Understanding the Sale of Tangible Goods: Identification, Title, and Risk of Loss, Exams of Law

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ACCT 5700- Exam Questions with Verified Correct Answers Latest Version 2024 Contract - ANSWER - a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty - are voluntarily entered into by parties - agreement between two people thats enforceable by the courts of law unless there is a defense to enforcement - terms become private law between the parties remedy for breach unless defense to enforcement because - ANSWER 1. genuineness of assent 2. statute of frauds - certain types of contracts have to be in writing elements of a contract - ANSWER 1. agreement - mutual assent- both parties have to agree to the contract - offer by offeror and acceptance by offeree 2. consideration - the promise must be supported by bargained-for consideration that is legally sufficient - bargained for exchange - ex: money, services 3. contractual capacity - parties must have capacity for the contract to be enforceable against them - if no capacity, no agreement to be enforced 4. lawful object - contracts to accomplish illegal objects or contracts that are against public policy are void parties to a contract - ANSWER every contract involves at least two parties offeror - ANSWER the party who makes an offer to enter into a contract offeree - ANSWER the party to whom an offer is made defenses to the enforcement of a contract - ANSWER 1. genuineness of assent 2. writing and form genuineness of assent is lacking if - ANSWER consent is obtained by: - duress - undue influence - fraud sources of contract law - ANSWER - common law of contracts - Uniform Commercial Code (UCC) accept the terms a stated in the offer - any attempt to accept the offer on different terms constitutes a counteroffer consideration - ANSWER - something of legal value given in exchange for a promise - elements: something of legal value must be given, there must be a bargained-for exchange - something of legal value: a.) the promisee suffers a legal detriment b.) the promisor received a legal benefit c.) most common-payment or performance of an act promissory estoppel - ANSWER - an equitable doctrine that prevents the withdrawal of a promise by a promisor if it will adversely affect a promisee who has adjusted his or her position in justifiable reliance on the promise - allows enforcement of a contract that otherwise didn't have consideration, promissory estoppel acts as that consideration - also known as detrimental reliance elements to be proven under promissory estoppel - ANSWER - the promisor made promise - the promisor should've had reasonably expected that promise would rely on the promise - the promise actually relied on the promise on engaged in an action on forbearance of a right of a definite and substantial nature - injustice would result if the promise were not enforced capacity - ANSWER - law presumes that parties have contractual capacity to enter into the contract - certain persons do not have this capacity: 1. minors 2. persons who are mentally incompetent 3. intoxicated persons legality - ANSWER - a contract that has an illegal object or to perform activities that are prohibited by statute are illegal contracts is void - contracts to commit criminal acts are void - usury laws usury laws - ANSWER laws that set an upper limit on the interest rate that can be charged on certain types of loans contracts contrary to public policy - ANSWER - a contract that has a negative impact on society or that interferes with the public's safety and welfare - contract in restraint of trade - exculpatory clause - covenant not to compete (noncompete clause) exculpatory clause (release of liability cause) - ANSWER a contractual provision that relieves one (or both) of the parties to a contract form tort liability for ordinary negligence - Tort: damage to person or property covenant not to compete (noncompete clause) - ANSWER a contract that provides that a seller of a business or an employee will not engage in a similar of a business or occupation within a specified geographical area for a specified time following the sale of the business or termination of employment unconscionable contracts - ANSWER · A contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair to be unjust - This doctrine may not be used merely to save a contracting party from a bad bargain Elements of Unconscionability - ANSWER · The parties possess severely unequal bargaining power. · The dominant party unreasonable used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms · The adhering party had no reasonable alternative. If the court finds that a contract or contract clause is unconscionable, it may - ANSWER - Refuse to enforce the contract - Refuse to enforce the unconscionable clause but enforce the remainder of the contract - Limit the applicability of any unconscionable clause so as to avoid any unconscionable results contracts that must be in writing - ANSWER - Contracts involving interests in real property - Contracts that by their own terms cannot possibly be performed within one year - Collateral contracts in which a person promises to answer for the debt or duty of another - Promises made in consideration of marriage - Contracts for the sale of goods for $500 or more - Contracts for the lease of goods with payments of $1,000 or more formality of the writing - ANSWER - A written contract does not have to be drafted by a lawyer