End of Chapter Questions for Text: LA450 Chapters 19, 18, 20, 21, 22, 23.Chapter 19: 1. In the Quake case, the appellate court ruled: (a) The Letter of Intent was a valid contract. (b) Letters of Intent are never a valid contract. (c) A Letter of Intent can be a valid contract, but this one was not. (d) The trial court had to determine if the Letter of Intent was a valid contract. Answer: D. 2. In the Cipriano case: (a) The jury decided in favor of Cipriano because arson is vandalism. (b) The jury decided against Cipriano because arson is not vandalism. (c) The judge dismissed the motion for summary judgment because the contract was ambiguous. (d) The judge granted the motion for summary judgment because the contract was not ambiguous. Answer: C. 3. In the case of a scrivener’s error: (a) A court will not reform the contract. The parties must live with the document they signed. (b) A court will reform the contract if there is clear and convincing evidence that the clause in question does not reflect the true intent of the parties. (c) A court will reform the contract if a preponderance of the evidence indicates that that the clause in question does not reflect the true intent of the parties. (d) A court will invalidate the contract in its entirety. Answer: B. 4. In the LeMond case, the court ruled: (a) PTI’s failure to supply marketing and media plans was a material breach of the contract because, without those plans, LCI could not monitor sales. (b) PTI’s failure to supply marketing and media plans was a material breach of the contract because PTI had agreed to supply the plans. (c) The requirement that PTI use commercially reasonable means to promote the Product Line was not enforceable because the term was ambiguous. (d) PTI’s failure to supply marketing and media plans was not a material breach of the contract. Answer: D. 5. A contract states (1) that Buzz Co. legally exists and (2) will provide 2,000 lbs. of wild salmon each week. (a) (b) (c) (d) Clause 1 is a covenant and Clause 2 is a representation. Clause 1 is a representation and Clause 2 is a covenant. Both clauses are representations. Both clauses are covenants. Answer: B. Essay Questions 1. List three types of contracts that should definitely be in writing. and one that probably does not need to be. Answer: Should be in writing: The sale of stock, a merger agreement, the sale of land, anything that falls under the statute of frauds. Need not be in writing:: an agreement with friends in which not much money is involved – to chip in to buy a present together. It is with someone with whom you have an on-going relationship and who has proved to be trustworthy in the past, and you can afford the loss – a routine supplier. You do not have time to do a proper written contract and you would prefer to bear the risk of loss over the risk of not getting the deal done. 2. Make a list of provisions that you would expect in an employment contract. Answer: Duties, Status (job title), period of employment, full-time and energy, compensation – fixed and incentive, stock options, perquisites, vacation, termination without cause, for cause, for death or disability, by the employee, compensation after termination, covenant not to compete, trade secrets, confidential information, solicitation of customers, boilerplate provisions. 3. List three provisions in a contract that would be material and three that would not be. Answer: Material: payment, item to be sold or services to be rendered, term of the contract, not material: notices, choice of law, arbitration, attorney’s fees. 4. Slimline and Distributor signed a contract which provided that Distributor would use reasonable efforts to promote and sell Slimline’s diet drink. Slimline was already being sold in Warehouse Club. After the contract was signed, Distributor stopped conducting in-store demos of Slimline. It did not repackage the product as Slimline and Warehouse requested. Sales of Slimline continued to increase during the term of the contract. Slimline sued Distributor, alleging a violation of the agreement. Who should win? Answer: The issue is whether Distributor used ―reasonable efforts.‖ The fact that sales increased is irrelevant. 5. You Be the Judge: WRITING PROBLEM Chip bought an insurance policy on his house from Insurance Co. The policy covered damage from fire but explicitly excluded coverage for harm caused ―by or through an earthquake.‖ When an earthquake struck, Chip’s house suffered no fire damage but the earthquake caused a building some blocks away to catch on fire. That fire ultimately spread to Chip’s house, burning it down. Is Insurance Co. liable to Chip? Argument for Insurance Co.: The policy could not have been clearer or more explicit. If there had been no earthquake, Chip’s house would still be standing. The policy does not cover his loss. Argument for Chip: His house was Answer: Chip won. which side was the more successful negotiator? Can you think of any terms that either party left out? Are any of the provisions unreasonable? Answer: Answers will vary. The change was subtle in appearance but important in its financial impact.’s top officers approached an investment bank to find a buyer for the company. the two companies had agreed to $. Blair is bought by anyone with whom Bank has had substantial discussions about such a sale. In the movie contract. it must be interpreted against the drafter of the contract. the Heritage officer did not tell Phibro.10. do you have an ethical obligation to tell them? What principles would you apply in this situation? Answer: Answers will vary. it burned down. The Bank sent an engagement letter to Blair with the following language: If. 4. 2. Discussion Questions 1. within 24 months after the termination of this agreement. What are the advantages and disadvantages of hiring a lawyer to draft or review a contract? Answer: Advantages: Lawyers understand the law. 5. only to be a star in the next one. If a contract is ambiguous. Artist decides he is not interested in completing the movie. for whatever reason. Blair must pay Bank its full fee. Disadvantages: Lawyers cost time and money.01. Blair Co. 3. What are the penalties if Artist breaches the movie contract? Why are the penalties so light? Answer: Producer does not have to pay Artist any further compensation but Artist gets to keep what he has been paid to date. Many actors have behaved badly on one movie. Contracts are more likely to be internally consistent without obvious mistakes. it is unlikely the movie will turn out well if Producer forces him to continue. (Note that even for a drug violation. No Producer wants a reputation for playing hardball with an actor. Important signal to the other side that you are well-protected. This case ended up in litigation over the definition of the word ―substantial. When Heritage’s lawyer pointed out to his client the change to $.not damaged by an earthquake.) Los Angeles is a city of second chances.‖ Litigation is never a happy result. ETHICS In the Heritage case. They can protect you against unexpected events in the future. The policy covered fire damage. Bonus Exam Strategy . They can be the ―bad guys‖ in negotiations – you can blame them for playing hardball. Is there any problem with the drafting of this provision? What could be done to clarify the language? Answer: Answers will vary. If. Was Heritage’s behavior ethical? When the opposing side makes a mistake in a contract. The court ruled that the provision was ambiguous and so should be interpreted against the drafter – in this case Insurance Co. Artist gets one free pass. Less likely to make typographical errors. A liquidated damages clause in the contract provided that Accur would pay $1. to maintain Master’s computer system. CPA Examination. 2.000 to Master for each day that Accur was late responding to a service request. Result: ―The script for the Picture includes scenes showing Artist (a) with frontal nudity from the waist up and with rear below-the-waist nudity (but no frontal below-the-waist nudity) and (b) in simulated sex scenes. Rewrite it so that it accurately expresses the agreement between the parties. If shot. Accur did not respond to Master’s service request until January 15. because Accur’s breach was not material (d) Lose. contracted with Accur Computer Repair Corp.‖ Chapter 18: Multiple Choice Questions 1. because liquidated damage provisions violate public policy Answer: A. CPA QUESTION Master Mfg. depicted or otherwise visible without Artist's prior written consent. The contract required Hodges to pay the entire amount at closing. May 1992.000. no nude or sex scenes may appear in the Picture without Artist’s prior written consent. unless the liquidated damages provision is determined to be a penalty (b) Win. To what relief is Hodges entitled? (a) Punitive damages and direct damages (b) Specific performance and direct damages (c) Consequential damages or punitive damage (d) Direct damages or specific performance Answer: D. Inc. If Master sues Accur under the liquidated damage provision of the contract. Master will: (a) Win. Kaye refused to close the sale of the building.. Hodges sued Kaye. Accur was notified that Master’s computer system had failed.Question: The nudity provision in the movie contract is vague. no scenes shall be shot in which Artist’s buttocks and/or genitalia are shown. However. Strategy: This is easy! Just say what the parties intended the deal to be. Artist shall have the absolute right not to perform in any nude scene or simulated sex scene. . #25. #35. because under all circumstances liquidated damage provisions are enforceable (c) Lose. May 1993. CPA Examination. Master’s manufacturing process depends on its c omputer system operating properly at all times. CPA QUESTION Kaye contracted to sell Hodges a building for $310. On January 12. 