Tuesday, April 3, 2012

Business Law Text And Cases Chapter 20 The Formation of Sales and Lease Contracts


Chapter 20


The Formation of
Sales and Lease Contracts




true/false questions

A1.      Article 2 of the UCC governs contracts for sales of goods.

            answer:    t                              PAGE:     393                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B1.      Under the UCC, a sale of goods will be considered valid only if the goods are paid for with money.

            answer:    f                              PAGE:     394                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A2.      Under the UCC, a sale occurs when title passes from a seller to a buyer for a price.

            answer:    t                              PAGE:     394                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B2.      A copyright is an example of property that does not come under Article 2.

            ANSWER:    T                              PAGE:     394                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A3.      For an item to be characterized as a “good” under the UCC, it must be intangible.

            ANSWER:    F                              PAGE:     394                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B3.      The UCC governs sales of services.

            ANSWER:    F                              PAGE:     395                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A4.      A contract for the sale of minerals is considered to be a contract for the sale of goods if the severance is to be made by the buyer.

            answer:    f                              PAGE:     395                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B4.      If a seller is to remove a structure attached to land, the sale of the struc­ture is treated as one involving goods.

            answer:    T                              PAGE:     395                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A5.      A sale of a fixture is always considered a sale of realty.

            answer:    f                              PAGE:     395                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal



B5.      In a contract in which goods and services are combined, the contract is al­ways considered an agreement for the sale of goods.

            ANSWER:    F                              PAGE:     395                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A6.      The UCC imposes some different rules of conduct on merchants and consumers.

            answer:    T                              PAGE:     396                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B6.      The UCC does not impose different standards on merchants than it im­poses on consumers.

            answer:    F                              PAGE:     396                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A7.      Under the UCC, a merchant who sells one type of good will be considered a merchant for any other type of good that he or she may sell.

            answer:    f                              PAGE:     396                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B7.      Article 2A of the UCC covers sub­leases of goods.

            answer:    T                              PAGE:     398                          TYPE:      +
                        NAT: AACSB Reflective                                                   AICPA Legal

A8.      A consumer lease is subject to Article 11 of the CISG.

            answer:    F                              PAGE:     398                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B8.      A consumer lease is excepted from coverage under the UCC.

            answer:    F                              PAGE:     398                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

A9.      A lessor is a party who acquires a right to the possession and use of goods under a lease.

            answer:    F                              PAGE:     398                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B9.      A lessee is a party who transfers a right to the possession and use of goods under a lease.

            answer:    F                              PAGE:     398                          TYPE:      +
                        NAT: AACSB Analytic                     AICPA Legal

A10.    Under the UCC, a contract for a sale of goods that includes open terms is void.

            answer:    f                              PAGE:     399                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B10.    Under the UCC, the validity of a contract depends on its price term.

            answer:    F                              PAGE:     398                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

A11.    If a contract for a sale of goods omits a price term, a reasonable price for the goods can be determined by looking at the market for them.

            ANSWER:    T                              PAGE:     400                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B11.    If a contract for a sale of goods does not include the delivery date, there is no basis for enforcing it.

            answer:    f                              PAGE:     399                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A12.    The UCC imposes a good faith limitation on output contracts.

            answer:    T                              PAGE:     400                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B12.    Under the UCC, a contract for a sale of goods that does not include the quantity is a requirements contract.

            ANSWER:    F                              PAGE:     400                          TYPE:      +
                        NAT: AACSB Reflective                                                   AICPA Legal

A13.    When an offer does not specify a means of acceptance, it can be accepted by any means reasonable under the circumstances.

            answer:    T                              PAGE:     401                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B13.    The rules governing firm offers apply to certain merchants only.

            answer:    f                              PAGE:     400                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A14.    Under the mirror image rule, an offer must be accepted in its entirety without modi­fication or reservation or else no contract can be formed.

            answer:    t                              PAGE:     402                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B14.    Under the UCC, an offer to buy goods can be accepted only by a prompt shipment of the goods.