or formally typed to be legally binding - The law only requires a writing containing the essential terms of the parties' agreement required signature - ANSWER · Statute of Frauds and the UCC require the written contract, whatever its form, to be signed by the party against whom enforcement is sought parol evidence rule - ANSWER · A rule that says if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract void - ANSWER neither party has to perform exceptions to parol evidence rule - ANSWER · may be admitted in court if it: - Shows that a contract is void or voidable - Explains ambiguous language - Concerns a prior course of dealing or course of performance between the parties or a usage of trade - Fills in the gaps in a contract - Corrects an obvious clerical or typographical error promissory estoppel (equitable estoppel) - ANSWER · An equitable doctrine that permits enforcement of oral contracts that should have been in writing - It is applied to avoid injustice · The oral promise is enforceable against the promisor if the following three conditions are met: - ANSWER 1. The promise induces action or forbearance of action by another 2. Reliance on the oral promise was foreseeable 3. Injustice can be avoided only by enforcing the oral promise assignment of a right - ANSWER The transfer of contractual rights by obligee to another party assignor - ANSWER an obligee who transfers a right assignee - ANSWER the party to whom a right is transferred. the assignee is entitles to performance from the obligor privity of contract - ANSWER assignment of rights/delegation of duties notice of assignment - ANSWER · To protect his or her rights, the assignee should immediately notify the obligor that: - The assignment has been made, and - Performance must be rendered to the assignee limitations on assignment of a right - ANSWER - anti-assignment clause - approval clause anti-assignment clause - ANSWER - Prohibits assignment of rights under the contract - Used when obligor doesn't want to deal with or render performance to an unknown third party approval clause - ANSWER - Permits the assignment of the contract only upon receipt of an obligor's approval - Approval cannot be unreasonably withheld delegation of a duty - ANSWER a transfer of contractual duties by the obligator to another party for performance delegator - ANSWER an obligator who transferred his or her duty delegatee - ANSWER the party to whom the duty has been transferred anti-delegation clause - ANSWER a clause that prohibits the delegations of duties under the contract assignment and delegation - ANSWER occurs when there is a transfer of both rights and duties under a contract covenant - ANSWER - Permits the assignment of the contract only upon - To be lawful: Actual damages must be difficult or impracticable to determine Liquidated amount must be reasonable in the circumstances - Considered a penalty if actual damages can be determined - Almost always included in any written contract of significance if prepared by an attorney enforcement of remedies - ANSWER - writ of attachment - writ of garnishment writ of attachment - ANSWER An order of the court that enables a government officer to seize property of the breaching party and sell it at auction to satisfy a judgment writ of garnishment - ANSWER An order of the court that orders that wages, bank accounts, or other property of the breaching party held by third persons be paid to the nonbreaching party to satisfy a judgment equitable remedies - ANSWER · Equitable remedies are available if the legal remedy is inadequate or to prevent unjust enrichment 1. specific performance 2. reformation 3. injunction specific performance - ANSWER court orders breaching party to perform the acts promised. - Unique subject matter - Not for personal service contract reformation - ANSWER court rewrites the contract to express the true intentions of the parties injunction - ANSWER court prevents a party from doing a certain act common law covers - ANSWER real estate and services uniform commercial code - ANSWER - a model act that includes comprehensive laws that cover most aspects of commercial transactions - · is intended to facilitate interstate commerce by providing uniform rules (adopted and applied by states) and includes provisions with regard to good faith and reasonableness. - Many of these rules place the risk of loss on the party who is in the best position to bear the risk or insure against it. - Model act adopted by each state so rules are basically the same in each state article 1 - ANSWER general terms and definitions article 2 - ANSWER sale of goods article 2A - ANSWER lease of goods articles 3 and 4 - ANSWER negotiable instruments article 9 - ANSWER secured transactions sale (for sale) - ANSWER the passing of title (ownership) from a seller to a buyer for a price goods - ANSWER · Tangible things that are movable at the time of their identification to a contract - Money and intangible items are not considered tangible goods - Real estate and services are not goods - Tangible and moveable contracts for the provision of services - ANSWER are not covered by article 2 mixed sale - ANSWER - mera sale that involves the provision of a service and a good in the same transaction - article 2 appliied to mixed sales only if the goods are predominant part of the transaction merchant - ANSWER - One who deals in the goods of the kind involved in the transaction, or - By his or her occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction - Deals in goods of the kind - Has specialized knowledge of the goods Case 18.1 Good or Service - ANSWER - Brandt v. Boston Scientific Corporation and Sarah Bush Lincoln Health Center formation of sales and lease contracts: acceptance - ANSWER · Contract created when offeree sends acceptance to the offeror, not when offeror receives it § The UCC permits acceptance by any reasonable manner or method of communication § In certain circumstances, the UCC permits an acceptance of a sales contract to contain additional terms and still to act as an acceptance (i.e. does not act as a counteroffer as it does under the common law mirror image rule). The other party can accept or reject proposed additions. accommodation shipment - ANSWER - Shipment that is offered to the buyer as substitution for the originally ordered goods when they are not available - The accommodation is a counteroffer from the seller to the buyer - The buyer is free either to accept or to reject the counteroffer UCC Statute of Frauds - ANSWER · The following contracts must be in writing: 1. Contracts for the sale of goods costing $500 or more 2. Lease of goods with payments of $1,000 or more · Exceptions: Specially manufactured goods Admissions in pleadings or court Part acceptance written confirmation rule - ANSWER - If both parties to an oral sales or lease contract are merchants, the Statute of Frauds writing requirement can be satisfied if: - one of the parties sends a written confirmation of the sale or lease within a reasonable time after contracting, and - the other merchant does not give written notice of an objection to the contract within ten days after receiving the confirmation parol evidence rule - ANSWER a written contract is the complete and final statement of the parties' agreement, and any prior or contemporaneous oral or written statements that later, contradict or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract. · If express terms (in writing in the contract) are not clear on their face, reference may be made to certain outside sources: - ANSWER - Course of performance - Course of dealing - Usage of trade electronic sales and lease contracts - ANSWER - Revised Article 2 (Sales) and Revised Article 2A (Leases) contain provisions that recognize the importance of electronic contracting. - As such, an electronic record and an e-signature are sufficient to meet the writing requirement under the statute of frauds. conforming goods - ANSWER Exactly what was stated in the contract identification of goods - ANSWER · distinguishing of the goods named in a contract from the seller's or lessor's other goods - Already existing goods are identified when a contract is made and names the specific goods sold or leased - Goods that are part of a larger mass of goods are identified when the specific merchandise is designated future goods - ANSWER · goods not yet in existence - Identified when the goods are shipped, marked, or otherwise designated by the seller or lessor as the goods to which the contract refers title - ANSWER legal, tangible evidence of ownership of goods passage of title to goods - ANSWER - Title cannot pass until goods exist and have been identified goods in posession of bailee - ANSWER - the buyer receives negotiable document of title - the bailee acknowledge buyer's right to possession or - the buyer receives a nonnegotiable document of title and has reasonable time to demand goods seller in brach of a sales contract - ANSWER - seller retains risk of loss on the delivery of nonconforming goods to the buyer - the risk of loss remains on the seller until: a. the defect or nonconformity is cured, or b. the buyer accepts the nonconforming goods buyer in breach of a sales contract - ANSWER - a buyer breaches a sales contract if he or she refuses perform under the terms of the contract (i.e. doesn't take delivery of conforming goods or refuses to pay for them) - a buyer who breaches a sales contract before the risk of loss would normally pass to him or her bears the risk of loss of any goods identified to the contract risk of loss in conditional sales - ANSWER - sale on approval - sale or return - consignment sale on approval - ANSWER · there is no sale unless and until the buyer accepts the goods - risk of loss and title pass when the goods are accepted by the buyer sale or return - ANSWER · buyer may return goods unsold after a period of time - risk of loss and title pass to buyer when buyer has possession of goods consignment - ANSWER · seller (consignor) delivers goods to buyer (consignee) to sell; and consignor paid a fee for selling goods on behalf of the consignor - treated as sale or return risk of loss: lease contracts - ANSWER · in ordinary lease, risk of loss retained by lessor · in case of finance lease, risk of loss passes to lessee · in tendered goods are nonconforming, risk of loss remains with the lessor or the supplier until cure or acceptance sale of goods by nonowners - ANSWER -void title -fraudulently obtained goods -entrustment rule void title - ANSWER · a situation in which a thief acquires no title to goods he or she steals - buyer cannot obtain good title to the stolen goods, and thus, the rightful owner can reclaim (take the goods back from the buyer, who would then have to attempt to get their money back from the thief) fraudulently obtained goods - ANSWER the seller has voidable title to the goods obtained by fraud or a check that is later