000. (a) direct. is (b) is. some acres of Farmer Ted's crops die. and Lewis had no evidence to contradict Nine Mile. The repair bill comes to $1000. It takes two weeks for the right parts to be delivered and installed. Nick changes his mind and refuses to sell his car. She then sues Nick and wins $500. is (d) is not. consequential (e) direct. During the two weeks. Julie soon buys a similar 2002 Mustang GT for $5.000. 4. direct (b) direct. As he began work. If a jury awards $1000 for tractor repairs. The evidence about market value proved decisive. He argues in court that his lost profit on those acres is $60. A manufacturer delivers a new tractor to Farmer Ted on the first day of the harvest season. . Lewis signed a contract for the rights to all timber located on Nine Mile Mine. He agreed to pay $70 per thousand board feet ($70/mbf).3. Nine Mile moved for summary judgment. it will be in the form of _____________ damages. is not (c) is not. Why? Please rule on the summary judgment motion. The $500 represents her _________________. consequential (c) consequential. 5. direct (d) consequential. (a) expectation interest (b) reliance interest (c) restitution interest (d) none of the above Answer: A. it will be in the form of ___________________ damages. Essay Questions 1. the tractor will not start. Later. Julie signs a contract to buy Nick's 2002 Mustang GT for $5. Under the UCC. incidental Answer: B.000 for the lost crops. a buyer ________ generally entitled to recover consequential damages. Nine Mile became convinced that Lewis lacked sufficient equipment to do the job well and forbade him to enter the land. Lewis sued. (a) is. is not Answer: C. But. If it awards $60.500. The mine offered proof that the market value of the timber was exactly $70/mbf. a seller ________ generally entitled to recover consequential damages. Under the Uniform Commercial Code. D. Relying on its deal with JVC. Parkinson sued. Simon gets restitution.000. the difference between the sales . Ct. Racicky was in the process of buying 320 acres of ranch land. The trial court concluded that the parties had reached their agreement under a ―mutu al. and he recovers nothing. Inc.2d 229 (Ind. JVC breached its deal with Twin Creeks and refused to accept the cassettes it had agreed upon. misunderstanding. 491 N. 1995 U. 4. 3. Twin Creeks Entertainment signed a deal with U. There was no difference. the full price of the land. 1992 Wyo. restitution. Liberty Mutual.‖ The trial judge gave the Verbas a choice: they could rescind the contract and refund the purchase price. Racicky v. What additional claim was her attorney likely to make? Answer: A claim for punitive damages. Parkinson filed a claim with her insurer. Twin Creeks sued and claimed.000 for uninsured motorist coverage and $40.2d 162. a seller may not recover consequential damages for the sale of goods.000 punitive damages. for $2. They sued. among other damages. Later. Nine Mile Mines.2d 912.‖ so Parkinson dropped the claim. Specific performance is impossible because Racicky does not own the land. before he could complete the purchase of the land. Simon paid $144. after she had spoken with an attorney. 1986). let alone its sale. based on Liberty Mutual's bad faith in discouraging Parkinson from filing a claim for money to which she was entitled. 831 P. Racicky signed a contract to sell the land to Simon. While that sale was being negotiated. Liberty Mutual told her that if she sought that money. The Paramount losses are consequential damages. but there is no evidence that Lewis lost money. 1994). specific performance.000. To win he must demonstrate a difference between the contract price and the market value of the timber. v. Inc. Parkinson was injured in an auto accident by a driver who had no insurance. 1994 Mont. Dist. JVC intended to distribute the cassettes nationwide. You Be the Judge: WRITING PROBLEM John and Susan Verba sold a Vermont lakeshore lot to Shane and Deborah Rancourt for $115. Nine Mile may have breached the agreement.S. Answer: Twin Creeks's claim is dismissed. or they could give the Rancourts $55. Expectation damages will be unavailable since Racicky is bankrupt. or reformation? Answer: He should. JVC moved to dismiss the claim based on the Paramount contract. Under the UCC. The court awarded her $2. 1995). Cal.E. U. Liberty Mutual Insurance Co. 5.S. JVC Corp. What kind of damages is Twin Creeks seeking? Please rule on the motion to dismiss.000 feature film videocassettes from Twin Creeks over a three-year period. seek restitution. and did. seeking rescission of the contract. 1992). 487 N. Simon. the seller of goods. JVC Corp. The Rancourts intended to build a house on the property. App. Parkinson. LEXIS 60 (Wyo. Twin Creeks Entertainment. LEXIS 283 (Mont. the money it owed to Paramount.000 under her ―uninsured motorist‖ coverage. was not entitled to such damages. Reformation is irrelevant.E. but innocent.Answer: Motion granted. agreeing to purchase a minimum of $600. Twin Creeks signed an agreement with Paramount Pictures. on the ground that Twin Creeks. reh'g denied.000. her premiums would go ―sky high. in which JVC would buy 60. 2.000 worth of Paramount cassettes over a two-year period. but after preparing the land for construction. since he has conferred a benefit on Racicky and it would be unjust for the defendant to keep it. they learned that a wetland protection law prevented building near the lake.2d 241. 886 P. Lewis v. Which of these remedies should Simon seek: expectation. LEXIS 2413 (N. But Racicky then went bankrupt. v.S... The buyers shouldn’t complain—they are getting the property at about half the original price. The judge has no power to reshape the contract to express expectations that neither party ever held. 3. Should a similar "soft limit" apply to consequential damages in contract cases? Answer: Answers will vary. ETHICS The National Football League owns the copyright to the broadcasts of its games. What did it do? Was it unethical of the bars to broadcast the games that they were able to pick up? Apart from the NFL’s legal rights. Discussion Questions 1. That is a basic error of fact. It licenses local television stations to telecast certain games and maintains a ―blackout rule. do you think it had the moral right to stop the bars from broadcasting the games? Answer: Answers will vary. and are entitled to rescission. Consider the "Farmer Ted" scenario raised in multiple choice question 3. 1977) . If someone breaks a contract. the other party can generally sue and win some form of damages. But several bars in the Cleveland area were able to pick up the game’s signal by using special antennas. We are willing to acknowledge that the land is worth somewhat less than we all thought. Certain home games of the Cleveland Browns team were not sold out. Is this ancient rule still reasonable? If someone backs out of an agreement to sell an acre of land.price and the actual market value of the land. which is based on a real case. or should they stick to determining whether agreements are enforceable? Answer: Answers will vary. and we are willing to refund $55. the law has considered land to be unique. The land is of no use to us and we want our money back. should he be 1 Prutch v. Both parties clearly intended that the Rancourts would build a house near the lake.000. and the error was as much their fault as ours. either party is entitled to rescind the contract. The Rancourts appealed. and the Rancourts get their money back. And so. Ford 574 P. Argument for the Verbas: Both sides were acting in good faith and both sides made an honest mistake. Were the Rancourts entitled to rescission of the contract? Argument for the Rancourts: When the parties have made a mutual mistake about an important factual issue. Consequential damages can be many times higher than direct damages. a lawsuit that involves a broken agreement for a sale of land will usually result in an order of specific performance. But for centuries.1 Is it fair if consequential damages are 60 times higher than direct damages? The Supreme Court is skeptical that punitive damages should be more than nine times compensatory damages in a tort case. and the NFL blocked local broadcast. Is reformation ever a reasonable remedy? Should courts be in the business of rewriting contracts. The NFL wanted the bars to stop showing the games.‖ which prohibits stations from broadcasting home games that are not sold out 72 hours before the game starts. 2. They cannot do so.2d 102 (Colo. 4. Answer: The Rancourts win. because there was no "meeting of the minds" and no contract was formed (b) Fred must pay within 10 days of making the agreement. the _____________ of the goods must be written. For a contract governed by the UCC sales article. Should the landlord have an obligation to try to find another tenant before the end of the lease? Answer: Answers will vary. He makes an agreement with Alpha Company under which Alpha will deliver 100 keyboards. (c) Fred must pay within 10 days of accepting the keyboards. a contract must be signed by the ________________ to count as being "in writing‖. 