            ANSWER:    F                              PAGE:     401                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A15.    If a nonmerchant’s offer expressly conditions acceptance on a nonmer­chant’s agreement to the terms of the offer, a positive response may con­sti­tute an acceptance even if it contains additional terms.

            answer:    t                              PAGE:     402                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B15.    If a sales contract is unilateral, the offeror need not be notified of the of­feree’s performance.

            answer:    f                              PAGE:     401                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A16.    Under the UCC, an agreement modifying a contract needs no considera­tion to be binding.

            ANSWER:    T                              PAGE:     405                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B16.    Under the UCC, an agreement modifying a contract “needs new consid­eration to be binding.”

            answer:    f                              PAGE:     404                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A17.    No oral contract is enforceable under the UCC.

            ANSWER:    F                              PAGE:     406                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B17.    All oral contracts are enforceable under the UCC.

            ANSWER:    F                              PAGE:     405                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A18.    Under the UCC, an oral contract for a sale of goods is enforceable unless payment has been made and accepted.

            ANSWER:    F                              PAGE:     406                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B18.    Two parties’ prior dealing may be considered to resolve an ambiguity in a contract between them.

            answer:    t                              PAGE:     407                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A19.    A court can refuse to enforce a contract that the court deems to have been unconscionable at the time it was made.

            answer:    T                              PAGE:     408                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B19.    An unconscionable contract is a contract so one-sided and unfair at the time it is made that enforcing it would be unreasonable.

            ANSWER:    T                              PAGE:     408                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A20.    A contract between parties residing in different countries is subject to United Nations Convention on Contracts for the International Sale of Goods.

            answer:    T                              PAGE:     410                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B20.    A contract between parties residing in different countries is subject to Article 2A of the UCC.

            answer:    F                              PAGE:     410                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal




multiple choice questions

A1.      Bild-Rite, Inc., is a Colorado-based firm that does business with clients throughout North America. Bild-Rite oversees construction projects, and buys and sells commercial buildings, undeveloped land, and construction supplies and other goods. Bild-Rite has had to deal with work-site theft and vandalism. With respect to these circumstances, the Uniform Commercial Code (UCC) provides a framework for

a.         commercial transactions for the sale of and payment for goods.
b.         international construction contracts.
c.         domestic and foreign transactions in real estate.
d.         prosecuting crimes against business interests.

            ANSWER:    A                        PAGE:           393                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B1.      Stardust Coffee Company is a Texas-based firm that does business throughout the world. Stardust manages retail and wholesale operations, buys and sells commercial venues, undeveloped land, and coffee beans, and other goods. Stardust has had to deal with employee and customer theft. With respect to these circumstances, the Uniform Commercial Code (UCC) provides a framework for

a.         commercial transactions for the sale of and payment for goods.
b.         international distribution agreements.
c.         domestic and foreign transactions in real estate.
d.         prosecuting crimes against business interests.

            ANSWER:    A                        PAGE:           393                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A2.      Omni Corporation is a Pennsylvania-based firm that does business throughout the United States. With respect to this circumstance, the UCC has been adopted by, and applies in,

a.         a few of the states.
b.         all of the states, in whole or in part.
c.         half of the states.
d.         none of the states, to date.

            ANSWER:    B                        PAGE:           393                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B2.      High n’ Mighty Mart, Inc., is an Illinois-based firm that does business throughout the United States. With respect to this circumstance, the UCC has been adopted by, and applies in,

a.         all of the states, in whole or in part.
b.         most of the states on the Atlantic and Pacific coasts.
c.         none of the states, to date.
d.         only the states on the Mississippi, Missouri, and Ohio Rivers.

            ANSWER:    A                        PAGE:           393                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A3.      Over the course of a year, Retail Marketers, Inc., sells goods from its inventory and one of its warehouses. In exchange, Retail receives checks and other items that substitute for cash, which Retail uses to repay a loan from Savings Bank. Article 2 of the UCC governs

a.         the checks.
b.         the payment of the loan.
c.         the sale of the buildings.
d.         the sale of the goods.

