Deck 19: Formation and Terms of Sales Contracts

Question 1

In a sale or return contract, the goods are delivered to the buyer primarily for resale with the understanding that the buyer has the right to return them.

Answer 1

True

Question 2

When a sales contract as a whole is unconscionable, the courts do not have the right to refuse to enforce the contract.

Answer 2

False

Question 3

Under Article 2 of the Uniform Commercial Code, which of the following statements illustrates a merchant?

A) Theodora, a doctor, sells her phone to her friend.
B) Charles, a chef, sells his car to his neighbor.
C) Nick, an electronic goods dealer, contracts to sell laptops to another firm.
D) Annie, a teacher, contracts to sell her microwave and television to her friend, Iris.

Answer 3

C
Explanation: The Uniform Commercial Code defines merchant (2-104[1]) on a case-by-case basis. If a person regularly deals in the kind of goods being sold, or purports to have some special knowledge about the goods, or employs an agent in the sale who fits either of these two descriptions, that person is a merchant for the purposes of the contract in question.

Question 4

A fixed price is essential to the creation of a binding sales contract.

Question 5

If the contract requires delivery of the goods by the seller, title passes to the buyer when the seller delivers the goods to the carrier.

Question 6

When a contract appears to call for the furnishing of both goods and services, the common law automatically applies to the transaction.

Question 7

If delivery is to be made without moving the goods, title passes from the seller to the buyer at the time and place of contracting if the goods have been identified to the contract.

Question 8

Unless the parties agree to the contrary, the Uniform Commercial Code (UCC) says that the goods ordered are to be delivered in a multiple-lot shipment.

Question 9

The Uniform Commercial Code distinguishes between merchants and nonmerchants by holding nonmerchants to a higher standard in all cases.

Question 10

Which of the following statements should be governed by Article 2 of the Uniform Commercial Code?

A) Andrew agreed to decorate the interiors of Jamie's house.
B) Barney leased his house to Mick for conducting business.
C) Bill contracted to sell 100 boxes of chocolates to a supermarket.
D) Monica contracted to sing with her group at Nancy's wedding.

Question 11

Anyone who entrusts goods to a merchant who regularly deals in such goods gives that merchant the power to give good title to a buyer in the ordinary course of business.

Question 12

The lease of goods is the transfer of ownership to tangible personal property in exchange for money, other goods, or the performance of services.

Question 13

Adam offered to buy automobile batteries from Ben. Adam's purchase order was complete with respect to all material terms except price, which was omitted. If Ben accepts Adam's offer, and the price of automobile batteries is well established in the industry, which of the following statements is true?

A) A contract cannot be formed between Adam and Ben if the price is not included.
B) A contract can be formed between Adam and Ben only if it can be proved that the parties intended to enter a contract to discuss the price.
C) A contract can be formed between Adam and Ben, but the price will be treated as a proposed addition to the contract which must be accepted by both parties.
D) A contract can be formed between Adam and Ben even though the price term was omitted.

Question 14

A lease of goods is a transfer of the right to possess and use goods belonging to another.

Question 15

If the parties' contract calls for a number of performances over an indefinite period of time, the contract is valid for a reasonable period of time but may be terminated at any time by either party after giving reasonable notice.

Question 16

The law of sales of goods is codified in Article 3(A) of the Uniform Contracts Code.

Question 17

Jessica went to Angel Beauty Salon to get a facial. The cosmetic products used by the beautician contained certain harmful chemicals that reacted with Jessica's face. This resulted in several rashes and spots on her face. Which of the following statements is true of Article 2 of the Uniform Commercial Code in determining the rights and responsibilities of the parties?

A) Article 2 of the Uniform Commercial Code would not apply because Jessica entered into a contract which was predominantly a service contract.
B) Article 2 of the Uniform Commercial Code would not apply because Jessica is not a merchant.
C) Article 2 of the Uniform Commercial Code would apply because any contract involving the use of cosmetic products is governed by the Code.
D) Article 2 of the Uniform Commercial Code would apply because the cosmetic products are not Jessica's tangible personal property.

Question 18

Which of the following statements is true of a lease?

A) It is a transfer of the ownership of goods from one merchant to another.
B) It is a transfer of the right to possess and use goods belonging to another.
C) It is governed exclusively by Article 2 and Article 9 of the Uniform Commercial Code.
D) It is governed by the same principles of common law that predominantly govern the sale of goods.

Question 19

The Uniform Commercial Code requires the original owners of the goods to bear the burden of collecting from their fraudulent buyers.

Question 20

"FAS" is a commonly used shipping term that creates a destination contract.

