimingthatit hasexpired.HarrysuesBillclaimingbreachofcontract.BillclaimsthatbytheUCC, nooffermayextendpast3months.Whatresult? 12.2205providesthatAnofferbyamerchanttobuyorsellgoodsinasignedwritingwhich by its terms gives assurance that it will be held open is not revocable...during the time

RogerW.Martin

stated...butinnoeventmaysuchperiodofirrevocabilityexceedthreemonths.Here,Billisa merchantunder 2104becausehedealsingoodsofthekind.Thewritingwassignedby Bill, anditgaveassurancesthatitwouldbeopenfor6months. Althoughthebidbecame revocableafter3months,Billdidnottakeanyactiontorevokeit. Underthecommonlaw dispatchruleincorporatedby1103,anofferisirrevocableaftertheoffereenotifiestheofferor ofacceptance.Here,althoughBillcouldhaverevokedtheofferafterthreemonths,hedidnotdo sobeforeHarryacceptedbyphone.Assuch,Billisobligatedtosupplythematerialsaccording tohisbid,whichhasbeenmadebindingbyHarrystimelyacceptance. 13.(T/F)Tobebinding,anagreementmodifyingacontractforthesaleofgoodsneeds additionalconsiderationandmustsatisfythestatuteoffrauds. 13.False.2209(1). 14.(T/F)Awritingthatdoesnotcontainahandwrittensignaturedoesnotsatisfythe statuteoffraudsrequirementofUCC2201. 14.False.1201(39). 15. (T/F) A writing that satisfies the statute of frauds requirement of UCC 2201 establishes,asamatteroflaw,theexistenceofacontract. 15. False. 2201. (Thestatuteoffraudsonlyprovidesabarastowhenacontractis not enforceable,itdoesnotprovideconclusivelythatacontract exists. Itisatwopartanalysis: First,satisfythestatuteoffraudswithasufficientwritingorotherwise,thenyoumayargue thatacontractexistsbasedonallevidence,includingoralevidence.) 16. ToroLawnmowersellsRideAlongmowersfor$500eachwholesale. OnSep. 15th,JohnsonHardwareCo.placedatelephoneorderwithToroLawnmowerCo.for 100RideAlongmowersfordeliverythefollowingweek.Whenthenmowersdidnot showupontime,JohnsoncalledTorotoinquireastotheirstatus. Tororepliedthat therewasnocontract.IfJohnsonsuesforbreach,whatresult? 16.2201(1)providesthatacontractforthesaleofgoodsforthepriceof$500ormoreisnot enforceablebywayofaction...unlessthereissomewriting.Herethereisnowritingbecause theorderwasoraloverthetelephone. Sincethepriceoftheorderisgreaterthan$500,the contractisunenforceable. 17. SamefactsasinQuestion16above,exceptthatToro,uponreceiptoftheorder, dispatchedaconfirmationmemorandumwhichstated:Thisconfirmsyourtelephone orderofSeptember15th,deliveryinstructionstofollow.Johnsonproducesthismemo

Document3 attrial.Howwouldthisaffecttheoutcome,ifatall?

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17. 2201(2)providesalimitedexceptiontothesignaturerequirementof2201(1)asbetween merchants.Specifically,ifwithinareasonabletimeawritinginconfirmationofthecontract andsufficientagainstthesenderisreceived...itsatisfiestherequirementsofsubsection(1). Here,ToroandJohnsonaremerchantsunder 1104 becausetheydealingoodsofthekind. However,thewritingisnotsufficientagainsttheseller,becauseitisdoesnotcontainaquantity term,andthusisnotenforceable...beyondthequantityofgoodsshowninsuchwritingunder subsection(1).Thus,althoughthememoprovidesadateandsomeevidenceoftheexistenceofa contract,itisnotsufficienttosatisfythestatuteoffrauds,evenbetweenmerchants. 18. Assumethattheconfirmationmemoinquestion17abovestated:Thisconfirms yourtelephoneorderofSeptember15th,quantity100mowers.Johnsonreceivesthe memowithoutobjectionandTorodeliversthemowers.ThenifJohnsonweretorefuse topay,claimingthattherewasnocontract,couldToroovercomethestatuteoffrauds? 18.Yes.2201(2)providesthatbetweenmerchants,aconfirmationmemoissufficienttosatisfy thestatuteoffraudsifsufficientagainstthesender...andthepartyreceivingithasreasonto knowitscontents...unlesswrittennoticeofobjectiontoitscontentsisgivenwithin10daysafter it is received. Here,the memo is sufficient againstthe sender because it is sufficient to indicatethatacontractforsalehasbeenmadebetweentheparties,itissignedbythesender (at least it is on his letterhead or form and is thus authenticated under 1201(39)),and it containsaquantityterm.ThereceivingpartyisamerchantwhojustplacedanorderwithToro andthereforehasreasontoknowthecontentsofthememo.Furthermore,therewasnoobjection tothecontents.Thus,thememowouldovercomethestatuteoffrauds. 19.Thermoplasticmakescustomplasticpartsforindustrialuse.AcePlumbingsupply orders 100 custommade elbowjoint pipes from Thermoplastic by telephone. Accordingtothespecifications,eachofthecustommadepipesistobeembossedwith Aceslogo.Thermoplasticimmediatelybeginsmanufactureofthecustompipes.Aday later,Acecallstocanceltheorder.Thermoplasticsuesforbreach.WillThermoplastic beabletoovercomethestatuteoffraudseventhoughthereisnowrittenevidenceof thecontract? 19. Yes. 2201(3)(a) providesanexceptiontothewritingrequirementbasedonthepartial performanceofthemanufacturer.Specifically,ifthegoodsaretobespeciallymanufacturedfor the buyer, and are not suitable for sale to others the contract is still enforceable if the manufacturer has made...a substantial beginning of their manufacture before notice of repudiationisreceivedandundercircumstanceswhichreasonablyindicatethatthegoodsarefor thebuyer. Here,thegoodsarespeciallymanufacturedbecausetheyarecustommadetothe buyersspecification. Furthermore,theyarenotsuitableforresalebecausetheyareembossed

RogerW.Martin

withAceslogo. Themanufacturewasbegunbeforerepudiation. Also,sincethegoodshave Aceslogo,thecircumstancesreasonablyindicatethattheyareforAce. Thus,Thermoplastic canovercomethestatuteoffrauds. 20. SupposethatintheaboveQuestion 19,Thermoplasticmakes afirstbatch of 50 pipes,anddeliversthemtoAce.Acethenpaysforthe50.BeforeThermoplasticcan beginmanufactureofthesecondbatchof50,Acestatesthattheydonotwantanymore. Thermoplasticsuesforbreachwithrespecttotheremaining50.WillThermoplasticbe abletoovercomethestatuteoffraudswithrespecttotheremaining50units? 20.Probablynot.2201(3)(c)providesthatacontractisenforceablewithrespecttogoodsfor whichpaymenthasbeenmade. Here,paymenthasbeenmadewithrespecttothefirst50. However,sincemanufactureorcommitmentsforprocurementofthenext50hasnotyetbegun, 2201(3)(a)doesnotapply.Thus,thecodedoesnotprovideforenforceabilityoftheremainder oftheoralcontractinthiscasewithrespecttothegoodsforwhichpaymenthasnotyetbeen made. 21.(T/F)Evidenceofcourseofdealingorusageoftrademaynotbeofferedtoexplain orsupplementaconfirmatorymemorandumwhichwasintendedbythepartiestobe thefinalandcompleteexpressionofthepartiesagreement. 21.False.2202(a). 22.(T/F)Whereacourseofdealingbetweencontractingpartiesisinconsistentwithan applicablelocalusageoftrade,thecontractshallbeinterpretedaccordingtothelocal tradeusage. 22.False.1205(4). 23. (T/F) Where the express terms of a contract is inconsistent with a course of performance,thecontractshallbeinterpretedaccordingtotheexpressterms. 23.True2208(2). 24.(T/F) Ifthepriceislefttobeagreeduponbytheparties,andthepartiesfailto agree,andthepartiesotherwiseintendtobecontractuallybound,thenthepriceisa reasonablepriceatthetimeofdelivery. 24.True.2305(1)(b) 25.(T/F)Theobligationoftheselleristotransferanddeliverthegoodstothebuyer.