            ANSWER:    D                        PAGE:           393                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal


B3.      Over the course of a year, Real Deal Corporation sells appliances to customers to whom it extends credit. Real Deal orders the appliances from Superior Appliance Company’s warehouse, from which the items are shipped via common carrier to Real Deal’s customers. Article 2 of the UCC governs

a.         all of the parties’ sales of the goods.
b.         Real Deal’s extension of credit.
c.         Superior’s storage of the goods.
d.         the common carrier’s delivery of the goods.

            ANSWER:    A                        PAGE:           393                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A4.      Nemo pays Office Supply Company $1,500 for a laptop com­puter. Under the UCC, this is

a.         a gift.
b.         a lease.
c.         a sale.
d.         not a gift, a lease, or a sale.

            answer:    C                              PAGE:     394                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B4.      Expert Stitching Corporation enters into a contract to sell denim clothing to Fine Fashion Company, which in turn sells a pair of jeans to Grady, a consumer. In contrast to standards that apply to consumers, the UCC imposes on merchants

a.         less strict legal standards.
b.         special business standards.
c.         stricter ethical standards.
d.         the same overall standards.

            ANSWER:    B                        PAGE:           396                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A5.      In a dispute over a sale involving a bicycle, Dain argues that as to this deal Elle’s Hobby Shop, where Dain bought the bike, is a merchant. A court may determine whether Elle’s is a merchant by assessing whether

a.         it has sold any bikes within the last year.
b.         it holds itself out by occupation as having knowledge or skill unique to the bike in the transaction.
c.         its owner enjoys biking.
d.         it subscribes to Bike, a biweekly trade magazine.

            ANSWER:    B                              PAGE:     396                          TYPE:      +
                        NAT: AACSB Reflective                  AICPA Legal

B5.      Rikki and Sid enter into a sales contract. With respect to the specific contractual provisions set out in the UCC, Rikki and Sid may

a.         agree to different terms only to a reasonable extent.
b.         agree to different terms unless they “get caught.”
c.         agree to whatever terms they wish.
d.         not agree to different terms.

            ANSWER:    C                              PAGE:     398                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A6.      Cleo sells kitchen appliances, and occasionally cleaning supplies, to per­sons who come into her store, Discount Appliances. One afternoon, Cleo sells a used display shelf to Earl. Under the UCC, Cleo is a merchant of

a.         cleaning supplies and kitchen appliances only.
b.         cleaning supplies, display shelves, and kitchen appliances.
c.         cleaning supplies only.
d.         kitchen appliances only.

            ANSWER:    A                              PAGE:     396                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B6.      Excel Autos & Trucks, Inc., contracts to sell five trucks to First Leasing Corporation, which contracts to lease the trucks to General Delivery Company. Article 2A of the UCC applies to

a.         neither the lease nor the sale.
b.         the lease and the sale.
c.         the lease only.
d.         the sale only.

            ANSWER:    C                              PAGE:     398                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A7.      Rally Corporation enters into a contract to sell ski gear to SnoSportz Company, which sells a pair of the skis to Tyra, a consumer, who later sells them to Uli, another consumer. Article 2 of the UCC applies to  the sales transactions between

a.         all of the buyers and sellers.
b.         Rally and SnoSportz only.
c.         SnoSportz and Tyra only.
d.         Tyra and Uli only.

            ANSWER:    A                        PAGE:           396                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal


B7.      American Products Company and Best Manufacturing, Inc. (BMI), enter into a contract for the sale of a certain quantity of machine parts, with BMI to determine the price. The price must be fixed according to the con­cept of

a.         good faith.
b.         square dealing.
c.         the mere image rule.
d.         unconscionability.

            ANSWER:    A                              PAGE:     399                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A8.      Curtis enters into a contract with Drive-Away Lease Company for a three-year lease of a car. This contract is subject to

a.         Article 2 of UCC.
b.         Article 2A of the UCC.
c.         Article 11 of the CISG.
d.         the common law only.

            ANSWER:    B                        PAGE:           398                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B8.      Cathy and Dave sign a contract for a sale of goods. Cathy is to set the price for the goods at the time of delivery, but on delivery, refuses to do so. Dave may only

a.         fix a reasonable price.
b.         fix a reasonable price or treat the contract as canceled.
c.         treat the contract as canceled.
d.         wait for Cathy to set the price.