4. suppose that a tenant breaches a lease by leaving early.000 (b) Leasing an automobile worth $35. quantity (c) defendant.000 (c) Purchasing a stereo worth $501 (d) Purchasing a stereo worth $499 Answer: B. 2. Answer: D. Is it reasonable to require the mitigation of damages? If a person is wronged because the other side breached a contract. should she have any obligations at all? For example.ordered to turn over the land itself? Why not just require him to pay an appropriate number of dollars in damages? Answer: Answers will vary. Under the UCC Statute of Frauds. 3. (b) The contract may involve the sale of any type of personal property. Which of the following is true? (a) Fred has no obligation to pay. (a) plaintiff. Fred assembles computers in his garage and sells them. The agreement does not specify when payment is due. Also. price (b) plaintiff. 5. (d) The contract must involve the sale of goods for a price $500 or more. Chapter 20: 1. (d) Fred must pay within a commercially reasonable time. (c) The obligations of the parties to the contract must be performed in good faith. Answer: C. which one of the following statements is correct? (a) Merchants and non-merchants are treated alike. price . Which one of the following transactions is not governed by Article 2 of the UCC? (a) Purchasing an automobile for $35. The work involved undercutting the existing track. removing the ballast and foundation. Essay Questions 1. v. by definition. Cloud believed the conversation amounted to an indication that Hasbro would continue to buy powder. Judgment for Perini. Atlantic offered to purchase ―all available‖ material over the course of Perini’s deal with the MBTA. not stated.2d 541. What kind of contract do the parties have? Who should win and why? Answer: The parties have an output contract. Atlantic Track & Turnout Co. By that point Perini had delivered to Atlantic only about 15 percent of the salvageable material that it had estimated. rebuilding the track. Assume that a contract is modified.(d) defendant. 5. Hasbro made no objection to it. Children could then place plastic fish in the aquarium and create underwater scenes. That was the work that made Perini its profit. The toy included a powder that. the MBTA ran short of money and told Perini to stop the undercutting part of the project. its supply of goods. quantity Answer: D. Perini Corporation. Here.S. so it produced large quantities. even though the quantity of goods is. The parties must act in good faith. Cloud sent an order acknowledgement for 9. so Perini requested that the MBTA terminate the agreement. The two companies discussed changing the powder's formula. App. or even halting. 1993). The Massachusetts Bay Transit Authority (MBTA) awarded the Perini Corp. In an output contract the buyer assumes the risk that the seller may have a legitimate reason for greatly reducing. formed a gel that filled a plastic aquarium. Under UCC §2-306. Perini's reason for stopping delivery is entirely legitimate: the original contract with MBTA has been terminated for business reasons. which the agency did. 989 F. Although it did not receive an order from Hasbro. and Hasbro's need for the powder diminished. But three months into the project.5 million packets to Hasbro. 2. LEXIS 6248 (1st Cir. Perini estimated the quantity of salvageable material that would be available. Hasbro used to manufacture a toy called "Wonder World Aquarium". and Perini accepted. Cloud Corporation supplied the powder to Hasbro. when mixed with water. The only essential term is a . a confirmatory memo sent and not objected to within 10 days carves out an exception to the statute of frauds. New consideration must be present for the modification to be binding if the deal is governed by: (a) The common law (b) The UCC (c) Both A and B (d) Neither A nor B Answer: A. Atlantic sued. because Perini has promised to deliver to Atlantic 100 percent of its output of certain material and Atlantic has agreed to buy it all. for Atlantic to buy whatever salvageable material Perini removed. Did the order acknowledgement creat an enforceable agreement? What specific facts determine your answer? Answer: Because both Cloud and Hasbro are merchants. and disposing of the old material. such contracts are valid. The toy sold poorly. Perini solicited an offer from Atlantic Track & Turnout Co. 1993 U. a large contract to rehabilitate a section of railroad tracks. Under UCC §2-207.‖ Seth reads the fax. Dial . Because the writings contained conflicting versions of the escape clause. including one in Salem. which was Brewster's version. The company had a legitimate reason for closing the factory—it was losing money—and with no factory it certainly did not need any bottles. The fax says. (2) the additional term materially alters the offer. Brewster sued. in a contract between merchants an additional term becomes part of the contract unless (1) the offer insisted on its own terms.‖ A few months later. but added a clause stating that ―quantities are estimated only and do not bind Dial to purchase any minimum quantity. Tri-Circle accepted the offer. They routinely dealt in farm goods. who acted as the company’s business agent. However. Dial made personal care products at many plants around the country. 121 Idaho 950.850. The Brugger Corp. a used car wholesaler who has a huge lot of cars in the same city. 829 P. Dial could escape only on the anniversary date. Dial estimated its requirements for one year at 7. Brugger Corporation.000 worth of the supplies. It did.quantity term. She signs and sends a fax to Seth. Inc. so they were merchants and thus the finance charge was binding. laughs. 5. The form included a finance charge for late payment. Dial concluded that its Salem plant was unprofitable. LEXIS 29 (1992). Under UCC §2-201(2). You Be the Judge: WRITING PROBLEM Brewster manufactured plastic bottles. Two weeks later. operated by Jason Weimer. The companies agreed that Dial would purchase from Brewster all of the plastic bottles it needed for its Salem factory. Answer: The evidence indicates that the parties did reach an oral agreement in their phone conversation. and Tri-Circle were merchants. and the order acknowledgement contained one: 9. The company closed the factory and notified Brewster that it would buy no bottles at all. ―Confirming our agrmt—I pick any 15 cars fr yr lot—30% below blue book. In deciding whether Tri-Circle was entitled to finance charges. Virginia. 1992 Idaho App. the buyer in a requirement contract may reduce its demands to zero. The appellate court found that an enforceable agreement existed and remanded the case for a calculation of damages. Argument for Dial: The issue is whether Dial acted in good faith. to raise its demands disproportionately. Inc.5 million packets. Although Dial had some right to adjust its orders. using a preprinted form. (The buyer does not have the opposite right. The conflicting terms drop out and the contract encompasses the oral agreement. Tri-Circle. TriCircle sued. Weimer. the court first inquired whether Brugger. 4. Cloud was reasonable in relying on the conversation about switching its formula as evidence of future orders. Weimer offered to buy from Tri-Circle certain equipment for use on the farm. so the additional term was part of the sales agreement if all three parties were merchants. and throws it away. None of those things occurred. Tri-Circle supplied the farm equipment but later alleged that Brugger had refused to pay for $12. owned a farm.) Here. Dial knew that this contract was extremely important to Brewster. or (3) the offeror promptly objects to the added term. 3. a signed memo between merchants that would be binding against the sender is sufficient to satisfy the statute of frauds against the recipient if he reads it and fails to object within 10 days. was a farm equipment company.2d 540. Nina arrives and demands to purchase 15 of Seth’s cars. Why did it look into that issue? Were they merchants? Answer: Tri-Circle has added an additional term to Weimer's offer. but he made no objection to the new term.000 bottles. it had no right to reduce them to zero. UCC §2-207 determines the contract terms. Weimer’s offer had said nothing about finance charges. Is he obligated to sell? Answer: Probably. Nina owns a used car lot. provided it does so in good faith. Tri-Circle. Did Dial have the right to reduce its orders to zero? Argument for Brewster: The parties had a clear contract for a massive number of bottles. and it acted in good faith. v. On behalf of Brugger. so he makes a verbal agreement to buy the car and shakes the seller's hand. v. and the fact that that nothing is in writing. 33 F. 2. but he wants to go online and see if he can find an even better deal.decided to eliminate its requirements because of legitimate concerns about the plant's profitability. he does not yet have any enforceable obligation to buy the car. or is it more likely to encourage misunderstandings and deception? Why? Overall. He knows that. the buyers are stuck. 