Preview Extract
CHAPTER 13-INTRODUCTION TO SALES
TRUE/FALSE
1. The UCC has abolished the common law requirement of consideration in all contracts
involving the sale of goods.
Answer: False
2. The UCC does not apply to a contract for the sale of goods if the value of the goods is less
than $500.
Answer: False
3. The UCC is federal legislation enacted by Congress.
Answer: False
4. If the seller has made a substantial beginning in manufacturing customized goods, then an
oral contract may be enforceable regardless of the amount of money involved in the contract.
Answer: True
5. In a mixed contract involving goods and services, Article 2 of the UCC will govern if the
predominant purpose is the sale of goods.
Answer: True
6. Under the UCC, a merchant is frequently held to a higher standard of conduct than a nonmerchant.
Answer: True
7. The UCC imposes a duty of good faith in the performance of all contracts.
Answer: True
8. Lorene, an artist, orally agrees to sell Sabrina a painting for $600. While Lorene is busy
talking on the phone, Sabrina writes her a note on the back of an envelope she finds in her
purse. The signed note states that she will stop by the studio to pick up the painting within the
week. Sabrina changes her mind about the painting, and when Lorene sues to enforce the
contract, Sabrina defends on the basis of the statute of frauds. Sabrina will succeed with this
defense.
Answer: False
9. Rachel Retailer sends a preprinted purchase order offering to buy goods from Snidley
Supplier. Snidley acknowledges Rachel's offer with a preprinted acceptance form. The terms
of the two forms do not mirror each other. To analyze whether an enforceable contract exists,
one must first determine whether the new language in the acceptance is an additional term or
a different term.
Answer: True
10. Megan agrees to sell Nancy her Rolex watch but they do not specify a price. In such a
case, the court would not enforce the agreement because all of the essential terms are not
present.
Answer: False
11. Leasing goods is an insignificant part of business, and it is governed by extensions of the
UCC Article related to sales rather than having a separate article of the Code to cover leases.
Answer: False
12. Lian contracted for financial services from E-wise. This contract is governed by Article 2
of the UCC.
Answer: False
13. A product liability case may be brought in warranty, negligence, or strict liability, but it
must have the element that a person or business has been hurt by goods.
Answer: True
14. Generally, a contract may include language that limits or alters the damages recoverable
for a breach of warranty, as long as the restrictions are not unconscionable.
Answer: True
15. A tag attached to a tree in a nursery identifying the tree as a Southern Magnolia creates an
express warranty.
Answer: True
MULTIPLE CHOICE
1. In which of the following situations is the seller a merchant under Article 2 of the UCC?
a. Paul, a full-time college student, sold his textbooks to State Bookstore.
b. Randall, a part-time college student and full-time father, sold his textbooks to a friend.
c. Zompa Inc., a toy manufacturer, contracted to sell dolls to TonTon Department Store.
d. In all of the above situations the seller is a merchant.
Answer: C
2. Stanziano Construction needs a backhoe to complete a project. If it pays Hofmann Rentals
for temporary use of the equipment, the transaction will be governed by:
a. Article 2 of UCC.
b. Article 2A of the UCC.
c. Article 3 of the UCC.
d. bulk transfer law.
Answer: B
3. Which of the following types of property would be classified as "goods" under Article 2 of
the UCC?
a. Cash in hand.
b. A stock certificate.
c. A computer.
d. A membership to a health club.
Answer: C
4. In a "mixed contract," one involving a sale of both goods and services, the court will:
a. apply the UCC to the provisions of the contract involving the sale of goods and the
common law to the provisions involving the sale of services.
b. apply the lex mercatoria to the contract.
c. first determine the dominant purpose of the contract. If the sale of goods dominates the
contract, then the court will apply the law of the UCC, Article 2. If the sale of services
dominates the contract, the court will apply the common law.
d. apply UCC Article 2A.
Answer: C
5. Which of the following contracts requires a writing under the UCC, Article 2?
a. Jeremy, a full-time student, sold his snow blower to a friend for $450.
b. Jeremy, a full-time student, purchased a used computer from Office Plus for $300.
c. A toy manufacturer contracted to sell dolls valued at $10,000 to a department store.
d. Tobias Department Store contracted to sell Jenny a $400 doll.
Answer: C
6. Which of the following contracts is most likely to be declared unconscionable?
a. A consumer sales contract which charges 300 times the fair market value of the goods.
b. A consumer sales contract which limits the consumer's remedies to repair or replacement.
c. A contract between wholesaler and retailer which adds delivery charges at 15% of the costs
of the goods.
d. A sales contract between wholesaler and retailer which limits remedies such as
consequential damages.