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25.True.2301 26.(T/F) Unlessotherwiseagreed,thesellerdeterminestheplacefordeliveryofthe goods. 26.False.2308 27.(T/F)Unlessotherwiseagreed,thebuyermaytreatthecontractasbeingcanceled uponthepassingofareasonabletimewithoutdeliveryofthegoodsbytheseller. 27.False.2309 28.Sellercontractstosell1,000gizmostothebuyerfor$3,000.Thecontracttermsare F.O.B.buyersplaceofbusiness. a)Whatkindofcontractisthis? a)Thisisadestinationcontract. b)Whatkindofshipmentdoesthiscontractrequire? b)Under 2319(b),thiscontractrequiresthatthesellermustathisownexpenseandrisk transportthegoodstothebuyersplaceofbusinessandtenderdeliveryoftheminthemanner providedin2503. c).Whenarethegoodsdelivered? c).Under2503(1),thegoodsaredeliveredwhenthesellerput[s]andhold[s]conforminggoods atthebuyersdispositionandgive[s]thebuyeranynotificationreasonablynecessarytoenable himtotakedelivery.Inthisexample,itwouldbeatthetimethatthegoodsarrivedatthe buyersplaceofbusiness,andthebuyerwasnotified. d).Whenarethegoodsrequiredtobedelivered? d).Sincethecontractdoesnotexpresslyprovideforadeliverydate,then2309(a)providesthat thegoodsshallbedeliveredwithinareasonabletime. Ifthereasonableperiodhasalready expired,thesellerisnotinbreachunlessthebuyerhasreasonablynotifiedthesellerwhatthe reasonabletimeis.Seecomment5to2309. e).Whopaystheexpenseofthefreight?

RogerW.Martin

e)Thesellermustathisownexpense...transportthegoodsunder2319(1)(b). f).When/Whereispaymentdue? f).Sinceithasbeenleftoutofthecontract,2310(a)providesforpaymentatthetimeandplace atwhichthebuyeristoreceivethegoods.Here,thatisthebuyersplaceofbusiness,onthe dateofdelivery.Thebuyerhastherighttoinspectthegoodsunder2513(1)beforepayment. g).Whopaysforinspectionofthegoods? g).Under2513(2)thebuyerpaysfortheinspection,butmayrecoverinspectionexpensesfrom thesellerifthebuyerproperlyrejects. 29. (T/F) Ifthecourtfindsaparticular contracttermto be unconscionable,it may refusetoenforcetheentirecontract,eventhosetermsthatarenotunconscionable. 29.True.2302 30. A1 Computers sells computer hardware and software to local schools. The University is setting up a new computer lab, and wants to purchase several new computersandassociatedaccessoriesandsoftwarefromA1.A1knowsthatoneofthe maker of one of the software packages it sells the University is about to go out of business,meaningthattechnicalsupportwillnolongerbeavailable.TheUniversityis unaware of this future problem, and buys the software. About a year later, the Universitytriestoexpandtheirsystem,andfindsoutthattheycannotupgradetheir softwarebecausethemakerisoutofbusiness.TheUniversitysuesA1computersfor breachofthedoctrineofgoodsfaith,seekingtorecovertheenormouscoststhatthey havealreadysunkintothesystem.Whatresult? 30.1203incorporatesadutyofgoodfaithintoeverycontractforthesaleofgoods.However,it onlyimposesthedutyonperformanceorenforcementofthecontract,notnegotiationofthe contract.Here,A1withheldknowledgeduringnegotiation,butdidnotactinbadfaithduring performance or enforcement. 1103 provides that commonlaw principles that are not supersededbythecodearestillapplicable. Thus,theUniversitymustsueunderoneofthe common law principles that regulates contract formation such as fraud, mistake or unconscionability. However,itisunlikelythatanyofthesewouldbesuccessfulunderthese factsduetotherelativelyequalbargainingpositionandexpectedsophisticationoftheparties. 31.(T/F)Goodfaithinthecaseofamerchantmeansonlyhonestyinfact.

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32.HarrysAutoShopentersintoarequirementscontractwithIndustrialOil,Inc.toall ofitsrequirementsofmotoroilfromIndustrialatafixedcost.Shortlyafterthecontract ismade,thepriceofoilskyrocketsduetoacrisisinthemiddleeast.Harryrealizesthat duetohislowcontractpricehecouldresell someoftheoilthatheisgettingfrom Industrialtoothergaragesaroundtownataprofit.SoHarryimmediatelyincreaseshis monthly order to Industrial. When Industrial refuses to meet Harrys increased demand,HarrycomestoyouwiththeideathathewillsueIndustrialforbreach.What shouldyoutellHarry? 32.2306coversrequirementscontracts.Itprovidesthataquantitytermwhichismeasuredby therequirementsofthebuyermeanssuchactual...requirementsasmayoccuringoodfaith.2 103(1)(b)definesgoodfaithintheacaseofamerchantashonestyinfactandtheobservanceof reasonablecommercialstandardsoffairdealinginthetrade. Here,Harryisorderingmore thanhisactualrequirements. Furthermore,itappearsthatHarrydoesnotevensatisfythe subjectivestandardofhonestyinfactbecauseheisintentionallytryingtotakeadvantageof therequirementscontract.1203furtherimposesadutyofgoodfaithintheenforcementofa contract. Thus,Harryshould be toldthat he has nocase,andfurthermore thathe should withdrawhisorderformoreoilandstopanyenforcementactionsbecausehehasnotactedin goodfaith. 33.Rowanisacarbroker.Martinwishestobuyaparticularmodelofcarbyacertain datetodriveinarace. Tucker,ownssuchacar,andofferstosellittoRowanfor $13,000. However, once Tucker finds out that Rowan intends to resell the car for $15,000toMartin,Tuckerinistsonapriceincreaseto$14,500.Rowanfinallyagrees, knowingthathewillloseanysalewhatsoeverifhedoesntgetthecarandresellitto Martinbythedayoftherace.WhatadviceofRowan? 33. Although 2209(1) provides that a modification to a contract requires no additional considerationtobebinding,thecommentstothatsectionexplainthatthemodificationsmust stillmeetthegoodfaithtestof1203.Tuckerappearsnottobeamerchantunder2104because hedoesnotdealingoodsofthekind.Thus,thestandardofGoodfaithasdefinedin1201(19) ishonestyinfact.However,sincethisappearstobemereextortion,Tuckerwouldprobably notevenmeetthatsubjectivestandard.Theremustbealegitimatecommercialreasonforthe modification,ratherthanmereextortionofamodificationduetobadfaithexploitationofthe otherpartysinabilitytocoveratalatedate. 34. Johnadvertises akitchentableandchairsforsaleinthenewspaperclassifieds. Larryanswersthead,andcomesovertopickupthefurnitureandpayforit. After LarryhaspaidJohn,herealizesthatnoneofthefurniturewillfitinthebackofhiscar.