            ANSWER:    B                              PAGE:     399                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A9.      Standard Office Corporation pays Tech Products $1,000 to use a Tech com­puter for a month. For purposes of the UCC, this is

a.         a bailment.
b.         a consignment.
c.         a lease.
d.         a sale.

            answer:    C                              PAGE:     398                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B9.      Variety Goods, Inc., and World Sales Corporation enter into a contract that does not specify the payment terms. Payment may be made in

a.         any commercially acceptable means except cash.
b.         cash only.
c.         cash or any commercially acceptable substitute.
d.         cash or check only.

            ANSWER:    C                              PAGE:     399                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A10.    Metro Daily and New City Newsstand enter into a contract under which Metro agrees to deliver a certain quantity of newspapers to New City each day. The contract does not include a price term. In a suit between the par­ties over the price, a court will

a.         determine a reasonable price.
b.         impose the lowest market price.
c.         refuse to enforce the agreement.
d.         return the parties to the positions they held before the contract.

            ANSWER:    A                              PAGE:     399                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B10.    NuTech Company agrees to sell computer equipment to Office Stores, Inc. (OSI) for OSI to market to its customers. Their contract will not be en­forceable unless it includes

a.         the duration of the deal.
b.         the price of the goods.
c.         the quantity of the goods.
d.         the requirements of OSI’s customers.

            ANSWER:    C                              PAGE:     400                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A11.    Regional Products, Inc., agrees to sell to Quantity Dealers Corporation a certain amount of goods but no mention is made of where the goods are to be delivered. In general, the UCC requires that the delivery take place at

a.         a neutral place of business halfway between the parties’ locations.
b.         a UCC-designated warehouse.
c.         Regional’s place of business.
d.         Quantity’s place of business.

            ANSWER:    C                              PAGE:     399                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B11.    Doctors Medical Clinic orders 1,000 bandages from Emergency Supplies Company but fails to specify the sizes. The bandages are delivered in an assortment of sizes. Doctors Medical Clinic may

a.         accept the bandages “as is” only.
b.         accept the bandages “as is” or reject the entire shipment only.
c.         accept only the bandages that it wants and reject the rest.
d.         reject the entire shipment only.

            ANSWER:    C                              PAGE:     401                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A12.    Roy’s Chick’n Shack orders chicken from Standard Food Supplier, but Standard does not deliver. Roy’s will probably be unable to enforce the agreement if the parties

a.         did not limit the duration of the deal.
b.         did not specify a payment term.
c.         did not specify a quantity term.
d.         have not begun to perform.

            ANSWER:    C                              PAGE:     400                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B12.    Contractors Construction Corporation offers to buy from Dandy Cement Company a certain quantity of cement for a certain price. Dandy can ac­cept the offer by

a.         doing nothing.
b.         promising to ship or promptly shipping the cement.
c.         promising to ship the cement only.
d.         promptly shipping the cement only.

            ANSWER:    B                              PAGE:     401                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A13.    Desktop Company offers to sell eRetail, Inc., 1,000 computers for a $500,000, states that the offer will be open for six days, and asks for a response by fax. On the fourth day, eRetail sends an acceptance to Desktop via the mail, which is received on the sixth day. In this deal

a.         a contract is formed.
b.         no contract is formed, because Desktop asked for a response by fax.
c.         no contract is formed, because Desktop received the acceptance late.
d.         no contract is formed, because eRetail sent the acceptance late.

            ANSWER:    A                              PAGE:     401                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B13.    Best Sales, Inc., is the offeror and City Goods Corporation is the offeree under a unilateral sales contract in which Delta Products Company is also interested. Best is not notified of City’s performance within a rea­son­able time. Best

a.         may treat the offer as having lapsed.
b.         must assume that City has started to perform.
c.         must contact City.
d.         must contract with Delta.

            ANSWER:    A                              PAGE:     401                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A14.    Retail Music, Inc., offers to buy from Super Products Corporation (SPC) 1,000 blank CDs of a certain brand. Without notifying Retail, SPC timely ships CDs of a different brand. This shipment is

a.         an acceptance of the offer and a breach of the parties’ contract.
b.         an acceptance of the offer and a fulfillment of the parties’ contract.
c.         a refusal of the offer and a breach of the parties’ contract.
d.         a refusal of the offer and a fulfillment of the parties’ contract.