1994 U. which one. Johnny wants to make sure that no one else buys the car while he is thinking the deal over. because of the statute of frauds. Inc. Brewster of Lynchburg. Some have argued that we should scrap UCC 2-201 on the grounds that it encourages misdealing as much as it prevents fraud. England vs. Ct. App. When he senses interest from customers. Rate the degree to which you believe Johnny and Nigel acted wrongfully.K.S.S.S. Dial Corp. America: Does the Statute of Frauds Encourage or Prevent Fraud in Modern Times? The publication of the original UCC in 1952 sparked an expansion of the statute of frauds in the United States to cover sales of goods of $500 or more. is it sensible to require that purchases of big-ticket items be in writing before they are final? Answer: Answers will vary. and why? Answer: Answers will vary.) Johnny is looking at a used Chevy Tahoe. LEXIS 23657. he holds them to the verbal contracts. . Do you think that the UCC statute of frauds as it currently exists is more likely to prevent fraud.) Nigel sells used Peugeots in Liverpool. Did one behave more wrongfully than the other? If so. (U. If the customers later get cold feet and try to back out of the deal. Consider the following two hypotheticals: (In the U. At about the same time (in 1954). (In the U. the British Parliament repealed its longstanding statute of frauds as applied to sales of goods. 1994). the owner has received three phone calls about the car.3d 355. Because there is no longer a UCCstyle statute of frauds in Britain. 1. 4th Cir. he aggressively badgers them until they verbally commit to buy. not because the company wanted to avoid its obligation to Brewster. Dial acted in good faith. In the twenty minutes he has been with the car's current owner. Discussion Questions Apply the following facts to the next two questions.. App. He knows that the $7000 price is a good one. which is consideration. First. "shocking and fundamentally unfair". In your opinion. why? If not. and she has no other available credit. and is willing to pay $1500 because the store offers to finance the TV. on Christmas Eve. Bonus Exam Strategy: Question: Dana Owens hired Jeff Smith to decorate her apartment. b. then the UCC applies. but he is in a big hurry to finish his last minute shopping. Jeff Smith's business is furniture "staging. The Uniform Commercial Code was written by a group of scholars and adopted by elected state legislators. as UCC 2-302 states it. containing all of the essential terms and conditions of the agreement. If the predominant purpose is the services. is either transaction unconscionable? If so. a. Sale #2 is made to Franklin J.5 times the fair value of the TV. But many contracts that do not involve a sale of goods are still governed by old common law principles that have been created by judges over a period of centuries. Is this a contract for the sale of goods (the chair) or services (the decorating)? If the predominant purpose of the contract is the sale of goods. Sale #1 is made to Ann. an electronics store sells an HDTV with a fair market value of $600 for $1500. Jeff re-arranged Dana's existing furniture charging Dana $850 for his work. Does this seem reasonable to you? Are businesses likely to take advantage of it? Answer: Answers will vary. Jeff provided his services. Under common law. why not? Answer: Answers will vary. or any of his work. They never signed a formal agreement. Jeff also spent $450 on a new side chair for her den. She has a terrible credit score. 4. the consumers paid 2. Jeff purchases new pieces on behalf of the owner. Do the parties have a contract? Strategy: There is a lot going on in the question. . Dana does not like the chair and refuses to pay Jeff for it. Based on their e-mails. a very wealthy investment banker. "added terms" in an acceptance can become part of a contract between merchants. Under the UCC section 2-207. identify an agreement: Dana hired Jeff and the two exchanged e-mails about the details. This chapter revisits the idea of unconscionability. Dana and Jeff have exchanged emails describing what Dana is looking for and Jeff's thoughts on her ideas. any written agreement needs to be explicit. Courts will sometimes refuse to enforce deals that are. Occasionally." where he is usually hired to re-arrange the owner's existing furniture and accessories.3. Who makes for better lawmakers – judges or legislators? Do you prefer the way in which common law principles or UCC rules were created? Answer: Answers will vary. Moneypenny. Consider the following two cases. So far so good. common law applies. 5. He knows the price is much too high. In both cases. In each. because the risk of loss passes when the typewriters are delivered to the carrier Answer: D. Union is a wholesaler of appliances and Quick is an appliance retailer. it was destroyed in a fire. On Saturday.. Inc.‖ Which of the parties bears the risk of loss during shipment? (a) Union. thus there is no contract. May 1993. The contract required Union to ship the typewriters to Quick by common carrier. 3. a furniture retailer. #49. 2. #50. $500 for a table. CPA QUESTION Quick Corp. Inc. (b) The debtor may not redeem the goods after the default. 4. she will pay $25. May 1994. Who bears the loss of the table? (a) Wolfe. On Thursday. CPA Examination. Charlie plants pumpkin seeds on March 1. and all essential terms and conditions need to be spelled out clearly in writing. while Aston was still in possession of the table.Result: Using the predominant purpose test. unless Aston breached the contract (d) Aston. (c) Secured creditors retain the right to redeem the goods after they are sold to a third party. because the risk of loss passes only when Quick receives the typewriters (b) Union. agreed to purchase 200 typewriters from Union Suppliers. November 1989.000 for Charlie's entire pumpkin crop on October 1. the agreement between Dana and Jeff is for services. because Wolfe had title to the table at the time of loss (b) Aston. because title to the typewriters passed to Quick at the time of shipment (d) Quick. Dana hired Jeff to redecorate. ―FOB Union Suppliers. (d) The goods may be disposed of only at a public sale. Chapter 21: 1. CPA Examination. and they begin to sprout on April 1. which of the following statements is correct concerning the disposition of goods by a secured creditor after a debtor defaults on a loan? (a) A good faith purchaser of the goods for value and without knowledge of any defects in the sale takes free of any security interest. When are the pumpkins identified? (a) February 1 . Dana and Jeff did not have their agreement in writing. Wolfe paid Aston Co. Aston notified Wolfe that the table was ready to be picked up. rather than goods. Loading Dock. and the chair was one small part of that service. Answer: A. CPA QUESTION On Monday. because both parties are merchants (c) Quick. Because this is a contract for a service. CPA QUESTION Under UCC Article 9 on secured transactions. CPA Examination. #45. unless Wolfe is a merchant (c) Wolfe. Sheri signs a contract with Farmer Charlie on February 1 Under the deal. the UCC does not apply. because Wolfe had not yet taken possession of the table Answer: D. Essay Questions 1. Who is entitled to the seed? Answer: First State gets it. they learned that R. Inc. will (b) is. Sam obtains a Patek Philipe watch from Greg by fraud.V. (a) is. Miller mixed together the seed that was for sale with the seed in storage so that a customer could not see any difference between them. but when the Browns decided to come get it. But the company refused to pay. The Browns filed a claim with their insurance company. which is used for growing pasture and fodder grass. Kingdom had illegally used the vehicle as collateral for a loan and that a bank had repossessed it. The court held that because Havelka and other farmers had used Miller to sell seed in the past. Please rule on their case. Arkansas. Sam disappears. State Farm. It has a retail price of $10. will not Answer: B. a recreational . and store it. (W. in some cases not. bag. He did not do that here. 1990). which the bank knew. the goods are subject to the creditors' claims unless the owner (Havelka) takes one of the statutory steps to protect himself.V. Kingdom to resell it. Dist.000 loan from the First State Bank of Purdy. The insurer agreed that the vehicle had been stolen and agreed that the Browns’ p olicy covered newly acquired vehicles. When goods are delivered to be sold. with title in the dealer’s name.V. UCC §2-326(3) creates a presumption in favor of creditors. and sold fescue seed.V. Melissa ________ a bona fide purchaser. Melissa _________ have to give the watch to Greg. processed. 1990 U. Miller. but soon regretted spending the money and asked R. The only issue is whether Havelka delivered the seed to sell. The Browns sued. He sells it to Melissa for $9000. Kingdom. will (d) is not. Kingdom. 2. in Pea Ridge. claiming that the Browns had not taken title or possession to the goods and therefore had no insurable interest. First State Bank of Purdy v. 5.000.S.(b) March 1 (c) April 1 (d) October 1 Answer: B.000 pounds of seed was merely in storage and not subject to First State’s claim. The Browns agreed to accept the motor home. 119 Bankr. The manufacturer delivered the vehicle to R.V. In some cases the farmers authorized Miller to sell the seed. The motor home stayed on R. will not (c) is not. and because the stored seed was indistinguishable from the seed for sale. Suppose that among the insurance company’s thousands of customers was Arvee. First State attempted to seize all of the seed in the store. a farmer. Tony Havelka. Farmers brought seed to Miller who would normally clean. Let us also look at the ethics of the case by creating a contrasting hypothetical. ETHICS Myrna and James Brown ordered a $35. Ark. If Greg discovers that she has the watch and demands that it be returned.D. The bank had no way of knowing that some of the goods that Miller appeared to own really belonged to others. protested that his 490. LEXIS 12407. Miller defaulted on a $380. She believes he owns the watch.000 motor home from R. Kingdom’s lot for quite a few months. the purpose of §2-326 would be accomplished by protecting the creditor. such as posting a sign indicating that he owns the merchandise. He bought. 