RogerW.Martin

SoLarryleavesthefurnitureinplaceanddecidestoquicklygoborrowatruckfroma friendandreturn.However,duringtheinterim,thefurnitureisdestroyedwhenJohns houseburnsdown. Larrydemandsarefundofhispayment. Johnrefuses. IsLarry entitledtoarefund? 34.No. 2509(3)providestheriskoflossrulesforsalesofgoodsnotinvolvingshipmentora bailee.Specifically,theriskoflosspassestothebuyerontenderofdeliveryifthesellerisnot amerchant.Here,Johnisclearlynotamerchantbecausehedoesnotdealingoodsofthekind under2104(1).AlsoJohnisnotabaileebecausehesimplyallowedLarrytopostponethetime ofpickup,andthusdoesnotfallunder2509(2).Thus,thequestioniswhetherJohntendered delivery. 2503 providesthattotenderdeliveryistoputandholdconforminggoodsatthe buyersdisposition.Here,thegoodswereclearlyavailableforthebuyertodisposeofthem.It wasthebuyerwhodelayedinbringingthewrongvehicle.Thus,Larryisnotentitledtoarefund becausetheriskoflosspassedtohimbeforethehouseburneddown. 35.SellerinL.A.contractstoship100porcelaintoiletstoBuyerinN.Y.underacontract that providesshipmentterms F.O.B.LosAngeles. Sellerpackages thetoilets and arranges for their transport to N.Y. by train. During transportation, several of the porcelain toilets crack. Upon investigation, it is determined that faulty packaging duringtransitcausedthecracks. Thesellercontendsthatsincethiswasashipment contract,theriskoflosspassedtothebuyeroncethetransportationwasarrangedand thetoiletswereloadedonthetrain.Thebuyerhascometoyouforadvice.Howdo youadvisethebuyerconcerningtheriskofloss? 35. 2319(1)(a) providesthatinashipmentcontract,thesellerbearstheriskofputtingthe goodsintothepossessionofthecarrierandshippingtheminthemannerprovidedin2504.2 504 states that the seller must make such a contract for their transportation as may be reasonablehavingregardtothenatureofthegoods.Here,thesellerhasimproperlypackaged the goods for transit because the nature of porcelain toilets is that they are susceptible to breakagefromrepeatedvibrationandshock.Thus,thesellerdidnotmakeapropercontractfor theirtransportation.Sincethesellerdidnotcomplywiththerequirementsof2504,thebuyer shouldbeadvisedthattheriskoflossdidnotpasstohimunder2319(1)(a). 36.(T/F)Thebuyermustpaythecontractpriceforconforminggoodsiftheyarelost ordamagedwithinacommerciallyreasonabletimeaftertheirriskoflosshaspassedto him. 36.True.2709(1)(a) 37. (T/F) If the cure of a nonconforming tender consists of replacing the non conforminggoodswithanewtender,theriskoflossremainsonthesellerwithrespect

Document3 tothenonconforminggoodsthatwereoriginallytendered. 37.True.2510(1)

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38.AshipmentcontractcallsforthesellerinL.A.toship10,000woodenbroomsbyrail tothebuyerinN.Y..Duetoamixupinthesellerswarehouse,10,000plasticbrooms areshippedinstead. Duringtransit,thetrainisderailedandthebroomsareburned. Duringdiscoveryforthesellersactiontorecoverthecontractpricefromthebuyer,the mistakecomestolight. Wheredoestheriskoflosslie? Withthesellerorwiththe buyer? Doesitmatterwhetherthebuyeractuallyknewthatnonconforminggoods wereshipped? 38.Theriskoflossremainswiththeseller.2510(1)providesthatwhereatenderordelivery ofgoods...give[s]arightofrejectiontheriskoftheirlossremainsontheselleruntilcureor acceptance.Sincethesellershippedplasticbroomsinsteadofwoodenbrooms,thebuyerhasa rightofrejection.Thisistruewhetherornotthebuyeractuallyknewofthenonconformity.It istherightofrejectionwhichcontrolstheriskofloss,notanactualrejection.Thus,theriskof lossremainsontheseller. 39. IndustrialLightingCo.purchased2,000lightfixturesfromGeneralElectric. The goods were delivered and accepted without inspection at Industrials warehouse. Duringasubsequentinspection,Industrialrealizedthatthefixturesweredefectiveand immediately made a successful revocation. However, before General Electric could returntopickupthefixturesforrework,theyweredestroyedbyvandalsinIndustrials warehouse. Industrial has sufficient insurance coverage to cover the loss. What amountoftheloss,ifany,isGEliablefor? 39.None.GEhasdeliverednonconforminggoods.However,theirriskoflosspassedtothe buyerunder 2510(1)whentheywereoriginallyaccepted.AlthoughIndustrialhasrightfully revoked, 2510(2) providesthatwherethebuyerrightfullyrevokesacceptancehemaytothe extentofanydeficiencyinhiseffectiveinsurancecoveragetreattheriskoflossashavingrested onthesellerfromthebeginning.Here,Industrialhassufficientinsurancetocovertheentire loss.Thus,thereisnodeficiencytochargebacktotheseller. 40.JenkinsagreedtopurchasegoodsfromSmedley,F.O.B.Smedleysplant.Thegoods in Smedleys plant are separated and stenciled with Jenkins name. Jenkins then telephones Smedley andrepudiates. Thegoodsaresubsequently destroyedby fire. AssumethatSmedleyhadnoinsuranceonthegoods.IfSmedleysuesJenkinsforthe purchaseprice,whatresult? 40. Under 2709, Smedley may recover the price of goods lost or damaged within a

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commerciallyreasonabletimeafterriskoftheirlosshaspassedtothebuyer. Furthermore, under 2510(3) where the buyer as to [1] conforming goods [2] already identified to the contractforsalerepudiates...beforeriskoflosshaspassedtohim,thesellermaytotheextentof [3]anydeficiencyinhiseffectiveinsurancecoveragetreattheriskoflossasrestingonthebuyer foracommerciallyreasonabletime.Here,thegoodsareassumedtobeconforming.Also,the goodshavebeenidentified,andthedeficiencyininsurancecoverageis100%. Thus,theonly issueiswhethertheriskoflosswasonthebuyerforacommerciallyreasonabletime.Ifso,then Smedleymayrecovertheentireamountbecausetheriskoflosswouldhavepassedtothebuyer. 41.Annettewishestobuyacarfromausedcardealer.WithregardtoaparticularGeo Metroonhislot,thedealertellsAnnette,Icanreallyrecommendthisbaby.Shecan reallygo. Iknowthatyouliveinahillyneighborhood,butthiscarcanclimbhills easily. Annette purchases the car using a contract that disclaims all implied warranties. Shortly after purchasing the car, it stalls on the hill up to her home. Assumingthattheimpliedwarrantydisclaimerwaseffective,wouldAnnettehaveany basistobringanactionforbreachofexpresswarranty? 41. Yes. 2313(1) providesguidanceonthecreationofexpresswarranties.Specifically,any affirmationoffactorpromiseordescriptionofthegoodswhichispartofthebasisofthe bargaincreatesanexpresswarrantythatthegoodswillconformtotheaffirmation,promise,or description.However,2313(2)statesthatanaffirmationmerelyofthevalueofthegoods...[or] thesellersopinionorcommendationofthegoodsdoesnotcreateawarranty. Thesalesman herehasmadeseveralstatements. Icanreallyrecommendthisbabyappearstobeaclear statementofopinionorcommendation,andthushasnolegaleffect. Shecanreallygoalso appearstobeanopinionorcommendation,althoughitmaybeviewedascreatinganexpress warrantythatthecaratleastruns.Thescopeofthewarrantycreatedbythatstatementaloneis probablyinsufficienttocoverbreakdownonahill.However,bystatingthatthecarcanclimb hillseasily,thesalesmanappearstohaveaffirmedordescribedthatthecarwillatleastclimb hills.Especiallygiventhecontextofthestatementthatheknowsherneighborhoodspecifically. ThestatementispartofthebasisofthebargainbecauseAnnettehearditduringnegotiations forpurchase. 42.(T/F)Asampleormodelwhichismadepartofthebasisofthebargaincreatesan expresswarrantythatthewholeofthegoodswillbeoffairaveragequality. 42.False.2313(1)(c). 43.(T/F)Goodstobemerchantablemustbeatleastadequatelycontained,packaged, andlabeled. 43.True.2314(2)(e)