            ANSWER:    A                              PAGE:     402                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B14.    Equipment Rental Corporation and Family Farm, Inc., are parties to an oral agreement for a lease of goods with payments in excess of $10,000. They may satisfy the Statute of Frauds by

a.         mutually agreeing not to commit fraud.
b.         restating the terms in a phone call.
c.         setting out the terms in an e-mail.
d.         shaking hands on the deal.

            ANSWER:    C                              PAGE:     405                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A15.    United Farms offers to sell Valu Bakeries, Inc., fifty bushels of wheat. Valu’s representative Wendy responds, “We agree to buy fifty bushels only if the wheat is Grade A quality.” Wendy’s statement is

a.         a breach of the parties’ contract.
b.         a counteroffer.
c.         a fulfillment of the parties’ contract.
d.         an acceptance.

            ANSWER:    B                              PAGE:     404                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal


B15.    Kelly offers to buy cooking oil from Jim. Jim believes Kelly asks for 10,000 gallons and orally agrees to the sale. When the parties later dispute the deal in court, Jim’s claim of 10,000 gallons and Kelly’s testimony that she ordered only 1,000 gallons

            a.         prevents the enforcement of any contract between these parties.
            b.         supports an enforceable contract for 10,000 gallons.
            c.         supports an enforceable contract for 5,500 gallons.
            d.         supports an enforceable contract for 1,000 gallons.

            ANSWER:    D                              PAGE:     406                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A16.    Rite Clothiers, Inc., sells t-shirts to Brand Name Stores, Inc., under an existing con­tract. When textile costs increase, Brand agrees to a price increase, but later wants to cancel the con­tract. Brand may

a.         cancel the contract immediately.
b.         cancel the contract only after accepting a final shipment.
c.         cancel the contract only on reasonable notice.
d.         not cancel the contract.

            ANSWER:    D                              PAGE:     404                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B16.    Recreation Supplies, Inc. (RSI), and Sam, the owner of a Tourist Time shop, orally agree to a sale of beach balls and seashells for $1,000. Sam gives RSI a check for $400 as a partial payment. This contract is

a.         enforceable to the extent of $400.
b.         fully enforceable because it is for specially made goods.
c.         fully enforceable because it is oral.
d.         not enforceable.

            ANSWER:    A                              PAGE:     406                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A17.    Quinn enters into a series of agreements with Reba involving a sale of a Suite Dreams Motel, including the land, building, furnishings, shares of stock in Suite Dreams Company, and a contract with Trudy to create an ad campaign. Reba suspects that Quinn may be misrepresenting the facts. The UCC Statute of Frauds governs the sale of

a.         any of the property evidenced by a writing.
b.         any of the property that may involve fraud.
c.         the furnishings priced at $500 or more.
d.         the land and the building.

            ANSWER:    C                        PAGE:           405                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B17.    Fruits & Vegetables, Inc., and Great Grocery Stores dispute the interpretation of an ambiguous phrase in their contract. In a suit between the parties to con­strue the contract, a court may accept evidence of

a.         consistent additional terms only.
b.         consistent additional terms and contradictory terms only.
c.         contradictory terms only.
d.         anything extrinsic to the contract.

            ANSWER:    A                              PAGE:     406                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A18.    Tasty Pastries, Inc., and other bakers refer to a “baker’s dozen” as con­sisting of a collection of thirteen baked goods. This is an example of

a.         course of dealing.
b.         course of performance.
c.         square dealing.
d.         usage of trade.

            ANSWER:    D                              PAGE:     407                          TYPE:      +
                        NAT: AACSB Reflective                                                   AICPA Legal

B18.    Timber Products, Inc., and Walt, a consumer, enter into a contract for a sale of plywood. If the contract includes a clause that is perceived as grossly unfair to Walt, its enforcement may be challenged under the doc­trine of

a.         good faith.
b.         square dealing.
c.         the mere image rule.
d.         unconscionability.

