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
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
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
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
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 Roy
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
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
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
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 Jennings Jennings Jennings Jennings
told Wheeler he had sold the car to another party, Wheeler claimed Jennings Jennings
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 Jennings
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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