Answer: A
7. If Edmund and Kaylin have a writing mistakenly showing a sale and purchase of goods for
$10,000 when the price should have been $1,000, a court will most likely:
a. enforce the agreement, relying on oral testimony to determine the correct price.
b. only enforce the agreement as written.
c. not hear the case unless both parties are merchants.
d. not enforce the agreement since the writing did not reflect a meeting of the minds of the
parties.
Answer: A
8. The difference between the UCC requirement of good faith and doctrine of
unconscionability is that:
a. good faith prohibits shockingly one-sided terms in a contract.
b. good faith focuses on the parties' behavior as they perform the contract.
c. unconscionability looks at the parties' attempt to carry out the terms of the contract in a
reasonable manner.
d. unconscionability focuses on whether a party is honest in fact and exercises reasonable
commercial standards of fair dealing.
Answer: B
9. Which of the following is true regarding an open price term?
a. It makes the contract unenforceable.
b. The price may be fixed by the seller.
c. The price is the "reasonable" price at the time of delivery.
d. The price is set by the buyer.
Answer: C
10. To simplify, clarify, and modernize the law governing commercial transactions, the UCC
permits the use of "open terms" in sales contracts. In the use of "open terms," which of the
following is true?
a. The court will use market value and other comparable sales to determine what a reasonable
price would have been at the time of delivery if the parties have not settled the price in the
contract.
b. If time of payment is not mentioned in the contract, payment within a commercially
reasonable time is presumed.
c. If the contract permits the buyer or seller to determine the price during contract
performance, the UCC requires the party to do so in good faith.
d. All of the above are true.
Answer: D
11. Harriett raises and sells hippos. In order to keep her hippos happy and healthy, she feeds
them Hippo Chow, which she buys from the local pet store. Under the UCC, Harriett is:
a. a merchant of both hippos and Hippo Chow.
b. a merchant of hippos, but not of Hippo Chow.
c. a merchant of Hippo Chow, but not of hippos.
d. not a merchant of either hippos or Hippo Chow.
Answer: B
12. Dean Builders agrees to purchase all of its sump pump requirements for the new houses it
builds from Satisfactory Sump Pump, Inc. These two business have had similar agreements
the last three years and Dean's requirements have averaged 100 sump pumps per year. This
year there was an unusually wet spring and Dean's requirements doubled to 200 sump pumps.
Because of the high demand of sump pumps, the market price of the pumps tripled.
Satisfactory Sump Pump, Inc. delivers 100 pumps at $75, the contract price. Satisfactory has
exhausted its inventory and cannot deliver any more, so Dean buys the other 100 pumps from
other suppliers at $225 each. Dean sues Satisfactory Sump Pump, Inc. for the additional
expense. What is the most likely result?
a. Satisfactory Sump Pump, Inc. wins; output and requirements contracts are not enforceable
since no quantity is stated.
b. Dean wins; Satisfactory Sump Pump, Inc. agreed to meet the needs of Dean and did not do
so, which is a breach.
c. Satisfactory Sump Pump, Inc. wins; requirements contracts are governed by a good faith
standard, and it was unreasonable for Dean to demand so many additional pumps.
d. Dean wins; the requirement of good faith applies only between merchants, and Dean is not
a merchant.
Answer: C
13. Under the UCC statute of frauds, the writing for a sale of goods must:
a. state quantity.
b. state price.
c. be signed by both parties.
d. be notarized.
Answer: A
14. A requirements contract is a contract:
a. in restraint of trade.
b. in which the seller provides all of the goods that the buyer needs.
c. in which the buyer purchases all of the goods that the seller produces.
d. in which a party must buy a product it does not want in order to be allowed to buy a
product it requires.
Answer: B
15. Betty's BBQ orally contracts with Denny's Design House for 10,000 matchbooks at the
price of 10 cents per matchbook. The matchbooks are to be embossed with a logo to be
designed by Denny's Design promoting Betty's BBQ. Price, payment terms, delivery terms
are agreed upon between the parties. Denny's Design creates the logo, gets Betty's BBQ's
approval of the design and begins applying the logo on the matchbook covers. Denny's
Design has almost finished the order when Betty's BBQ calls to say it has decided to make
the eatery a smoke-free restaurant and cancels the order. Denny's Design sues, but Betty's
BBQ states that the agreement is unenforceable under the statute of frauds. Who wins?
a. Denny's Design House wins. This situation falls under an exception to the statute of frauds.
b. Denny's Design House wins. This is a service contract for design of a logo. Therefore, the
UCC, including the statute of frauds provisions of Article 2, does not apply.
c. Betty's BBQ wins. This is a contract for $1000. The statute of frauds requires all sales
contracts in excess of $500 be in writing.
d. Betty's BBQ wins. The statute of frauds only applies to merchants. Betty's BBQ is not a
merchant in this instance because it intended to give the matchbooks away and not sell them.