            ANSWER:    D                              PAGE:     408                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A19.    Gail enters into a contract with Hi-Price Appliances, Inc. In a suit be­tween the parties over payment under the contract, Gail claims that a certain clause is unconscionable. If the court agrees, it may

a.         enforce, limit, or refuse to enforce the contract or the disputed clause.
b.         enforce the contract without the disputed clause only.
c.         limit the application of the disputed clause only.
d.         refuse to enforce the entire contract only.

            ANSWER:    A                              PAGE:     408                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal


B19.    In Case 20.3, Jones v. Star Credit Corp., which of the following factors was not considered by the court when it declared a contract for the pur­chase of a freezer unconscionable

a.         The price the plaintiffs were charged was more than four times the freezer’s retail value.
b.         The credit charges alone exceeded the freezer’s retail value.
c.         The seller knew of the buyers’ limited resources.
d.         The freezer was not merchantable.

            ANSWER:    D                              PAGE:     408                          TYPE:      =
                        NAT: AACSB Communication       AICPA Legal

A20.    Overseas Corporation (OC), a U.S. firm, orally agrees to sell six freezers to Pisa Pizza, Ltd., in Italy. OC fails to deliver. Under the CISG, Pisa Pizza can

a.         enforce the agreement.
b.         not enforce the agreement because it is not in writing.
c.         not enforce the agreement because the price term is not specified.
d.         not enforce the agreement because there is no consideration.

            ANSWER:    A                              PAGE:     412                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B20.    Rodeo, S.A., which is based in Spain, enters into a contract for the sale of seven hydraulic lifts to Tonnage Shipping Company, which is based in the United States. This contract is governed by

a.         Spanish law.
b.         the provisions in the laws of both countries that are similar.
c.         the UCC.
d.         the United Nations Convention on Contracts for the International Sale of Goods.

            ANSWER:    D                        PAGE:           410                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal



Essay Questions

A1.  Clean Machines Company makes washing machines. Over the phone, Clean offers to sell Dealers Appliance Outlet one hundred model EZ2000 washers at a price of $150 per unit. Clean says that it will keep the offer open for ninety days. Dealers responds that within two or three weeks it will decide whether to accept. One week later, Clean faxes, and Dealer receives, notice that the offer is withdrawn. Dealer immediately phones Clean to accept the $150-per-unit offer. When Clean refuses to deliver at that price, Dealer files a suit. Clean asserts, first, that there is no contract and, second, that if there is a contract, it is unenforceable. Discuss Clean’s assertions.

ANSWER:    Clean’s contention that there is no contract between it and Dealer is correct. An offeror can revoke an offer at any time before acceptance without liability unless the offer is irrevocable. For this offer to be considered irrevocable, Dealer would have to prove that it had an option, which requires consideration, or that the offer was irrevo­cable under UCC 2–205. Neither of these applies. Dealer gave no con­sideration for the offer to be kept open, and thus no option was created. And, for the offer to be irrevocable under the UCC with­out consideration, Clean—a merchant—would have had to give assurance that the offer would re­main open for ninety days in a signed writing.  Because the assurance was made orally, the offer was re­vocable.  Thus, Dealer’s receipt of Clean’s revocation (withdrawal) of the offer before Dealer’s acceptance terminated the offer, and no contract was formed.
            Clean’s contention that even if a contract was created, the contract is unen­force­able is also correct. Under UCC 2–201, any contract for the sale of goods priced at $500 or more must be in writing, be supported by written evidence such as a memorandum, or be the object of an applicable exception (such as written confirmation between mer­chants, specially ordered or manufactured goods, admission under oath, or partial per­formance completed) to be enforceable.  The contract in the case presented here is for the sale of goods (washing machines) priced at $500 or more ($15,000).  It was not in writing; nor is there a writing signed by Clean that an oral contract was formed.  Also, none of the excep­tions apply. Thus, even if Dealer could prove that an oral con­tract had been made, the contract could not be enforced against Clean’s defense of the Statute of Frauds.