Question 21

Under the Uniform Commercial Code, a buyer in the ordinary course of business:

A) takes goods free of any security interest in the goods that his or her seller may have given a third party.
B) is a person who transacts only with nonmerchants.
C) does not act in good faith.
D) is one who buys goods from a merchant, knowing that the sale violates the ownership rights of a third party.

Question 22

Which of the following terms is closely related to destination contracts?

A) CIF (cost, insurance, and freight)
B) FAS (free alongside)
C) Ex-ship
D) C&F (cost and freight)

Question 23

Which of the following statements is true of a negotiable document of title?

A) It serves as a contract between the seller and the shipper.
B) It is given to a buyer before he or she makes the payment for the goods.
C) It does not identify who has control of the goods.
D) It is used when a buyer rejects the goods delivered.

Question 24

Under the Uniform Commercial Code, if a contract is silent about the place of delivery, the goods are to be delivered:

A) at the production site of the goods.
B) at the seller's place of business.
C) at the buyer's residence.
D) at any place the seller deems convenient.

Question 25

If a contract merely requires the seller to ship the goods, title passes to the buyer when the:

A) buyer pays the seller.
B) contract is signed by both parties.
C) goods are delivered by the seller to the buyer.
D) seller delivers the goods to the carrier.

Question 26

Jane gave her car for maintenance to Bell Corp., a company that deals in used cars and maintenance of cars. One of the employees at Bell Corp. accidentally sold Jane's car to Fiona. Under these circumstances, which of the following statements is correct?

A) Jane cannot recover the car from Fiona because under the Uniform Commercial Code, Bell Corp. could give good title to a buyer in the ordinary course of business.
B) Jane can recover the car from Fiona because Bell Corp. did not have ownership to the car when it was sold to Fiona.
C) Jane can recover the value of the car from Fiona or Bell Corp. because neither Bell Corp. nor Fiona had title to the car.
D) Jane cannot recover the value of the car from Bell Corp. because she is a nonmerchant.

Question 27

When a contract is silent about the time for performance:

A) the Uniform Commercial Code takes the same position as the common law.
B) it cannot be terminated at any time by either party.
C) the payment for the goods is due at the time and place at which the seller deems convenient.
D) it can be terminated by either party without giving any notice.

Question 28

If a buyer rejects tender of the goods, title:

A) will be retained with the buyer.
B) can be retained if the contract does not describe the goods.
C) will automatically be revested in the seller.
D) can be retained only for a limited period of time.

Question 29

When, at the time of contracting, the goods are in the hands of a third-party bailee and are covered by a document of title, the risk passes to the buyer when he or she:

A) takes possession of the goods.
B) receives the document of title.
C) acknowledges the third-party bailee's right to possession.
D) indulges in a breach of contract.

Question 30

Which of the following statements is true of voidable title?

A) Sellers may obtain voidable title by paying for goods sold on a "cash sale" basis.
B) Sellers may obtain voidable title by paying for the goods with a good check.
C) Sellers may obtain voidable title by impersonating another person when acquiring the goods from their rightful owner.
D) Sellers may obtain voidable title by obtaining the goods without using fraudulent means.

Question 31

Which of the following is true of an FAS (free alongside) contract?

A) The seller must deliver the goods alongside the vessel at his or her own risk and expense.
B) The seller must deliver the goods alongside the vessel at the buyer's risk and expense.
C) It does not include maritime contracts.
D) It is not accompanied by the name of a specific vessel or port.

Question 32

In a shipment contract, "FOB" stands for _____.

A) free on board
B) fee on board
C) freight on board
D) forbidden on board

Question 33

Which of the following is the basic purpose for making exceptions to the Uniform Commercial Code's general rules on "buyers in the ordinary course of business"?

A) To protect the rights of sellers
B) To place the burden of loss on the good faith purchasers
C) To promote commerce by giving buyers the knowledge that they will get good value for goods that they purchase
D) To protect those who innocently buy from merchants, thereby promoting confidence in such commercial transactions

Question 34

Ellie took her diamond ring to Portman Jewelers Corp. for routine cleaning. An employee at the store sold the ring to Daniel who was unaware that the ring belonged to Ellie. Which of the following statements is true in this case?

A) Ellie can recover the ring from Daniel.
B) Ellie can sue the store for conversion, but cannot recover the ring from Daniel because he was a buyer in the ordinary course of business.
C) Ellie can recover the ring from the store under the Uniform Commercial Code's ownership principles because the service element is predominant in this case.
D) Ellie cannot sue the store because the store employee acted in good faith.