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44. IndustrialIronWorks,Inc.isacommercialfoundry. DixielineLumberentereda contractwithIndustrial tomanufacturegarden tools(rakes,hoes,etc.)forresale by Dixieline.Industrialrecommendedthatthetoolsbemanufacturedfromlowgradeiron rather than steel, in order to save costs. However, Dixieline received numerous complaintsaboutthetoolsbreakingundernormalusebycustomers.Dixielinesuesfor breachofimpliedwarrantyofmerchantability.Industrialclaimsthatthereisnobreach becausethetoolshavenomanufacturingdefects.Hastherebeenabreach? 44.Yes.Industrialisamerchantwithrespecttogoodsofthatkindforirontools.Thus,under 2314(2)(c) goods,tobemerchantable,mustbefitfortheordinarypurposesforwhichsuch goodsareused.Here,theordinarypurposeofagardentoolisnormalusebycustomersintheir garden.Thetoolsinquestiondonotsatisfythatstandardbecauseofadesigndefect.Lowgrade ironistooweakfortheuseingardentools.Itdoesnotmatterwhetherthedefectwasadesign defectoramanufacturingdefect. Thus,therehasbeenabreachoftheimpliedwarrantyof merchantability. 45.ConsumerpurchasesFlounderFilletsfromthelocalretailgrocerystore,andis injuredbyaboneinthefillets.Thegrocerystoresprocedureistomerelyunpackthe goods from their shipping containers, and place them on the shelves. Does the consumerhaveaclaimagainstthegrocerystoreforbreachoftheimpliedwarrantyof merchantability? 45.Probablynot.Therearetwoquestionsoffacthere.First,thethresholdissueiswhetherthe groceryisamerchantwithrespecttogoodsofthekindunder2314.Under2104comment 2,thephrasewithrespecttogoodsofthatkindlimitsthegroupofmerchantsforthepurpose ofimpliedwarranties.Also,2314comment3impliesthatapersonisnotamerchantunlesshe makesmorethanisolatedsales. Here,however,thegrocerywouldseemtobehavemade repeatedsales.Acounterargumentisthatthegroceryisnotinspectingthegoods,andsohas nowayofpreventingtheharm. However,assumingevenifthegroceryisamerchant,then thereisthefurtherissueoffactastowhetherthepresenceofthebonesviolatestheimplied warrantyofmerchantability. Thisturnsonwhetheranyofthe 2314(2) standardshavebeen violated.Eventhoughaproductcausesharm,itismerchantableifitsqualityisconsistentwith these standards. Here, most fillets probably have bones, and it might be reasonable for a consumer to expect that a large bone would be present, particularly in the absence of any suggestionotherwisebythegrocery. Thus,thefishwouldseemtobefitfortheordinary purposeunder2314(2)(c). 46.(T/F)Goodsdonotbreachtheimpliedwarrantyoffitnessforaparticularpurpose unlesstheyaredefectiveinsomeway.

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46.False.2315 47.(T/F)Goodsdonotbreachtheimpliedwarrantyofmerchantabilityunlesstheyare defectiveinsomeway. 47.True.2314 48.JohnSmithownedaportableelectricliftforworkingonhiscar.Afterseveralyears ofuse,thehydraulicfluidhadmostlyleakedoutduetoleakingbythesealsunder normaluse. JohnwenttoKragenAuto,whereheoriginallypurchasedthelift,and askedforassistanceinselectingareplacementhydraulicfluidforhiselectriclift.The storeclerk handedhimabottleofhydraulicfluid,andJohnmadethereplacement. However, due to the nature of the replacement fluid, which was not designed for electriclifts,theliftfailedanddamagedhiscar.WhatcauseofactionmightJohnhave againstKragen. 48.Johnprobablyhasabreachoftheimpliedwarrantyoffitnessforaparticularpurposeunder 2315. 2315 providesawarrantyif[1]thesellerhasreasontoknow[2]oftheparticular purposeforwhichthegoodsarerequiredand[3]thatthebuyerisrelyingonthesellersskillor judgmenttoselectorfurnishsuitablegoods.Here,Johntoldthesellerofhisparticularpurpose ofneedinghydraulicfluidforhiselectriclift.Furthermore,Johnreasonablyreliedonthesellers judgmentinselectingthepropertypeoffluid. 49. BenMillerpurchasedanewandexpensiveWhirlpoolgasrangehomeusefrom CoronaAppliances,thelocalappliancestore.Therangemalfunctionedandexploded during normal use. Although no persons were injured, the Millers nextdoor neighborshouseburneddown. Bensnextdoorneighbor,Charlie,bringsanaction againstCoronaandWhirlpoolforbreachofimpliedwarrantyofmerchantability,and fordamagestohishouse.WhatmustCharliearguetorecover? 49.Under2314(2)(c)therangeviolatestheimpliedwarrantyofmerchantabilitybecauseitis notfitfortheordinarypurposesforwhichsuchgoodsareused. However,therealissueis whether Charlie can recover 1)for thedamages tohisproperty(horizontalprivity),and 2) againstaremotemanufacturer(verticalprivity).Hopefully,Charliesjurisdictionhasadopted Alternative C to 2318 concerning horizontal privity. Alternative C provides that an impliedwarrantyextendstoanypersonwhoisinjuredbybreachofthewarranty,Provided thattheymayreasonablybeexpectedto...beaffectedbythegoods.Thus,Charliewouldneed toarguethathewasreasonablyexpectedtobeaffectedbythegoodstobeabletorecoverfor damages to his house from at least the local Corona Appliance store because of horizontal contractualprivity.WhetherBencanrecoveragainstWhirlpooldependsonwhetherthelocal jurisdiction requiresabsolute vertical privity. Charlies bestargumentis thatforwarded in

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RandyKnitwear,thatthemanufacturerreliessoheavilyonadvertisingthatitwouldbeunfair forthemanufacturer(whoisnotaretailer)tobenefitsubstantiallyfromtheadvertisingthat inducesthelocalretailsales,butthenclaimlackofprivityiftheproductfails. 50. (T/F) Thedisclaimerofanexpresswarrantyiseffectivetotheextentthatitis inconsistentwiththelanguageoftheexpresswarranty. 50.False.2316(1) 51.(T/F)Adisclaimeroftheimpliedwarrantyoffitnessforaparticularpurposemust beinaconspicuouswriting. 51.True.2316(2). 52. (T/F) A disclaimer of the implied warranty of merchantability must be in a conspicuouswriting. 52.False.2316(2) 53.PacificSurfShopwishestobuy10surfboardsfromBillMinard,alocalsurfboard shaper.Duringcontractnegotiationsoverprice,deliveryschedule,etc.,Billinsiststhat Pacificcomebyhisshapingroomandpreinspecttheboardstomakesurethattheyare whatPacificwants. Pacificrefusestodosoclaimingthatitdoesnothavetime. The contract for sale of the surfboards is signed, and the boards are delivered on time. Uponreceiptoftheboards,Pacificisunabletosellthembecausetheyareshapedforbig waves, and Pacifics customers mostly surf thesmaller local waves. Pacifictries to returntheboards,butBillwillnottakethemback.Pacificthensuesforbreachofthe impliedwarrantyoffitnessforaparticularpurpose.Whatresult? 53. 2315providestheimpliedwarrantyforfitnessforaparticularpurpose.Here,itappears thatBillhadreasontoknowoftheparticularpurposeforwhichPacificorderedtheboards,i.e. for resaletolocalsurfers. ItalsoappearsthatPacific reliedonBills skillandexpertisein shaping the boards suitably. However, 2316(3)(b) extinguishes implied warranties as to defectswhichandexaminationoughttointhecircumstancestohaverevealedtohimwhen thebuyerbeforeenteringthecontract...hasrefusedtoexaminethegoods.Here,Pacificrefused toinspectthegoodsbeforecontractformation.Thus,thereisnoimpliedwarrantyapplicableto thesale,andPacificwillnotbeabletorecoverunderthattheory. 54. Consolidated Agricultural Supplies, Inc. manufactures tractors. Jim the farmer purchasedacustommadecropharvesterfromConsolidated.Inthepurchasecontract, conspicuouslyworded, wasastatementthatreadConsolidatedwarranties thatthe