660. Franklin Miller operated Miller Seed Co. 616. Dist. the Nevada Department of Motor Vehicles seized the auto and returned it to Alamo. smog and safety tested. App.vehicle dealership similar to the one in the real case.Kingdom and the Browns agreed to take it. registered. 3. 1997). for a total of $80. 1992 Wash. It is in the interest of Arvee’s insurance company to claim that Parker still had an insurable interest in his car. 1991). and that the risk of loss was his. 831 P. Brown v.‖ Alamo was permitted to keep the auto. 273. John C.S. probably with success. Supp. and titled in the state of Utah. 184. because the Mendenhalls had acted in good faith. 4. It is hard to justify the same company making the opposite argument merely to avoid liability. Clark. When the motor home arrived at R. Alamo appealed. Now the R.D. The Browns won the value of the vehicle. title passes to the buyer when the seller completes whatever transportation it is obligated to do. interest. Alamo Rent-A-Car. Pa. but Universal claimed that title had passed to it. Universal Consolidated Cos. had it insured. App. They had neither title nor possession.. 937 P. If Parker’s auto were stolen. Mendenhall. what argument would the insurance company be making? How would the company define insurable interest in that case? Answer: The Browns win. That is just what the insurance company will argue. dealership (Arvee) has an automobile on its lot and the car is stolen.V.2d 69 (Nev. Universal then contracted with Pittsburgh Industrial Furnace Co. The Mendenhalls sued Alamo.. Answer: Clark was a thief. The ethics hypothetical simply reverses the parties. it was identified to the contract and the Browns had an insurable interest.V. 1991 U. The law does not support this conclusion. California. but they don't need either. v. But before all of the goods reached Universal. Please rule. Pittsburgh Industrial Furnace Co. Pifcom delivered the goods to the trucking company as scheduled. however. LEXIS 281 (Wash. State Farm Fire & Casualty Co. Imagine that Arvee had taken in an automobile for resale from a customer named Parker. (Pifcom) to engineer and build much of the equipment. LEXIS 19936 (W.29. Universal Consolidated Companies. A buyer gets an insurable interest when the goods are identified to the contract. contracted with China Metallurgical Import and Export Corp. and kept the vehicle on its lot. notified Pifcom to stop work. v. but all goods had been delivered to the shipper and ultimately reached Universal. in turn. He obtained no title and could pass on no valid title to any purchaser. 66 Wash. 789 F. Clark never returned the car to Alamo and obtained a California ―quick title‖ using forged signatures. and substantial attorneys' fees. ―The lower court seemed to equate Clark's fraudulently obtained but facially valid California "quick title" with voidable title capable of transferring ownership.000 in cash. The Mendenhalls made improvements to the car. Universal. When Alamo reported the car stolen. Pifcom completed its work by delivering to the trucking company. The trial court concluded that the Mendenhalls had purchased the car for value and without notice that it was stolen. licensed. Pifcom claimed that it retained title to the goods. 1992). CMIEC notified Universal it was canceling the deal. UCC §2401 provides that when goods are being moved. (CMIEC) to provide CMIEC with new and used equipment for a cold rolling steel mill. and were bona fide purchasers entitled to the Lexus. which would then transport it to Universal. He then advertised in the Las Vegas Review Journal newspaper and sold the car to Terry and Vyonne Mendenhall for $34. App. using an alias. Inc. rented a Lexus from Alamo Rent-A-Car in San Diego. at which time title passed.2d 1122. The contract required Pifcom to deliver the finished equipment to a trucking company. Ct. . Inc. the court held that they were entitled to the value of the improvements they had made. Who is right? Answer: Universal is right. Heli-Dyne Systems. it is a shipment contract. . Construction Helicopters. Imagine that your laptop gets a virus. who has owned the drawing for fifty years and knew nothing about its origin. Discussion Questions 1.000 for three helicopters that were in Argentina. it is deemed a shipment contract. Ct.. which must bear the loss. and not enough to victims? Answer: Answers will vary. Answer: Because the contract did not specify risk of loss. she gets to keep it. we know the one party that had nothing to do with the loss: Construction. 2. In such an agreement. App. In the opening scenario with the con artist and the cattle. And so. and provided no FOB terms or other language about delivery. App. The risk of loss therefore passed to the buyer when the seller delivered the goods to the carrier under a reasonable contract of carriage.5. LEXIS 7273 (U. Two were ready to fly and one was disassembled for routine maintenance. Under the entrustment rules in the UCC. The two helicopters and 25 crates containing the disassembled craft were properly loaded. Who bears the loss? Argument for Construction: Construction had no control over the goods until they reached Miami.S. Inc. The contract said nothing about risk of loss (the parties could have saved a lot of money by reading this chapter). Heli-Dyne delivered the goods and has no further responsibility. Although we do not know exactly what happened to the crates. 1989). and you take it to a local computer repair shop. 3. v. Since Heli-Dyne fulfilled that obligation. but when the ship arrived in Miami. do you agree with the court's decision? Should the heirs get a chance to recover the drawing that was stolen from their ancestor? Or should Bakalar. You Be the Judge: WRITING PROBLEM Construction Helicopters paid Heli-Dyne Systems $315. Heli-Dyne arranged for an Argentine company to oversee their loading on board the freight ship Lynx. Argument for Heli-Dyne: Because the contract failed to specify risk of loss. 6th Cir. be able to keep ownership? Answer: Answers will vary. In the Bakalar case involving artwork stolen during World War II. Is this fair? Does the law give too much protection to purchasers in this situation. The company should not pay for damage it never caused. Heli-Dyne refused to supply more parts and Construction sued. Inc.2d 862. we learned that the original owner would be left out in the cold under the UCC. The shop sells your computer to Heidi. 1989 U. risk of loss passes to the buyer when the seller delivers the goods to a carrier. the risk transferred to Construction.S. 875 F.. Heidi is a buyer in the ordinary course of business. Is this a fair result? Would it be better to require Vandermeer and the buyer in Omaha to share the loss? Answer: Answers will vary. only 7 of the crates appeared. even if you find Heidi and demand that she return your laptop. Bonus Exam Strategy: Question: Gina takes her diamond ring to Sparkle Jewelry to have the prongs holding the diamond retipped and to have the ring cleaned. Vick surrendered it to Kidd when confronted with proof of the theft. but under UCC 2-326. You demand that the creditors give back your stuff. The shop's creditors seize everything in the store. but not the right. As a seller. Gina can sue the store for the value of the ring. Chapter 22: 1. You are about to move. because a merchant cannot disclaim implied warranties (c) Ocean. The store has the power. 5. because of the disclaimer of warranties (d) Ocean. Greg manufactures and sells t shirts.4. The clerk at Sparkle told Gina that she would have to leave the ring and that it should be ready in about a week. look at the relationship between Gina and the store. a merchant. to transfer all of the rights in the good to a buyer in the ordinary course. she finds out that the ring has been sold. they don't have to. Who prevails? (a) Vick. Sparkle Jewelry. Result: Because Gina voluntarily left her ring with Sparkle Jewelry. Does Gina have any recourse against the store? Strategy: First. In this case. because Vick surrendered the boat to Kidd . and you take your furniture to a consignment shop. The question asks about Gina’s recourse against the store. Vick sued Ocean. CPA QUESTION Vick bought a used boat from Ocean Marina that disclaimed ―any and all warranties. the merchant has the power. but not the right to sell her ring to a buyer in the ordinary course. in this case Gina voluntarily leaves that good with a merchant of the same goods. Next. Explain your answer. including your furniture. When Gina returns in a week to get her ring. or "FOB (place of destination)". she has entrusted her ring to the store. Answer: Answers will vary. would he be better off if his contracts indicated "FOB (place of shipment)".‖ Ocean was unaware the boat had been stolen from Kidd. Entrustment is when the owner of a good. because the implied warranty of title has been breached (b) Vick. what are Gina’s rights in this relationship: When there is an entrustment. Is this fair? Should the law change? Answer: Answers will vary. 5. #43. 