PAGES:         400–401 & 405–406              type:         N
            NAT: AACSB Reflective                                                   AICPA Decision Modeling

B1.  On September 1, Jennings, a used-car dealer, wrote a letter to Wheeler in which he stated, “I have a 1955 Thunderbird convertible in mint condition that I will sell you for $13,500 at any time before October 9. [signed] Jennings.” By September 15, having heard nothing from Wheeler, Jennings sold the Thunderbird to another party. On September 29, Wheeler accepted Jennings’s offer and tendered the $13,500. When Jennings told Wheeler he had sold the car to another party, Wheeler claimed Jennings had breached their contract. Is Jennings in breach? Explain.

ANSWER:    Yes.  Under UCC 2–205, a merchant offeror, who in a signed writing gives as­surance that an offer will remain open, creates an irrevocable offer (without payment of consideration) for the time period stated in the assurance up to a three-month period.  Jennings, as a merchant, was obliged to hold the offer (which had been made in a signed writing—the letter) open until October 9.  Wheeler’s acceptance of the offer prior to October 9 created a valid contract, which Jennings breached when he sold the Thunderbird to a third party.

PAGES:         400–401                 type:      N
            NAT: AACSB Reflective                                                   AICPA Decision Modeling

A2.  Tune Products, Inc., offers to sell to Unlimited Sales Company one hundred MP3 players at $50 a piece, subject to certain specific delivery dates. Unlimited replies with a signed purchase order that reads, “Accept your of­fer for 100 I-appliances at $50 each.  Must be delivered to our ware­house.” Tune does not respond or deliver the goods. Unlimited files a suit for breach of contract, to which Tune answers that there is no contract because Unlimited’s purchase order contained additional terms and is not signed by Tune. Can Unlimited recover? Explain.

ANSWER:    Yes. Additional or different terms in an unconditional ac­cep­tance, which is otherwise definite and timely, are interpreted as pro­pos­als for additional terms to a contract, unless the contract is between mer­chants. In that situation, the terms become part of the contract un­less (1) the offer expressly limits acceptance to its terms, (2) the addi­tional terms materially alter the contract, or (3) the offeree objects to the addi­tional terms within a reasonable time. Here, the offer did not ex­pressly limit the acceptance, the extra terms did not materially change the con­tract, and Tune did not object within a reasonable time. If either or both of the par­ties is not a merchant, a contract is formed according to the terms of the original offer.  Thus, here, the additional term (delivery to Unlimited’s warehouse) would have become part of the contract even if one or both parties had not been merchants. Tune’s Statute of Frauds claim (that the purchase order was not signed by Tune) also fails. For a con­tract for a sale of goods between merchants, when one party sends a writ­ten con­firmation within a reasonable time after terms have been reached orally, the confirmation is binding unless the recipient objects within ten days of receipt. The merchant receiving the communication must have reason to know its contents, but it needs to be signed only by the party who sends it. Here, Tune received the signed writing, but did not object within the ten days.

PAGES:         402–404 & 405–406              type:         =
                        NAT: AACSB Reflective                  AICPA Decision Modeling

B2.  Fresher Foods, Inc., orally agrees to buy from Dale, a farmer, one thousand bushels of corn for $1.25 per bushel. Fresher Foods pays $125 down and agrees to pay the remainder of the purchase price on delivery, which is scheduled for one week later. When Fresher Foods tenders the balance of $1,125 on the scheduled day of delivery and requests the corn, Dale refuses to deliver it. Fresher Foods sues Dale for damages, claiming that Dale breached their oral contract. Can Fresher Foods recover? If so, to what extent?

ANSWER:    Under the Statute of Frauds [UCC 2–201(1)], any contract for the sale of goods priced at $500 or more must be in writing in order to be enforceable.  An excep­tion to this rule is made when the contract has been partially performed.  An oral agreement will be enforceable to the extent that payment has been made and accepted or to the extent that goods have been received and accepted.  Be­cause Dale accepted Fresher Foods’ down payment of $125, their contract will be en­forceable to this amount.  That means that Dale is obligated to de­liver to Fresher Foods 100 bushels of corn (which, at $1.25 per bushel, totals $125).

PAGES:         405–406                 type:      N
            NAT: AACSB Reflective                                                   AICPA Decision Modeling



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