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tractorwillbefreefromdefectsinmaterialandworkmanshipfor5years.Thebuyers exclusiveremedyfordefectsinmaterialandworkmanshipduringthewarrantyperiod is repair or replacement of the defective part or assembly. Consolidated hereby disclaimsallotherexpresswarrantiesandallimpliedwarranties.Consolidatedbears noliabilitybeyondtheexclusiveremediesstatedherein,anddisclaimsliabilityforany and all consequential damages. Jim signed the contract and took delivery of the tractor.Thetractorfailedduetoalatentdefectintheengineduringthefirstseasons harvest,causingJimtolose1/2ofhiscropsduetooverripeningwhilehewaitedfor Consolidatedtofixthetractor.Jimbringsanactionfordamagesforthelossofhiscrops duetobreachofexpresswarranty.Whatresult? 54. Consolidatedhasexpresslywarrantedunder 2313 thatthematerialswillbefreefrom defects, and there appears to be a plain breach of that warranty. 2719 provides for the contractualmodificationorlimitationofremedies. Specifically, 2719(1)(a) providesthatthe sellermaylimitoralterthemeasureofdamagestorepairandreplacementofnonconforming goodsorparts.Here,thecontractexpresslystatesthatlimitedremedy.2719(1)(b)provides that iftheremedyis agreedtobeexclusive,thenitisthesoleremedy. Here,thecontract expressly states that it is the exclusive remedy. Furthermore, 2719(3) states that consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.Here,Consolidatedhasexcludedconsequentialdamages.Thus,theonlyissue is whether the exclusion is unconscionable. 2719(3) provides the further guidance that limitation of damages where the loss is commercial is not prima facie unconscionable. Assuming that bothparties have relativelyequal bargaining power,or atleastthata price concession was made for the disclaimers, Jim will probably not be able to recover the consequentialdamagestohiscrops. 55.AndybuysanewjetskifromthelocalKawasakidealership.Andytakesthejetski homewithhim.Thenextday,duringAndysfirstuseofthejetski,itbreaksdown almostimmediatelyinthemiddleofthebay.Andyreturnsthejetskitothedealerand demandshismoneyback.Thedealerrefusestorefundhismoney,claimingthathehas acceptedthejetski,andthusisliabletopaythepurchaseprice.HasAndyaccepted? 55. No. Under 2606, acceptance of the goods does not occur until after a reasonable opportunitytoinspectthegoods[thebuyer]signifiestothesellerthatthegoodsareconforming or thathe willtakeorretain theminspiteofthenonconformity. Here,therewasnot a reasonableopportunitytoinspectthegoods. Althoughitisnotclearhowlongareasonable opportunityis,itisclearthatitshouldincludetestdrivingthejetski.Thus,Andyhasnot acceptedthejetski. 56.(T/F)Whereatenderhasbeenaccepted,thebuyermustnotifythesellerwithina reasonabletimeofanybreachthatthebuyershouldhavediscoveredorbebarredfrom

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57.(T/F)Ifthegoodsortenderofdeliveryfailinanyrespecttoconformtothecontract thebuyermayrejectthewholeofthegoodsprovidedthatsuchnonconformitycauses materialdamagetothebuyer. 57.False.2601. 58.HartzSeedCo.isasupplierofsoybeans. ColmancontractedwithHartzforthe deliveryofonetonofsoybeanseeds,fordeliveryatColmansplant. Afterdelivery, Colmanbegantheprocessofinspectingthesoybeanseedsforquality.Theinspection testingprocedureisinvolved,andusuallytakesseveralweekstocompletebecauseit involvesgrowingatleastsomeoftheseeds.Afteronemonth,Colmannoticedseveral defectsintheseedlingsthatweregrowing.ColmanimmediatelynotifiedHartzofthe defects,andrejectedtheentirelot.Hartzcomestoyouforadviceconcerningapossible actionforbreachagainstColman. Specifically,HartzasksyouwhetherColmanhas acceptedtheseeds,orproperlyrejectedtheseeds.HowdoyouadviseHartz? 58.Tomakeaneffectiverejection,thebuyermusthavehadtherighttorejectunder 2601. However,thatstandardisfairlylowinthatthebuyerhastherighttorejectthewholeifthe goodsfailinanyrespecttoconformtothecontract.Here,theseedsaredefective,andthus Colmanhadtherighttoreject.Colmanmusttakesomeaffirmativeactiontoexercisethatright ofrejection.Under 2606(1)(b),acceptancemayoccurifthebuyerfailstomakeaneffective rejection...butsuchacceptancedoesnotoccuruntilthebuyerhashadareasonableopportunity toinspectthegoods.Furthermore,under2602therejectionofthegoodsmustoccurwithina reasonabletimeaftertheirtenderordelivery,andtherejectionisineffectiveunlessthebuyer seasonablynotifiestheseller.Thus,theissuehereiswhethertherejectionandnoticeoccurred withinareasonabletime.Duetotheinvolvednatureoftheinspectionprocess,Colmandidnot haveareasonableopportunitytoinspectthegoodsunder2606(1)(b)untilitgrewsomeofthe seedlingsbecauseitcouldnotdiscoverthedefectuntilthen.Thus,Hartzshouldbeadvisedthat Colmandidnotaccept,butrathermadeaneffectiverejectionoftheseeds. 59.(T/F)Thebuyersfailuretostateinconnectionwitharejectionaparticulardefect which is ascertainable by reasonable inspection precludes him from relying on the unstateddefecttojustifyrejectionwherethesellercouldhavecuredthedefectifthe buyerhadstateditseasonably. 59.True.2605

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60. (T/F) Ifthetimeforperformancehasnotyetexpired,thesellermayseasonably notifythebuyerofhisintenttocure,andthenmakeaconformingdeliveryprovided thatthesellerhadreasonablegroundsforbelievingthatthenonconformingtender wouldbeacceptable. 60.False.2508(1) 61. Paulbuysatoasteratthelocalappliancestore. Thetoasterisinabox,factory sealed,andunopened.WhenPaulreturnshomeandplugsinthetoaster,itshortsout. Paulreturnsthetoastertothestoreanddemandshismoneyback.Theappliancestore manager tells Paul that he will fix the toaster by replacing a part. Paul refuses, demanding his money back. Does the appliance store have the right to repair the toasterinsteadofrefundingthemoney? 61.Yes. AlthoughPaulhastherighttorejectunder 2601,andhastakenstepstorightfully rejectunder 2602 (andthushasnotacceptedunder 2606 becauseofhisrighttoinspectthe goodsbeforeacceptance),theappliancestoremaysuspendPaulsrighttorejectforafurther reasonabletimeunder2508(2).Specifically,2508(2)requiresthatthesellerhavereasonable groundstobelievethatthetoasterwouldhavebeenacceptable,andthatheseasonablynotify thebuyerofhisintenttocure.Here,assumingthattheappliancestoredidnothavearashof defectivetoasters,ithasreasonablegroundstobelievethatatoasterinafactorysealedunopened box would be acceptable to the buyer. Thus, the appliance store is entitled to the further reasonabletimetocurethedefectivetoasterbyrepairing. Itwouldnotaffectthevalueofthe toasterifithadasinglepartreplaced,andthusrepairingitwouldmake itconformto the contract. 62.(T/F)Inaninstallmentcontract,thebuyerhastherighttorejectanyinstallment whichisnonconformingifthenonconformitysubstantiallyimpairsthevalueofthat installmentandcannotbecured. 62.True.2612(2). 63.(T/F)Inorderforasellertohavetherighttocureadefectivetenderofaparticular installmentinaninstallmentcontract,thesellermusthavehadreasonablegroundsto believethatthetenderwouldhavebeenacceptable. 63.False.2612(2) 64. (T/F) Inashipmentcontract,thebuyerhastherighttorejectthegoodsifthe tenderordeliveryfailsinanymannertoconformtothecontract.