Question 35

A buyer has a retail store in Florida and the seller is a manufacturer in California. If the buyer orders goods from the seller and the goods are shipped "FOB Florida," which of the following statements is true?

A) The seller bears the expense and risk of delivering the goods to Florida.
B) Neither the seller nor the buyer bears the risk of delivering the goods as the goods are insured.
C) The seller is allowed to charge a nominal fee for delivering the goods.
D) The buyer bears the risk of loss as he is responsible for taking possession of the goods.

Question 36

Patty buys a Persian rug from James, a plumber, in an online auction. James called Patty on Wednesday to inform her that she submitted the winning bid and that she could pick it up anytime or he would ship the rug to her on Friday. On Thursday, the rug was destroyed in a garage fire at James' house. Which of the following statements is true in this case?

A) James bears the loss as he has not delivered the goods.
B) James bears the loss as he has tendered delivery of goods.
C) Patty bears the loss as James is not a merchant.
D) Patty bears the loss as James was only providing a service.

Question 37

_____ means "honesty in fact in the transaction concerned."

A) Good value
B) Good faith
C) Good risk
D) Good title

Question 38

According to the Uniform Commercial Code, title to goods passes to the buyer:

A) before the buyer pays for the goods.
B) upon selection of the goods by the buyer.
C) when the document of title is delivered by the seller.
D) only if the seller delivers the goods to the buyer's residence.

Question 39

Under the Uniform Commercial Code, which of the following statements is true for the identification of goods to the contract?

A) It is applicable if delivery is to be made without moving the goods.
B) It occurs when the parties use a negotiable document of title when the goods are being shipped.
C) It does not result from the actions of the seller, such as setting aside or marking the goods.
D) It does not result from the contract description of the goods.

Question 40

Beck Inc., a food processing company in Chicago, placed a phone order with Gary, a vineyard owner in California, for a certain quantity of perishable products. The shipping term was "CIF" with payment to be made on delivery. Gary contracted with a carrier to deliver the goods to Beck Inc. However, he neglected to ship the goods under refrigeration. The goods were loaded on a non-refrigerated boxcar and as a result the product was spoiled when it reached Chicago. Under these circumstances, _____.

A) neither Gary nor Beck Inc. bears the risk of loss as the goods are insured
B) Beck Inc. bears the risk of loss because, under a CIF shipment, the buyer has to bear all risks
C) Beck Inc. bears the risk of loss as the contract did not mention that Gary will guarantee their delivery
D) Gary bears the risk of loss because, under a CIF shipment, the seller bears the expense and the risk of loading the goods

Question 41

Which of the following statements is true of an insurable interest in goods?

A) Buyers have an insurable interest in goods at the moment they pay for the goods.
B) Buyers have an insurable interest in goods at the moment they get the title to the goods.
C) Sellers have an insurable interest in goods at the moment the goods are identified to the contract.
D) Sellers have an insurable interest in their goods as long as they have title to the goods or a security interest in them.

Question 42

What is a "sale on approval" contract?

Question 43

Sales on approval are primarily _____ transactions.

A) seller
B) merchant
C) consumer
D) nonmerchant

Question 44

What is a "sale or return" contract?

Question 45

In a sale or return contract, goods are delivered to buyers primarily for:

A) personal use.
B) resale.
C) trial.
D) security.

Question 46

If a buyer repudiates a contract for identified, conforming goods before risk of loss has passed to him/her, _____.

A) the buyer is liable for a commercially reasonable time for any loss or damage to the goods that is not covered by the seller's insurance
B) the seller is liable for a commercially reasonable time for any loss or damage to the goods
C) the buyer and the seller must share the loss equally
D) the buyer is not liable for any loss or damage to the goods

Question 47

Distinguish between "FOB" and "FOB destination" contracts.

Question 48

Discuss whether a fixed price is essential to the creation of a binding sales contract.

Question 49

Explain what output and requirements contracts are.
In some cases, the parties may state the quantity of goods covered by their sales contract in an indefinite way. Contracts that obligate a buyer to purchase a seller's output of a certain item or all the buyer's requirements of a certain item are commonly encountered. These contracts caused frequent problems under the common law because of the indefiniteness of the parties' obligations. If the seller decided to double its output, did the buyer have to accept the entire amount? If the market price of the item soared much higher than the contract price, could the buyer double or triple its demands?

Question 50

Which of the following statements is true for a sale on approval?

A) Goods are delivered to the buyer primarily for resale.
B) Goods are delivered to the buyer primarily for the buyer's use.
C) The risk of loss and title pass to the buyer even before the buyer accepts the goods.
D) Any use of the goods that is consistent with a trial of goods is regarded as an acceptance by the buyer.