Answer: A
16. Long’s Department Store contracted to buy 1,000 drop-waist velour dresses in heather
gray from Durham. Subsequently, Durham called and asked to ship mink-colored dresses
instead of heather gray. Long agreed, in writing, to the change. Which statement is correct?
a. The modification is not enforceable since there was no consideration for the change.
b. The modification is not enforceable since the parties are merchants.
c. The modification is enforceable.
d. Whether the modification is enforceable depends on the gap-filler rule.
Answer: C
17. The stated purpose(s) of Article 2 of the UCC is/are:
a. to simplify the law governing sales.
b. to permit the continued development of business practices through custom and usage.
c. to make the laws governing sales uniform among the various states.
d. All of the above are correct.
Answer: D
18. By definition, a sale under Article 2 of the UCC requires:
a. that the parties involved be merchants.
b. that the product involved be goods, services, or a mixture; that the sale be between or
among merchants; and that the sale take place in the normal course of business for that
industry.
c. that title to the goods pass between the seller and the buyer and that a price be paid for the
goods.
d. that the service being sold cannot be a gift or a bailment.
Answer: C
19. UCC Section 2-204 provides three important rules that enable parties to make a contract
quickly and informally. These include all but which of the following?
a. The parties may make a contract in any manner sufficient to show that they reached an
agreement.
b. A writing sufficient under the statute of frauds may be a simple memo, a letter, or informal
note, but need not itself be a contract.
c. The UCC will enforce a deal even though it is difficult to say exactly when it was formed.
d. A court may enforce a bargain even though one or more terms were left open.
Answer: B
20. During the development of commercial law centuries ago, businessmen throughout
England and Europe:
a. settled disputes in trade organizations rather than in civil courts.
b. relied on a body of rules which became known as the lex mercatoria.
c. began to treat their own customs as law.
d. All of the above.
Answer: D
21. ABC Siding, Inc. manufactures aluminum siding. ABC enters into a contract to deliver
siding to Slippery Siding, Ltd., a retailer of aluminum siding. The written agreement insists
that all modifications to the agreement be in writing and signed by both parties. This
prohibition against oral modifications is:
a. valid regardless of whether the clause is signed separately.
b. invalid unless the clause is signed separately by Slippery Siding, Ltd.
c. invalid unless the clause is signed separately by ABC Siding, Inc.
d. invalid unless new consideration is supplied by the parties when the modification
agreement is made.
Answer: A
22. Which of the following warranties provides that the goods will be useable for the ordinary
purposes for which they are used?
a. Infringement.
b. Fitness for a particular purpose.
c. Merchantability.
d. Title.
Answer: C
23. In order to disclaim a warranty of fitness for a particular purpose, a merchant:
a. need do nothing; such a warranty will not exist unless the merchant intends to create the
warranty.
b. must make the disclaimer orally and directly to the buyer.
c. may disclaim the warranty with any language that is clear and conspicuous.
d. None of the above. Implied warranties cannot be disclaimed.
Answer: C
24. A sales representative at Oxtren, Inc orally told the purchasing agent at Wety, Inc. that its
industrial saw is exceptional. Which statement is correct concerning the claim that the saw is
exceptional?
a. The claim is an express warranty.
b. The claim is an implied warranty of merchantability.
c. The claim is not a warranty because it is not in writing.
d. The claim is not a warranty because it is sales puffery.
Answer: D
25. An express warranty can be created by which of the following?
a. An affirmation of fact or promise.
b. A description.
c. A model.
d. All of the above.
Answer: D
ESSAY
1. Patsy is shopping for a used car. She finds a car she likes at Morley Motors. Discuss the
standard of conduct the UCC imposes on the parties in performing the sales transaction.
Answer: The UCC imposes a duty of good faith in the performance of all contracts. The UCC
frequently holds a merchant to a higher standard of conduct than a non-merchant. A merchant
is someone who routinely deals in the particular goods involved, or who appears to have
special knowledge or skill in those goods, or who uses agents with special knowledge or skill
in those goods. Morley Motors is a merchant when it comes to selling autos because it
routinely deals in cars. For a merchant, good faith means honesty in fact plus the exercise of
reasonable commercial standards of fair dealing. Patsy is not a merchant in cars and would be
held to a lower standard of conduct. For non-merchants, good faith means honesty in fact.