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65.BillorderedanairplanefromFullertonAircraftforhisownpersonaluse.Billtook deliveryoftheaircraft,andflewitforseveralmonthsbeforedeterminingthatitcaused himjointpainduetovibration.Billwishestoreturntheairplaneandeitherhavethe vibrationdampened,orgetarefund.Inthepurchasecontract,nomentionismadeof particular vibration specifications, and a test of the aircraft shows that it does not experiencemorethanannormallevelofvibration.Billhascometoyouforadviceon whethertoproceedwithanactionforbreachofcontract.HowshouldyouadviseBill? 65.Under2606(b),Billhasacceptedtheairplanebecausehehasfailedtomakeaneffective rejection(i.e.hehasnotnotifiedthesellerinareasonabletimeafterdeliveryunder2602)after areasonableopportunitytoinspectit. Here,Billhasflowntheaircraftforseveralmonths, andthatisprobablybeyondareasonabletimeforinitialrejection.Thus,Billsonlyoptionisto attempt to revoke. 2608(1) provides that a buyer may revoke if the nonconformity substantiallyimpairsitsvaluetohim.Here,Billmaybeoverlysensitivetovibration,sothe value of the aircraft may actually be substantially less to him personally. However, this subjective standard only applies if there is a nonconformity in the first place, which is determinedbyreferencetothecontract.Here,thecontractissilentonvibration,andsothereis noexpresswarranty. Thereisanimpliedwarrantyofmerchantabilityunder 2314,butthat onlyrequiresthatthegoodsbefitfortheirordinarypurposeorpasswithoutobjectioninthe trade. Sincetheairplaneonlyhasanormallevelofvibration,itdoesnotbreachtheimplied warrantyofmerchantability.Also,thereisnoimpliedwarrantyoffitnessunder2315forBills particularsensitivitybecausethereisnothinginthefactstoshowthatthesellerhadreasonto know of Bills condition at the time of contracting. Thus, there appears to be no non conformitywhichwouldgiverisetoarighttorevoke. 66. Unique Systems, Inc. develops and manufactures hair spray. Zotos, Inc. is a distributorofcosmeticproducts.ZotosandUniqueenterintoacontractforUniqueto developanewhairspray,andforZotostopurchasealargequantityofthathairspray forresale.Aftercontractformation,butpriortodeliveryofthenewhairspray,Zotos decidesthatitwishestoperformamarketabilitytestofasmalllotofthehairsprayto determinetheanticipateddemandbeforecommittingtoacceptingdeliveryofthewhole amount. Althoughthecontractdoesnotincludeanysuchprovision,Zotosmakesits intention not to comply with the contract unambiguously clear to Unique. Unique approachesyouconcerningitsrightsunderthecontract.Specifically,Uniqueasksyou whetheritmayimmediatelystopproductionofthisnewhairsprayandwithholdany deliverywithoutbreachingthecontract.HowdoyouadviseUnique? 66. 2610 provides that when either party repudiates the contract with respect to a performancenotyetduethelossofwhichwillsubstantiallyimpairthevalueofthecontractto

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theother,theaggrievedpartymay...suspendhisownperformance.Here,Zotoshasrepudiated because it has clearly indicated its intention not comply with the contract by unilaterally insertingtheadditionaltestingrequirement.Zotosobligationunder2301istoacceptandpay inaccordancewiththecontract.Clearly,thisrepudiationwillsubstantiallyimpairthevalueof thecontracttoUnique.Thus,Uniqueisentitledtosuspenditsownperformancebystopping productionandwithholdinganydelivery. 67.(T/F)Ifarepudiatingpartytimelyretractstherepudiation,theaggrievedpartymay stilldemandadequateassurancesofperformanceunder2609. 67.True.2611(2). 68.S.J.Groves&SonsCo.isageneralconstructioncontractor.WarnerCo.isaconcrete supplier. GrovesandWarnerenterintoaninstallmentcontractforWarnertosupply Groves weekly requirements of concrete during its construction of a building. On severaloccasions,Warnersdeliveriesareshortbecauseitisunabletokeepupwith Grovesconstructionschedule. Thisresultsinheavycostsofovertimeandschedule slippagetoGroves.Groveshascometoyouseekingadvice.Specifically,Groveswishes toknowwhetheritcancancelthecontractwithWarner,andinsteadenterintoanew andsimilarcontractwithadifferentsupplieratthesameprice. Howdoyouadvise Groves? 68. Installment contracts are governed by 2612. 2612(3) provides that whenever non conformityordefaultwithrespecttooneormoreinstallmentssubstantiallyimpairsthevalueof thewholecontract,thereisabreachofthewhole.Here,morethanoneofthedeliverieshasbeen short.Also,sinceGroveshasincurredconsiderableexpensesandscheduleslippageduetothe shortdeliveries,thevalueofthewholecontractissubstantiallyimpaired. Thus,Grovesmay treattheentirecontractasbeingbreachedandcancelunder 2711(1).Sincethenewcontract wouldbesimilarandatthesameprice,thereisnoappearanceofbadfaithforGrovestocancel thecontract.However,Grovesmustbecarefulunder2612(3)nottoacceptanyfurthernon conforming installments without seasonably notifying of cancellation, otherwise, he may reinstatethecontract.However,sinceitismoreclearthatreasonablegroundsforinsecurity havearisenthanitisclearthatthevalueofthewholecontractissubstantiallyimpaired,asafer coursemaybeforGrovestodemandadequateassurancesofperformanceunder 2609. For example,Grovesmayaskforpaymentforthelossesalreadyincurredandaperformancebond againstfuturelosses.FailureofWarnertoprovideadequateassurancewithinareasonabletime wouldberepudiationunder2609(4). 69.(T/F)Wherethebuyerrightfullyrejects,thenwithrespecttothegoodsinvolved, thebuyermaycancelandwhetherornothehascanceled,mayrecoversomuchofthe priceashasbeenpaid.

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69.True.2711(1) 70.A,inNewYork,contractstobuylockersfromBinV.A.for$80,000F.O.B.sellers plantinVA. Thebuyer,A,hadalreadydeterminedthatshippingcostsbetweenVA andNYwere$7,000,andthatalocalcontractorwouldinstallthemfor$2,000,bringing thetotalcosttoAto$89,000installed. B,theseller,repudiated. Afterincurring$50 longdistancephonebills,AcoveredunderacontractwithalocalproviderCthatcost $92,000deliveredandinstalled.WhatareAsdamagesagainstB? 70. 2712(1) provides that the buyer may cover in good faith any reasonable purchase of...goodsinsubstitutionforthoseduefromtheseller.Here,itappearsthatthecovercontract wasareasonablesubstitutionbecausetheywerebothforlockers.Under2712(2)thebuyermay recover the difference between the cost of cover and the contract price, together with any incidentalorconsequentialdamages...butlessexpensessavedinconsequenceofsellersbreach. 2715(1) defines incidental damages expenses reasonably incurred...in connection with effectingcover.Thus,thedifferencebetweenthecostofcoverandthecontractpriceis$92,000 $80,000=$12,000.Theexpensessavedinconsequenceofthesellersbreachweretheshipping and installation costs of $7,000+$2,000=$9,000. Thus, the buyer may recover $12,000 $9,000=$3,000 on the contract, plus $50 of incidental damages for the long distance bill incurredincovering. 71.Seller(NY)andBuyer(LA)enterintoacontractforthesaleofapotholefilling material.Thecontractpriceis$2,000andtheshippingexpensefromNYtoLAis$100. TheshipmentdatebythesellerisSeptember1st,atwhichtimethepriceinNYhasgone upto$2,100andtheprice inLAhasgoneupto$2,200. Thearrival dateinLAis September15th,atwhichtimethepriceinNYhasgoneupto$2,300,andthepricein LAhasgoneupto$2,400. (a)AssumethecontracttermsareF.O.B.NYandthatthegoodsareshippedproperly. What are the buyers damages if buyer discovers nonconformity upon receipt inspectionandproperlyrejects? (a)Under2713(1)providesthatthedamagesarethecontractmarketdifferential,togetherwith incidental and consequential damages, less the amount saved by the breach. The time of measuringthemarketpriceisthetimethebuyerlearnedofthebreach. Here,thebuyer learnedofthebreachonthedateofarrival. 2713(2) providesthatthemarketpriceistobe determinedinthecasesofrejectionafterarrival...,asoftheplaceofarrival.Here,thereisa rejectionafterarrival,soLAistheplaceofthemarket.ThemarketpriceinLAonthedateof arrivalis$2,400. Thus,thedamagesare$2,400(mkt.)$2,000(contract)$100(expenses saved)=$300.