dishonored; however, if the buyer sold the good to a good faith purchaser for value (i.e. a third party who paid for the good), then the real owner cannot reclaim the good. entrustment rule - ANSWER · if the owner entrusts the possession of his/her goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights in the goods to a buyer in the ordinary course of business. As such, the real owner cannot reclaim the goods from this buyer. - Only applies to the merchant Case 19.1: Entrustment Rule - ANSWER - lindholm v. brant - - is Brant a buyer in the ordinary course of business who has a claim of buyer performance - ANSWER - accept conforming goods AND - pay for goods in accordance with terms of contract acceptance occurs in each of the following cases: - ANSWER - The buyer indicates acceptance by words - The buyer fails to reject goods within reasonable time - The buyer acts inconsistently with seller's ownership rights - Note: buyer may accept only "commercial unit" - different from offer and acceptance payment (buyer performance) - ANSWER - Due from buyer when and where goods delivered* - Contract may set terms - Can be paid in any manner acceptable in ordinary course of business - *unless otherwise agreed in the contract - due when the goods are when and where they need to be delivered revocation of acceptance- buyer can revoke acceptance of delivered goods if: - ANSWER o Goods are nonconforming and o Nonconformity substantially impairs value of goods o Seller's promise to timely cure is not met o Goods were accepted before nonconformity was discovered and seller assured buyer that goods were conforming seller remedies- if the buyer is in breach, the seller has the following rights: - ANSWER - Right to withhold delivery - Right to stop delivery of goods in transit - Right to reclaim goods - Right to dispose of goods (e.g. mitigate damages) - Right to recover the purchase price or portion thereof - Right to recover damages for breach of contract unfinished goods - ANSWER - Seller may cease manufacture and sell for scrap or salvage value, or - Completed manufacture and resell and - Recover damages if the seller breaches, the buyer has the following remedies: - ANSWER - Right to reject nonconforming goods or improperly tendered goods - Right to recover good from an insolvent seller - Right to obtain specific performance (certain goods) - Right to replevy goods - Right to recover damages for non-delivery or repudiation - Right to recover damages for nonconforming goods that have been accepted assurance of performance - ANSWER - Party with grounds to believe that the other party will not perform may demand adequate assurance of performance - Performance may be suspended until adequate assurance of due performance is received from the other party statute of limitations - ANSWER - Action for breach of sales contract must commence within four years after the cause of the action accrues - Parties may reduce time to one year - Parties cannot extend the time beyond four years agreement affecting remedies - ANSWER - Parties may agree to remedies in addition to those available under the UCC, or agree to limit remedies - Liquidated damages may be substituted liquidated damages (additional performance issues) - ANSWER - Parties agree at time of contracting that certain damages will be paid upon a breach · The goods must conform to any promise or affirmation of fact made on the container or label implied warranty of fitness for human consumption - ANSWER · Applies to food or drink obtained from restaurants, grocery store, fast-foot outlets, vending machines foreign substance test - ANSWER to determine merchantability based on foreign objects found in food - only applied to merchantsimpl consumption expectations test - ANSWER to determine merchantability based on what the average consumer would expect to find in food products implied warranty of fitness for a particular purpose - ANSWER · Arises where a seller warrants that the goods will meet the buyer's expressed needs - Breached if the goods do not meet the buyer's expressed needs - Note: applied to both merchant and nonmerchant sellers implied warranty - ANSWER - Disclaimed by language like "as is", "with all faults". - Otherwise, disclaimers must mention merchantability - Fitness for a particular purpose may be disclaimed in general language without using the term "fitness" but must be in writing - Written disclaimers must be conspicuously displayed to be valid warranties of title and no infringements - ANSWER · Good title · no security interests · no interference · no infringements warranty of good title - ANSWER · seller warrants that they have valid title to the goods they are selling and that transfer of title is rightful warranty of no security interests - ANSWER · under the UCC, sellers of goods warrant that the goods they sell are delivered free from any third-party security interests, liens, or encumbrances that are unknown to the buyer warranty of no infringements - ANSWER · a seller who is a merchant who regularly deals in goods of the kind sold automatically warrants that the goods are delivered free from any infringement of third-party patent, trademark, or copyright claim warranty of no interference - ANSWER · the lessor warrants that no person hold a claim or interest in the goods that arose from an act or omission of the lessor that will interfere with the lessee's enjoyment of his or her leasehold interest · also known an warranty of quiet possession