3. CPA Examination. The seller must know that the buyer was relying on the seller in selecting the goods. 2. (a) I only (b) II only (c) Both I and II (d) Neither I nor II Answer: B. November 1993. November 1989. CPA QUESTION To establish a cause of action based on strict liability in tort for personal injuries resulting from using a defective product. CPA QUESTION Which of the following factors is least important in determining whether a manufacturer is strictly liable in tort for a defective product? (a) The negligence of the manufacturer (b) The contributory negligence of the plaintiff (c) Modifications to the product by the wholesaler (d) Whether the product caused injuries Answer: A. .Answer: A. May 1992. CPA QUESTION Under the UCC sales article. #54. May 1992. #55. one of the elements the plaintiff must prove is that the seller (defendant): (a) Failed to exercise due care (b) Was in privity of contract with the plaintiff (c) Defectively designed the product (d) Was engaged in the business of selling the product Answer: D. CPA Examination. CPA Examination. II. #57. May 1994. an action for breach of the implied warranty of merchantability by a party who sustains personal injuries may be successful against the seller of the product only when: (a) The seller is a merchant of the product involved (b) An action based on negligence can also be successfully maintained (c) The injured party is in privity of contract with the seller (d) An action based on strict liability in tort can also be successfully maintained Answer: A. CPA Examination. CPA Examination. The warranty must be in writing. 4. #45. CPA QUESTION Which of the following conditions must be met for an implied warranty of fitness for a particular purpose to arise? : I. Callier Steel Pipe & Tube. express or implied. 3. LEXIS 1749 (N. Betty Blue’s new tire blows out as she is driving to church. . Ill. Inc.D. Attorney Thompson Comerford was interested and spoke with a United agent who described the plane as ―excellently maintained‖ and said it had been operated ―under §135 flight regulations. LEXIS 882 (N. he should have bargained for a different contract—or walked away.‖ meaning the plane had been subject to airworthiness inspections every 100 hours.000 in lost rental payments because many of its cars must be off the road waiting for tires. ability to climb.000 tires to Green Rent-a-Car for use on Green’s fleet. Leighton sued. Inc. If Comerford disliked the terms. Comerford would rely on that information.. Tests demonstrated that the steel was not. Who wins? Answer: The one-line description of the steel. v. but they leaked badly and required rebuilding. There were no warranties. Argument for United Technologies: Comerford is a lawyer.) He sued.000 in extra tire costs and $75.‖ Comerford attempted to fly the plane home. in Callier's invoice. ―A 106 Grade B. Maynard. App. Green loses $12. and Betty suffers broken bones. in fact. including the condition of the aircraft.E. Buyer is not entitled to consequential or incidental damages or any other remedy of any kind. Comerford arrived at a Dallas airport to pick up the plane.‖ knowing that Mr. Leighton Industries needed steel pipe to build furnaces for a customer. United had made express warranties but had effectively disclaimed both the express and all implied warranties.000 for it. 2. He knew he was buying a risky plane. 1991).S. The plane was sold as is. App. sells 1. .000. but immediately experienced problems with its brakes. You Be the Judge: WRITING PROBLEM United Technologies advertised a used Beechcraft Baron airplane for sale in an aviation journal. Dist. For both sales. (Otherwise it was fine.2d 504. Round uses a sales agreement that includes: ―LIMITATION OF REMEDIES. even if Callier had made no other warranty. its merchantability or its fitness for any particular purpose. Answer: United Technologies won. oral or written. 1992).‖ All of Round’s tires prove defective. The company should not be allowed to say one thing and put the opposite in writing. steering. The contract could not have been clearer. within 12 months or 25.C. Inc. stating that it would send ―A 106 Grade B‖ steel. whichever comes first. App. created an express warranty. 108 N. Ace. Callier delivered the steel and Leighton built the furnaces. He signed a sales agreement stating that the plane was sold ―as is‖ and that there were ―no representations or warranties.‖ but an inferior steel.C. as ordered. Leighton sent Callier Steel an order for a certain quantity of ―A 106 Grade B‖ steel. claiming breach of express and implied warranties.C. when that was obviously a lie. Green and Blue both sue. Leighton Industries. Green is so disgusted it immediately purchases substitute tires from another manufacturer. and performance while cruising. 423 S. Assuming that the steel delivered actually was inferior. and it is his to keep. Round agrees to repair or replace any tire which Round determines was defective. Leighton would win its warranty claim. and we assume he can read. Callier confirmed the order and created a contract by sending an invoice to Leighton. 1992 N. Predict the outcomes.Essay Questions 1. Buyer agrees that this is Buyer’s SOLE REMEDY. The same day it sells one new tire to Betty Blue for use on her car. Ct. 241. 1991 U. Did United Technologies breach express or implied warranties? Argument for Comerford: United described the airplane as ―excellently maintained. United bragged about §135 servicing. v. Round Tire Co. where he paid $80. the hot bread caused the ink to run. the remedy limitation is enforceable and Green will recover nothing. 29 F. Golden Reward Mining Co. Plaintiffs could argue. Highland defended by claiming that Comark had breached its warranty of merchantability. which Highland delivered to Boboli. Answer: Highland lost. 4. where the loss is purely economic. 260. Texaco. But when Comark asked for details concerning the pizza.3d 1480. Boboli Co. and died. Mineral spirits are used for cleaning.D. Inc.2d 16 (1974) (tire blowout causes buyer's death. 1991) (exclusion of consequential damages is not unconscionable in commercial contract with purely economic loss). Supp. sales agreement limiting remedy to repair or replacement held unconscionable). and was entitled to its contract damages .. found a milk container in his home. Webb. v. S.‖ Brochures are not normally placed in contact with very hot pizza. the carton.g. 1991). Inc. Inc. LEXIS 10470 (Ruth Cir. Highland refused to supply the information.S. e. but what standard a plaintiff must meet in order to take its case to a jury. David Hunnings. Asp. The Hunnings sued Texaco in negligence. to produce two million recipe brochures. especially in cases of personal injury. v. Texaco. Mineral spirits are harmful or fatal if swallowed.. that Texaco should have provided warnings of the danger. and should have refused to sell to distributors who didn't cooperate. Consider the opening scenario in which a diner cracked a tooth on a fragment of bone hidden in a hamburger.J. Co. See. Jervis B. and other oil companies sold mineral spirits in bulk to distributors. Would society be better off if lawsuits over such injuries were more difficult to win and . 932 F. wanted to promote its ―California style‖ pizza..S. What is the legal standard in a negligence case? Have the plaintiffs made out a valid case of negligence? Remember that at this stage a court is not deciding who wins. Comark printed the first lot of 72. 1118. they will lose even if they do get to a jury.Answer: Betty will win because the remedy limitation is unconscionable.2d 1196. 1994 U. Dist. and customers opening the carton often found red or blue splotches on their pizzas. and so forth. Compared Merchandising. LEXIS 12601 (W. which would be inserted in the carton when the freshly baked pizza was still very hot. Discussion Questions 1. Uniroyal. Please comment. 5. Hunnings v.g.000 brochures. which then resold to retailers. Highland contracted with Comark Merchandising to print the brochures. The merchantability warranty requires that goods be fit ―for their ordinary purpose.) Would that make you angry? Does that mean such a case should go to a jury? Or would you conclude that the fault still lies with the retailer and/or the parents? Answer: The standard is whether the defendant acted as a ―reasonable person‖ would have. frequently packaged the mineral spirits (illegally) in used half-gallon milk containers and sold them to consumers.. and Comark sued for breach of contract. (If the plaintiffs cannot prove those facts. 64 N. aged 21 months.. but continued to sell in bulk because doing so was profitable. 772 F. Highland refused to accept additional brochures. See Collins v. But in commercial cases. LEXIS 21833 (11th Cir. 1991 U. often with no warnings on the packages. should have discouraged distributors from selling to retailers who illegally packaged the goods in used milk containers. Dak.S. such as hardware stores. The trial court dismissed the complaint and the Hunnings appealed. Inc. Assume that Texaco knew about the repackaging and the grave risk. 1994). Comark had no idea the brochure would be subjected to such heat. The company contracted with Highland Group. holding that the plaintiffs had made out a valid negligence claim and were entitled to take their evidence to a jury. Highland Group. Texaco allegedly knew that the retailers. Courts dislike the limitations when they apply to consumer goods.. Unfortunately. 