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(b)AssumethatthecontracttermsareF.O.B.NY,butthatthegoodsarenotshipped. Whatarebuyersdamagesifbuyerisnotawareofthenonshipmentuntilhisinquiry onthearrivaldate? (b)2713(1)providesthatthemarketpricefordamagesistobemeasuredatthetimethebuyer learnedofthebreach. Here,thatisthedateofarrival. 2713(2) providesthattheplacefor measuringmarketpricedamagesistheplacefortenderunlessthereisarejectionafterarrival. HeretheplacefortenderisN.Y.becausethisisashipmentcontractunder2319(1)(a).Thus, themarketdamagesaretobemeasuredfromtheNYmarketonthedateofarrival. Theyare $2,300(mkt.)$2,000(contract)=$300.Thereisnodeductionforthecostoftransportation, becausethathasnotbeensaved. Furthermore,thereisnoadditionforcostoftransportation, becausethatisacostthebuyerwouldhaveborneundertheoriginalcontractanyway. (c)AssumethecontracttermsareF.O.B.LA(destinationcontract)butthegoodsarenot shipped.WhatarethebuyersdamagesifBuyerisnotawareofthenonshipmentuntil hisinquiryonthearrivaldate? (c)Like(b)above,themarketpriceismeasuredonthedateofarrival,i.e.whenthebuyerlearned ofthebreach. However,sincethiswasashipmentcontractunder 2319(1)(b),theplacefor tenderunder 2713(2) istheplaceofarrival. Thus,themarketdamagesaretobemeasured fromtheLAmarketonthedateofarrival.Theyare$2,400(market)$2,000(contract)$100 (expensesaved)=$300. 72.ArthursPawnShopsellsanelectricguitartoJimfor$1,000. Arthurspecifically warrantsthattheelectricguitarisagenuineLesPaulmodel,andnotacopy. The guitarhasadefectivepickupwhichfailsaboutafteraboutaweek.Jimtakestheguitar toalocalrepairshoptohaveitfixed,andfindsoutthattheelectricguitarisactuallya copy,andthusisonlyworthabout$400.Nevertheless,Jimdecidestokeeptheguitar andfixit.Therepairscost$150.WhatdamageswouldJimbeentitledto? 72. Arthurmadeanexpresswarrantyunder 2313(b) thattheguitarwasnotacopy. That express warranty was breached. Furthermore, there is abreach of the implied warranty of merchantabilityunder2314(2)(c)becauseanelectricguitarwithabrokenpickupisnotfitfor theordinarypurposeofelectricamplification. Thus,Jimwouldhavearemedyforbreachof warrantyunder2714(2)whichprovides,themeasureofdamagesforbreachofwarrantyisthe differenceatthetimeandplaceofacceptancebetweenthevalueofthegoodsacceptedandthe valuetheywouldhavehadiftheyhadbeenaswarranted.Thegoods,asaccepted,areacopyof aguitarwithastreetvalueof$400,inneedof$150ofrepair.Thus,thegoodsasacceptedare worth$400$150=$250.Thegoods,iftheywereaswarranted,wouldbeworththepurchase priceof$1,000.Thus,Jimisentitledtodamagesof$750.

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73. (T/F) A buyer may recover consequential damages resulting from the sellers breach including any injury to person or property proximately resulting from any breachofwarranty,providedthattheseller,atthetimeofcontracting,hadreasonto knowthatthegoodsweredangerous. 73.False.2715(2) 74.Hayes,Inc.manufacturesandsellscomputermodems.Earthnet,Inc.isaninternet serviceproviderthatrequiresalargeandcomplexmodemtoserveitscustomers.Due to high demand, Earthnet is planning to expand its customer base from 10,000 subscribers to 15,000 subscribers. 10,000 of the subscribers can be handled by the existingmodemsthatEarthnetalreadyhas. However,inordertoaccommodatethe additional5,000subscribers,Earthnetcontracts withHayes topurchase 5additional modemsatacostof$2,000each. ThecontractspecifiesadeliverydateofMarch1st. Earthnetspends$1,000inadvertisingduringthemonthofFebruaryannouncingthe planned service, andisconfidentthatitwillbe ableto sign upanadditional1,000 subscribersinthemonthofMarchafterinstallationofthenewmodems.OnFeb.1st, HayescallsandrepudiatesstatingthatitisunabletomeettheMarch1stdeliverydueto abacklogoforders,butwouldbeabletodeliverbyApril1st.AsofFeb.1st,Earthnet wouldbeabletocoveratacostof$2,300permodemandgetthereplacementmodems by March 1st, but it chooses to wait for the later delivery. After the modems are delivered and installed, Earthnet brings an action for the lost revenues from an anticipated1,000subscribersoverthemonthofMarch($20,000),thecostofadvertising duringthemonthofFebruary($1,000),andthecostofadvertisingduringthemonthof March($1,000).Which,ifany,ofthesecostsisrecoverable? 74. Under 2610, the buyer may only await performance by a repudiating party for a commerciallyreasonabletime.Here,therepudiationoccurredamonthbeforetimefordelivery. Giventhatcoverwasimmediatelyavailable,itwouldprobablybeacommerciallyunreasonable timetowaitamonthandrackupsuchsubstantialdamages.Under2711(1),wheretheseller repudiates,thebuyermayeithercoverunder2712orrecovercontractmarketdamagesunder 2713, and in either case, get incidental and consequential damages under 2715. Since Earthnetchosenottocover,hemustacceptthecontractmarketdamagesof$2,300$2,000= $300permodemtimes5modems=$1,500,plusincidentalandconsequentialdamages.Asto theincidentalcostofadvertisingduringthemonthofFebruary,thatcostdidnotresult[]from thesellersbreachbecauseitwouldhavebeenincurredregardlessofthebreach,andthuscan notbecountedasdamagesunder2715(1).Astothecostofadvertisingduringthemonthof March,itdidnotresultfromthesellersbreacheitherbecauseifEarthnethadcovered,itwould nothavebeennecessary.Finally,theconsequentialdamagesof$20,000couldhavereasonably [been]preventedbycoverandsolikewisearenotcountableunder2715(2)(a).Assuch,the

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total measureofdamagesiswhatEarthnetwouldhaverecoverediftheyhadmadeacover, becausetheirwaitwasunreasonablylong. 75. CharliesChevrolet,Inc.contractstosellSedmakalimitededitionIndyPaceCar Corvette. Fortheyearofinterest,therewereonly10ofthesemodels made,which includefancypaintandtrimwork.Aftercontractformation,andwhilethecarisbeing shippedacrossthecountrytobedeliveredtothelot,CharliesChevroletreceivesan orderfromanothercustomerwhowillpay$20,000moreforthecar.Charliessellsthe car to theothercustomer, andoffers Sedmak arefund ofhis money plus $5,000 in liquidateddamages.Sedmakrefusesthemoneyandinsistsonthecaritself.Sedmak hascometoyouseekingassistance.HowdoyouadviseSedmak? 75.2716(1)providesthatspecificperformancemaybedecreedwherethegoodsareuniqueor inotherpropercircumstances.Here,thegoodsarealimitededitioncar.Thecoderejectsthe previous common law requirementthatthegoodsbe oneofakind. Specifically, the code commentsprovidethatmarketrealities,suchasinabilitytocover,arearelevantconsideration andstrongevidenceofpropercircumstancesforspecificperformance.Thus,althoughSedmak wouldbe$5,000richerifheacceptedtheliquidateddamages,hewouldalsonothavethecarheis entitledtobycontract,andnotbeabletopurchaseonelikeittocover.Itwouldlikelycostmore than$5,000moretoconvinceoneoftheother9ownerstopartwiththeircar,asisevidencedby the $20,000 higher bid locally. Thus, this would probably be a proper case for specific performance,especiallysincethebadfaithofCharliesputsthebalanceofequitystronglyin Sedmaksfavor. 76.ApexOilCo.producesandsellsindustrialgradeoil. TheBelcherCo.contracted withApextobuy10,000barrelsofoilat$50perbarrel.Thecontractdateofdelivery wasJune1st.Thedaybeforethedateofdelivery,BelchercalledApextorepudiatethe contract. OnJune1st,Apexsold10,000barrelsofoiltoanothercustomerat$51per barrel.Twomonthslater,onAugust1stApexsold10,000barrelsofoiltoyetanother customerfor$48perbarrel.ApexbringsabreachofcontractactionagainstBelcherfor thedifferencebetweenthecontractpriceof$50perbarrel,andtheAugust1stresale priceof$48perbarrel.IsthisthepropermeasureofApexsdamages? 76. No. Under 2703(d), when a buyer breaches,the seller may resell and recover resale damagesunder2706. 2706providesthatthemeasureofdamagesisthedifferencebetween theresalepriceandthecontractpriceprovidedthattheresaleismadeingoodfaithandina commerciallyreasonablemanner.2103(1)(b)providesanobjectivestandardofgoodfaithfor merchants, in that they must observe reasonable commercial standards of fair dealing. Furthermore,2610providesthatwheneitherpartyrepudiates,theotherpartymayonlyawait performanceforacommerciallyreasonabletime. Inthiscase,sincethemarketpricewas higheronthecontractdateofdelivery,butloweronthedateofclaimedresale,itisclearthat