Thus, when performing the sales contract, neither Patsy nor Morley Motors may lie or
mislead the other party. Morley must also act as fairly as the business community routinely
expects.
2. Sean of Sean's Shrimp House was enjoying a cup of cappuccino while visiting with Ollie at
Ollie's Ocean Front Bar & Grill. During the course of their conversation, Sean agreed to
supply 100 pounds of shrimp per month for the next year to Ollie's restaurant at the price of
$2.50 per pound. When Sean got back to his office, he sent a written confirmation of the
agreement to Ollie. Six weeks after receiving the confirmation Ollie wrote back, stating that
he had not agreed to the price of $2.50 per pound. Is Ollie bound to the confirmation?
Answer: Probably. Shrimp is a "good," and therefore this contract is governed by Article 2 of
the UCC. The statute of frauds requires agreements for the sale of goods with a purchase
price $500 or more to be in writing with the defendant's signature. If Sean sues Ollie under
the general provisions of the statute of frauds, Sean would not be able to satisfy the signature
requirement without Ollie's signature on the letter of confirmation. However, when both
parties are merchants entering into an oral contract, and one sends a confirming memo to the
other within a reasonable time, and the memo is sufficient to bind the sender, then UCC,
Section 2-201(2) provides that the memo is also valid against the merchant who receives it,
unless the he/she objects to the memo within ten days. Here, both parties are merchants. If
Ollie's recollection of the conversation was not accurately recorded in the confirming memo,
Ollie should have refuted the memo within 10 days. Six weeks is an unreasonable time to
wait to respond.
3. Jones contracts to buy a computer from Martin for $1500. The contract calls for Martin to
service the computer quarterly for the first year and to tutor Jones on how to use the software.
Is this contract covered by the UCC or common law?
Answer: Article 2 governs contracts for the sale of goods. When there is a "mixed" contract,
one involving both goods and services, such as the one between Jones and Martin, the courts
will look to what is the predominant purpose of the contract. Here, although Jones may have
agreed to purchase Martin's computer because of the services Martin was willing to provide,
the overriding purpose of the contract was to obtain a computer. In other words, the services
without the computer are meaningless. Therefore, the UCC rather than the common law
governs.
4. Discuss the importance of the UCC to the law of sales. Include who created the UCC, how
it becomes law, and the stated purposes of the statute.
Answer: The UCC is the major statute regulating commercial transactions, including sales of
goods, in the United States. The UCC was created by two groups of scholars: the American
Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws
(NCCUSL). The UCC has no legal effect until it is adopted by a state legislature. All 50 states
and the District of Columbia have adopted the UCC, but all have not adopted identical
versions. Article 2 of the UCC is one of the most important articles in the Code, and it
regulates the sale of goods. The stated purposes of the UCC are: (a) to simplify, clarify, and
modernize the law governing commercial transactions; (b) to permit continued expansion of
commercial practices through custom, usage, and agreement of the parties; and (c) to make
uniform the law among jurisdictions.
5. Inez contracted with Filippo Furnaces Co. for the installation of a new furnace. Inez
selected the furnace she wanted, accepting no suggestions from Filippo Furnaces' heating
engineer. The furnace operated fine, but it did not heat the entire house. The size of the
blower on the furnace was too small to accommodate the third floor of the house. Inez sued
Filippo Furnaces Co. for the breach of the implied warranties of merchantability and fitness.
What result?
Answer: Inez will lose under both implied warranties. The implied warranty of
merchantability was not breached because the furnace was operating according the standards
of the heating industry. The implied warranty of fitness was likewise not breached. This
warranty requires the seller to know of the buyer's particular purpose and that the buyer is
relying on the seller's skill or judgment in recommending a particular product. Here Inez did
not ask for or receive any suggestions from the seller or the seller's expert.
6. How do the tort theories of negligent product liability and strict product liability differ
from each other? List and describe the elements an injured party must establish for recovery
under each cause of action.
Answer: A) Negligence. The two key elements of negligent product liability include duty and
breach of duty. A plaintiff injured by purchased goods must show that the seller of the product
did not act as a reasonable person in connection with the design, manufacture, or warning
given. B) Strict Liability. Unlike negligence, strict liability imposes liability regardless of
fault. The injured plaintiff must show that the manufacturer or merchant seller sold a product
in a defective condition that was unreasonably dangerous to the user; more dangerous than
the ordinary consumer would expect and that the product reached the user without substantial
change.
Test Bank For Introduction to Business Law
Jeffrey F. Beatty, Susan S. Samuelson
9781133188155