1991 U. which it sold in supermarkets. 315 A. The appeals court reversed. swallowed the mineral spirits. e. "Lemon laws" usually only cover cars. After learning more about implied warranties and disclaimers. Is this fair? Answer: Answers will vary. he warrants that he has good title to the goods.yielded smaller damages? Or should the person with the cracked tooth have a good chance to get a large payday in court? Does your answer depend upon whether you are the person with the cracked tooth? Answer: Answers will vary. and no one else has any security interest in the good. when a seller sells goods. which ones? Answer: Answers will vary. If you live in a state that does not give consumers special protections. but who also says that he can knock the price down to $6500 if you will buy the car "as is". and if Riker could not re-pay his roommate.000 in direct damages and $50. The defective machines each cause customers $10. and it is on the hook for $60. for example. the roommate would have the right to use the game player. Allison did not know that Riker had borrowed money from his roommate to buy the Xbox and that Riker had promised his roommate that until Riker paid off the balance. Are there other products that should be covered by similar laws? If so. Is this fair? The UCC's implied warranties seem reasonable – that goods are fit for their normal purposes. and it pays only $10. . would you ever buy an item sold "as is"? Imagine a car salesman who offers you a car for $8000. According to the warranty of title. Should it be so easy for sellers to escape their obligations? Answer: Answers will vary. Here.Alpha and Beta .000. A seller can disclaim all implied warranties by stating that goods are sold "as is" (or by using other.000 in consequential damages. 3. because there is no issue about the quality of the good. Beta's contract had no such clause. which deal would be more appealing? Answer: Answers will vary. 2. more specific language). Has Riker breached any warranty to Allison? Strategy: A seller of goods makes several warranties. many warranties can be eliminated. Bonus Exam Strategy: Question: Riker sold his Xbox game player to his friend Allison.deliver identical shipments of malfunctioning laptops. Alpha's contract contained a limitation of damages clause. 5.000. There is an issue about Riker’s roommate having rights in the XBox at the time Riker sold it to Allison. Assume that two computer manufacturers . the roommate could keep the game player. 4. November 1993. After Taso completed the work at a cost of $90. Taso is holding the compressor and has requested payment from Cara. to tender delivery. #57. Inc. #56. On June 2. 3..000 (d) $122. If Cara refuses to pay Taso and Taso sues Cara.000 Answer: D.000. (b) Keep the goods available for a reasonable period (c) Deliver to the buyer any documents that it needs to take possession (d) All of the above (e) None of the above Answer: D . (c) Good can retract its anticipatory breach at any time before June 23. (b) Mazur can resell the wheat only after June 23. Cara notified Taso that the compressor was no longer needed. Riker has breached the warranty of title. CPA Examination. contracted to sell 1. the roommate could take the XBox. CPA QUESTION Cara Fabricating Co.000. at $6 per bushel with delivery to be made on June 23. May 1992. CPA Examination.000 bushels of wheat to Good Bread.000 (c) $120. Taso has been unable to resell the compressor for any price. Which of the following statements is correct? (a) Mazur can successfully sue Good for the difference between the resale price and the contract price. Mazur sold the wheat to another customer at the market price of $5 per bushel. (d) Good can successfully sue Mazur for specific performance. and that no one else had a security interest in the gameplayer. Taso incurred storage fees of $2. Mazur had advised Good that it intended to resell the wheat.000. Mazur Corp. 2.000 (b) $105. he promised that he had full title to the goods.Under the UCC. But Riker promised his roommate that if he could not repay the loan. and Taso Corp. Answer: A. Because Riker failed to disclose to Allison his roommate’s interest in the XBox. the most Taso will be entitled to recover is: (a) $92. Chapter 23: 1. agreed orally that Taso would custom manufacture a compressor for Cara at a price of $120. Good advised Mazur that it would not accept or pay for the wheat. On June 1. a seller must: (a) Make the goods available at a reasonable time. CPA QUESTION On February 15.Result: When Riker sold his XBox to Allison. for $250. JewellRung sued Haddad for its lost profits.000. Haddad is right that a buyer may not recover consequential damages that it could have prevented by cover. Olympic. Assume that a year has passed. Dist. Blackburn… (a) absolutely must accept the new shipment (b) must accept the new shipment if Alpha offers a reasonable discount (c) must accept the new shipment if it has suffered no measureable losses (d) may accept the new shipment. Alpha thoroughly inspected the shirts before shipping. Ltd. If Blackburn cannot show that it will suffer any serious harm. nonconforming jerseys are delivered on July 10.D. Jewell-Rung's failure to cover was reasonable and the company was entitled to prove its lost profits. Olympic would not sell a competitor the garments at reasonable prices. it must give Alpha until July 20 to cure. This time. LEXIS 1923 (S.000 conforming jerseys on July 10. They are to be delivered on July 10. and Blackburn FC once again orders 10.4. 1993 U. Inc. When Blackburn notifies Alpha of the problem. The companies agreed that Haddad would sell 2.325 Lakeland garments to Jewell-Rung. Further.. Blackburn FC (go Rovers!) orders 10.000 soccer jerseys from Alpha to be delivered on July 10. claiming that JewellRung could not recover lost profits because it had not ―covered. but has the option to reject it. to sell in its stadium store.N. Alpha says that it intends to cure the defect. Jewell-Rung began to take orders for the garments from its Canadian customers. JewellRung had orders for about 372 garments when it learned that Haddad planned to allow another company. Supp. (d) Yes. and had no reason to spot the error. But Jewell-Rung offered legitimate reasons for not covering: the only Lakeland garments now available to it were those made by Olympic.000 soccer jerseys from Alpha Co. 337. Alpha says that it wants a chance to "make it right". If Alpha delivers another shipment of 10. because the contract's deadline has passed. Answer: A 5. 1993). Answer: D Essay Questions 1. are blue.Y.S. v. the exclusive Canadian right to manufacture and sell Lakeland garments. Jewell-Rung Agency. it must give Alpha until July 17 to cure. Haddad moved for summary judgment. Jewell-Rung could not rely on the quality of the garments manufactured by a different company. it must give Alpha a reasonable amount of time to cure. does the UCC require Blackburn to give Alpha a chance to cure this time? (a) No. Haddad Organization. . 814 F. When they arrive early on July 2. (c) Yes. Haddad was a New York corporation that manufactured and sold men’s clothing under the ―Lakeland‖ label. Blackburn notifies Alpha of the error. Jewell-Rung was a Canadian corporation that imported and sold men’s clothing at wholesale. (b) Yes. which are supposed to be white. Blackburn is disappointed because the collars.‖ Is Haddad right? Why might Jewell Rung not have covered? Answer: Lost profits are consequential damages. Lost profits and goodwill are both consequential damages. which Ace did. they may pursue that issue as well.845 P. Each owner had an agreement to operate a gas station and mini-market. Scott & Sons. claiming that ARCO had experimented with its formula for unleaded gasoline.2d 987. from ARCO. A jury awarded Lewis River $1. The court can measure lost profits by contracts actually cancelled. and by diminished sales. which inspected it and kept some of the items. Answer: Scott is wrong. largely for lost profits and loss of goodwill. and other products. v. The trial court dismissed the case. claiming that they were non-conforming. grew and sold sod. there was a ripple effect on mini-mart sales. LEXIS 48 (1993). Inc.. Lewis River sold its business at a large loss. O. Is Ace entitled to its money for the parts? Answer: Yes. Ace delivered the inventory to Mastercraft. Mastercraft Boat manufactured boats and often used instrument panels and electrical systems assembled and/or manufactured by Ace Industries. Mastercraft's instruction to ship the goods to M & G also establishes acceptance. Gasoline is a legitimate lost profit because. under the agreement with ARCO. Mastercraft inspected the goods. App. Several of Lewis River’s customers sued. lost sales of other items in the mini-marts. 0. The Association's members can potentially recover consequential damages for lost profits.. Mastercraft then refused to pay for these parts. unhappy with the weeds in their grass. and for that a court can rely on financial forecasts made by experts. Lewis River lost most of its customers. under an express warranty. The Association demanded (1) lost profits for gasoline sales. ruling that the plaintiff’s claims were too speculative. and destroyed all remaining sod grown from Scott’s seeds. and (3) loss of goodwill. Lewis River Golf. obtaining all gasoline. The court affirmed Lewis River's verdict. Later. 