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Apexhasnotactedinacommerciallyreasonablemanner.Furthermore,inavolatilemarket suchasoil,waitingtwomonthstoresellisnotacommerciallyreasonabletime.Thus,Apex hasviolatedgoodfaithandcommercialstandardsinwaitingsolongtoresell,sothatitcould speculateonthemarketatBelchersexpense.Themorereasonablemeasureofdamageswouldbe todefinethe10,000soldonJune1stat$51perbarrelastheresale.ThiswouldgiveApexno damages(exceptincidentaldamages,ifany)becauseofthehighermarketpriceontheresaledate. 77.(T/F)Inthecaseofarepudiationbythebuyer,thesellersdamagesaredetermined accordingtothemarketpriceatthetimethesellerlearnedofthebreach. 77.False.2708(1). 78.PacificMarine,Inc.isaboatretailer.Pacificcontractstosella20sailboattoFred Jones for $25,000. However, Fred repudiates before he is to take delivery. Pacific promptlyresellsthesameboattoShirleyWalkerfor$25,500.Atthetimeoftheresale, Pacific had at least two other identical boats on its lot. Pacific purchased the boat wholesalefor$20,000. PacificbringsanactionfordamagesforFredsbreach. Fred insiststhatsincethesameboatwasresoldfor$500more,thatPacificdoesnothaveany damages.IsFredcorrect? 78. No. Fred appears to be calculating damages by 2706(1) which provides the standard measure of damages for resale as the resale price minus the contract price (plus incidental damagesandminusexpensessaved). However,duetothenatureoftheseller,thisisnota standard resale transaction. 2708(2), if the standard measure of damages (i.e. contract market)isinadequatetoputthesellerinasgoodapositionasperformancewouldhavedone thenthemeasureofdamagesistheprofit...thesellerwouldhavemadefromfullperformanceby thebuyer.Here,becausePacificwouldlikelyhavesoldtheadditionalboattoShirleyregardless ofFredsbreach,Pacificsrealinterestinthetransactionwastheprofitgeneratedbythesale. Thus Pacifics real loss is the loss of profit from Freds sale. As such, Pacific may be characterizedasalostvolumeseller.Sincethestandardmeasureofdamageswouldnotput PacificinasgoodapositionasitwouldhavebeenhadFredtakendelivery,itisentitledtothe profitof$5,000thatitwouldhavemadefromthesaletoFred. 79. CreativeComputersmanufacturesandsellscustomcomputersystems. AllDay Car Rental places a custom order with Creative for the purchase of 10 specially designed computer terminals, and 1 central server computer. The contract price is $10,000.TofillthisorderCreativebeginstoassemblevariouscomponentsandpartsto buildthesystem.ThetotalcostinpartsandlabortoCreativeis$5,000forafinished systemlikethisone. WhenCreativeisabouthalfwaydonewiththeorder,AllDay calls to repudiate. Whatare Creatives damages ifitcompletes manufacture of the computersandresellsthesystemtoanothercustomerfor$9,000?WhatareCreatives

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damagesifitdecidestostopmanufactureandsellthepartiallyassembledsystemfor $4,000scrapvalueafterexpending$2,000inpartsand$1,500inlabor? 79.Under2704(2),wherethegoodsareunfinishedanaggrievedsellermayintheexerciseof reasonablecommercialjudgment...eithercompletethemanufacture...orceasethemanufacture andresellforscraporsalvagevalue.Under2706(2),itisnotnecessarythatthegoodsbein existenceinordertoperformaproperresale.Thus,ifCreativeresellsthefinishedproduct,it mayrecoverresaledamagesof$1,000under2706(i.e.contractpriceresaleprice).However, if Creative decides to sell the scrap, then the standard measure of damages (market price contractpriceof2708=$1,000)wouldbeinadequatetoputthesellerinasgoodapositionas performance would have done, because performance would have given Creative a profit of $5,000.Thus,Creativeisentitledtothelostprofitsof$5,000under2708(2). 80. MagnaLite,Inc.ofNewYorkmanufacturesandsellsflashlights. SDG&EofSan Diegoentersintoacontracttopurchase1,000flashlightsfromMagnaLite.Thecontract provides shipment terms of F.O.B. sellers plant. MagnaLite properly ships the flashlightstoSDG&E.SDG&Eproperlyrejectsthemunder2602uponarrivalduetoa nonconformity reported by one of their receiving inspectors. However, when the flashlightsgetbacktoMagnaLite,itdiscoversthattherejectionwaswrongfulbecause theallegednonconformancedidnotactuallyexist(itwasoperatorerrorbySDG&Es inspector).MagnaLitethereaftersues,claimingthattherejectionwaswrongful,andso SDG&Eisliableforthecontractprice.IsMagnaLitecorrect? 80. No. Under 2709(1)(a), a seller may recover the contract price of goods accepted. However,hereSDG&Ehasproperlyrejected,eventhoughithasnotrightfullyrejected.Thatis tosaythatalthoughSDG&Edidnothavetherighttoreject,itdidfollowtheproceduresof2 602. Thus,SDG&Ehasprecludedacceptanceunder 2607(2),andaccordingto 2602(3) the sellersrightswithrespecttosuchwrongfullyrejectedgoodsaregovernedby 2703. 2703 providesthatinapropercase,thesellermayrecoverthecontractpriceunder 2709,however sincethegoodswerenotaccepted,thisisnotapropercaseforrecoveryofcontractprice. 81. Assume the same facts as Question 80 above, except that the flashlights were destroyedduringoriginalshipmentfromMagnaLitetoSDG&E(i.e.theyneverarrived). WouldMagnaLitebeentitledtothecontractprice? 81. Yes.Under 2709(1) thebuyerisliableforthepriceofgoodslostordamagedwithina commerciallyreasonabletimeafterriskoftheirlosshaspassedtothebuyer.Under2319(a), theF.O.B.termherecreatesashipmentcontract.Thus,under2509(1)(a),sincethegoodswere notrequiredtobedeliveredataparticulardestination,theriskoflosspassestothebuyerwhen thegoodsaredulydeliveredtothecarrier.ThefactsstatethatMagnaLiteproperlyshippedthe flashlights,andsotheriskoflosspassedtothebuyeruponplacingthemwiththecarrier.Thus,

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82.(T/F)Whenabuyerfailstopaythepriceasitbecomesdue,thesellermayrecover, togetherwithanyincidentalandconsequentialdamages,thepriceofgoodsaccepted. 82.False.2709(1)(incidentaldamagesonly).

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