4. . But the sod grown from the Scott seeds developed weeds. based on the buyer's history of sales. and both are potentially recoverable. 120 Wash. and returned others. 3. the owners could not cover by purchasing gasoline elsewhere. and that the poorquality gas had caused serious engine problems and a steep drop in customers. (2) lost profits for food and other items. M. Mastercraft then requested that Ace deliver all of the remaining instruments and other parts that it had purchased for use in Mastercraft boats. by the decreased sod production. Eventually. The AM/PM Franchise association was a group of 150 owners of ARCO Mini-Market franchises in Pennsylvania and New York. M. using oxinol. LEXIS 286 (Tenn. Mastercraft later ordered Ace to forward the goods to M & G. App. Scott & Sons. The losses could represent lost sales of gasoline. M & G Electronics. so it terminated its relationship with Ace. and lost goodwill. food. Answer: Reversed. Mastercraft requested that Ace deliver the remaining parts (which Mastercraft had sent back to Ace) to M & G. It bought seed from defendant. Goodwill refers to future business lost. Typically. claiming that a plaintiff may not recover for lost profits and goodwill. cut back its production from 275 acres to 45 acres. Inc. stating that the shipment had been unauthorized. Lewis River Golf. 1995 Tenn. Please rule. It is reasonable to assume that if gasoline sales dropped. Finally. kept some. as long as the plaintiffs can provide a reasonable basis from which the jury can calculate goodwill damages. v Mastercraft Boat Co. but returned others to Ace.2. since such a request indicates that Mastercraft owns them. Ace would order electrical instruments and other parts and assemble them to specifications that Mastercraft provided. a breach of Scott’s warranty. The Association sued. without stating that they were non-conforming. 1995). and the Association appealed. Inc. 1993 Wash.026. Ace is entitled to its money because inspection sometimes creates acceptance. Mastercraft decided to work with a different assembler. 2d 712. Comment. Scott appealed.800. Ace Industries. An inspection without a reasonably prompt rejection is generally an acceptance. Ct. 1993 U. Amerada Hess Trading Co. seeking to obtain cheaper oil. which was a counteroffer. Argument for Hess: Hess was entitled to conforming goods.5. Is this a legitimate way to do it? Is this how BWNI would wish to be treated itself? If you think BWNI did behave ethically. a rejection of the offer to cure. All labor and materials will be at the company’s expense.. as specified. v. the parties had intended it to cover cases in which the waterproofing did not work as intended. with the sulfur content not to exceed 1 percent. That entitled Clark to summary judgment under UCC section 2-508(1). Please rule. meaning that it blended the high-sulfur oil with the rest. Hess chose not to deal further with Clark because it had lost confidence in Clark’s ability to perform. ETHICS Laura and Bruce Trethewey hired Basement Waterproofing Nationwide. Clark’s belief that the goods conformed was reasonable because its tests indicated as much.. and it promptly did so. As a limitation of consequential damages it is unconscionable. comment on ethics. Dist. Hess had the right to reject non-conforming goods. due to arrive February 1. Hess rejected the offer. Apart from the legal ruling. Water poured into the basement. to waterproof the walls in their basement for a fee of $2. How would you protect your company’s interests while still acting in a way you consider moral? Answer: The court ruled that regardless of whether the liability limitation was interpreted as a liquidated damage clause or a limitation of consequential damages. claiming negligence and breach of warranty. N.500. and since the Trethewey's were consumers they . and the Tretheweys ultimately spent $38. They sued. that is. LEXIS 10801. As a liquidated damages clause. Under the perfect tender rule. Most of the oil met specifications. the court held. Hess acted in bad faith. Clark recirculated the oil. Clark retendered the original oil. the Trethewey's won. what advice would you have for consumers who hire home improvement companies? If you believe the company did not behave ethically. because a seller is allowed a reasonable time to cure following expiration of the contract if it reasonably believed that the original goods conformed. by January 31. but BWNI claimed its liability was limited to $2.S. Clark is entitled to the difference between the contract price and its resale price.. Discussion Questions 1.S. Hess responded by offering to pay less. and notified Amerada that it could deliver 100 percent of the oil.Y. Dist. that is the end of the discussion. So. Answer: The court granted Clark’s motion for summary judgment. imagine that you are a BWNI executive. Clark went even further. charged with drafting a standard contract for customers. On February 6. Inc. Clark offered to replace the oil with an entirely new shipment. On January 26. On January 30.500. U. BWNI’s contract stated: ―BWNI will service any seepage in the areas waterproofed at no additional cost to the customer. Is Clark entitled to damages? Argument for Clark: A seller is entitled to cure any defects. No reasonable person would agree to a $2. Clark sold the oil elsewhere for $17.‖ The material that BWNI used to waterproof the Tretheweys’ walls swelled and caused large cracks to open in the walls. Dist. Clark Oil Trading Co. 1993. Clark tendered oil from various ships.You Be the Judge: WRITING PROBLEM Clark Oil agreed to sell Amerada Hess several hundred thousand barrels of oil at $24 each by January 31. The company is also entitled to summary judgment under section 2508(2). Clark did so in good faith and offered all of the oil by the contract deadline. Liability for any damage shall be limited to the total price paid for this contract.500 limit to damage done to his house. all of which met contract terms. not cases where BWNI did its work negligently. Hess did not respond. Hess rejected all of the oil.75 per barrel and filed suit. offering an entirely new shipment of oil. and Hess rejected it. BWNI wanted to protect itself against unlimited damage claims. but a small amount contained excess sulfur. and Clark failed to deliver. Clark’s statement that it would reblend the oil was a legally sufficient offer to cure. Ct.000 to repair the damage. It does not apply. 1994). and at that time it received only $92 per barrel. The court held that there was no limit to the amount of damages the Trethewey's could recover. Super. Because the average homeowner is less likely than a corporation to understand such remedy limitations. Refinery refused Oilko's shipment on November 1. to be delivered every week for one year. A buyer can reject non-conforming goods in an installment contract only if the non-conformance substantially impairs the value of that installment and cannot be cured. Review the section "Damages for Non-Acceptance". Is this fair? Would it be more sensible to allow a company like Oilko to receive $8 per barrel in damages? Answer: The answers will vary. In that section's example. 2. 1994 Del. course of dealing. the UCC allows Oilko to receive only $1 per barrel in damages. first the City must reject the goods. Are the goods non-conforming? Yes.000 gallons of gas for its fleet of police cruisers from Value Gas Co. Can Metropolis sue for breach? Strategy: This question is really about proper rejection. 5. declining to enter into a contract with such a restrictive limit on liability. and think that he was overcompensated for foolish spending? Answer: The answers will vary. courts generally reject these clauses in consumer contracts.would not be expected to have BWNI's sophistication. rather than the $8 per barrel reduction in price it actually received. or are they too lenient on sellers who deliver nonconforming goods? Answer: The answers will vary. it is an installment contract: 2000 gallons of gas every week for one year. Are the UCC's rules related to cure sensible? If a seller ships goods that are not what you ordered. The opening scenario presented the true story of a man who paid a great deal of money for a Plymouth Prowler. 3. Consider the UCC's exceptions to the perfect tender rule: usage of trade. Shipment number 5 only contained 1. Basement Waterproofing Nationwide. 4. Clearly this is not how BWNI would like to be treated. Inc. . and course of performance. Super. Do these all seem reasonable.000 in damages? Or do you agree with the Devil's Advocate feature. In order to sue for breach. In such a case. Ct. when the oil was worth $99 per barrel. In fact it probably would refuse to be treated this way.. Oilko waited three months to resell the oil.985 gallons of gas. Trethewey v. Let’s look at the contract. the delivery is 15 gallons short. should you (in many circumstances) be required to give them a chance to "make it right?" Answer: The answers will vary. LEXIS 504 (Del. Bonus Exam Strategy: Question: The City of Metropolis contracted to buy 2. Do you agree with the court's decision to award him nearly $30. this type of nonconformance is easily cured. Also.000 gallon delivery substantially impairs the value of that installment. Metropolis cannot sue for breach.Result: While the installment is non-conforming. . it does not seem that a 15 gallon shortage of a 2.