sales quiz

8/3/2019 Sales Quiz

1/27

Document3 Printed: 10/19/11

1. (T/F) The scope of Article 2 includes secured transactions, i.e. those in which the

seller retains a security interest in the goods.

1. False. 2 102.

2. (T/F) Goods include all things which are movable at the time of contractformation.

2. True 2 105(1) .

3. Andy owns a hot dog cart in Balboa Park. He has a license from the park authority

to operate the stand at a very visible and busy location in front of one of the museums.

Andy contracts to sell the hot dog stand business, including the cart, the inventory, and

the license, to Bill. Bill repudiates. At a subsequent trial for damages, which portions ofthe sale (i.e., the cart, the inventory, the license) will be governed by Article 2?

3. The answer depends on the local case law. By 2 102 , Article 2 applies to transactions in

goods. 2 105(1) defines goods as all things...which are movable at the time of identification

to the contract. 2 501(1)(a) defines identification as occurring when the contract is made if

it is for the sale of goods already existing and identified. Here, the goods are the cart and the

inventory, but not the license. The license is an intangible. And since the goods were in

existence at the time of contract formation, they have been identified to the contract, and movable

at the time of identification to the contract. Some courts will use the primary purpose test to

determine whether the entire contract is governed by Article 2. Here, the intent of the parties

appears to be more than the sale of goods because the hot dog cart and the hot dogs themselvesare worthless without the license to sell them in the lucrative location. In such a case, the sale of

the cart and inventory would be viewed as incidental to the sale of the intangibles. However,

other courts have broken the transaction down into component parts. In that case, Article 2

would apply only to the cart and inventory, but not the license.

4. (T/F) A sale is the passing of title from the seller to the buyer for a price.

4. True. 2 106(1)

5. (T/F) A contract for the sale of crops is a contract for the sale of goods regardless ofwhether the crops are to be harvested by the farmer or the buyer.

5. True. 2 107(2) .

6. (T/F) A contract for the sale of oil is a contract for the sale of goods regardless of

whether the oil is to be extracted from the ground by the seller or the buyer.

Roger W. Martin 1

8/3/2019 Sales Quiz

2/27

8/3/2019 Sales Quiz

3/27


10. What if, in Question 9 above, Jelly had included a letter with the shipment stating,

although we are unable to fill your order completely, we are forwarding 50 cake

donuts and 50 jelly donuts in hopes that they will be able to meet your needs on suchshort notice. How would that change the outcome, if at all?

10. Yes. 2 206(1)(b) further provides that the shipment of non conforming goods in response toan order does not constitute acceptance if the seller seasonably notifies the buyer that the

shipment is offered only as an accommodation to the buyer. Here, the notice is seasonable

because it was included in the shipment. Also, the notice indicates that it is merely an

accommodation, and therefore not an acceptance of the offer made by the order.

11. StockNet, Inc. is an internet based stock broker that provides full service securities

transactions to customers by e mail and the World Wide Web. Periodically, StockNet

posts the following advertisement on the newsgroup misc.invest intended to stimulate

immediate business from new customers:StockNet, a leader in internet stock trading, invites new clients to make a one

time stock purchase at no commission. Just place your electronic order via our

World Wide Web site at: http://www.stocknet.com before the close of the

market today.Joe Netsurfer sees the post, and calls the broker by telephone and says that he would

like to purchase 100 shares of IBM. When he gets the purchase order confirmation from

StockNet, it includes a charge for commission. Joe is upset and refuses to pay the

commission, insisting that StockNet is contractually bound to waive the commission feebased on the advertisement. Is Joe Right?

11. No. 2 206(1) provides that an offer may be accepted in any reasonable manner unless

otherwise unambiguously indicated by the language. Here, the language unambiguously states

that in order to get the commission free service, the customer must place the electronic order

over the web. Joe placed his order by phone, and so his act was not an acceptance of the language

of the offer. Thus, there was no contract for a non commission sale.

12. Contractor Bill makes a bid on a home remodeling job to supply materials at a givencost. On his standard bid form, which he signed, is a statement that this offer is to be

considered open for six months from the date of its preparation. Homeowner Harry,

after considering several other bids, finally gets around to calling Bill to accept his bidfour months later. On the phone, Bill refuses to honor the original bid claiming that ithas expired. Harry sues Bill claiming breach of contract. Bill claims that by the UCC,

no offer may extend past 3 months. What result?

12. 2 205 provides that An offer by a merchant to buy or sell goods in a signed writing which

by its terms gives assurance that it will be held open is not revocable...during the time

Roger W. Martin 3

8/3/2019 Sales Quiz

4/27

stated...but in no event may such period of irrevocability exceed three months. Here, Bill is a

merchant under 2 104 because he deals in goods of the kind. The writing was signed by

Bill, and it gave assurances that it would be open for 6 months. Although the bid became

revocable after 3 months, Bill did not take any action to revoke it. Under the common law

dispatch rule incorporated by 1 103 , an offer is irrevocable after the offeree notifies the offeror

of acceptance. Here, although Bill could have revoked the offer after three months, he did not do

so before Harry accepted by phone. As such, Bill is obligated to supply the materials according

to his bid, which has been made binding by Harrys timely acceptance.

13. (T/F) To be binding, an agreement modifying a contract for the sale of goods needs

additional consideration and must satisfy the statute of frauds.

13. False. 2 209(1) .

14. (T/F) A writing that does not contain a handwritten signature does not satisfy the

statute of frauds requirement of UCC 2 201 .

14. False. 1 201(39) .

15. (T/F) A writing that satisfies the statute of frauds requirement of UCC 2 201

establishes, as a matter of law, the existence of a contract.

15. False. 2 201 . (The statute of frauds only provides a bar as to when a contract is not

enforceable, it does not provide conclusively that a contract exists. It is a two part analysis:

First, satisfy the statute of frauds with a sufficient writing or otherwise, then you may arguethat a contract exists based on all evidence, including oral evidence.)

16. Toro Lawnmower sells Ride Along mowers for $500 each wholesale. On Sep.15th, Johnson Hardware Co. placed a telephone order with Toro Lawnmower Co. for

100 Ride Along mowers for delivery the following week. When then mowers did not

show up on time, Johnson called Toro to inquire as to their status. Toro replied that

there was no contract. If Johnson sues for breach, what result?

16. 2 201(1) provides that a contract for the sale of goods for the price of $500 or more is not

enforceable by way of action...unless there is some writing. Here there is no writing becausethe order was oral over the telephone. Since the price of the order is greater than $500, the

contract is unenforceable.

17. Same facts as in Question 16 above, except that Toro, upon receipt of the order,

dispatched a confirmation memorandum which stated: This confirms your telephone

order of September 15th, delivery instructions to follow. Johnson produces this memo

8/3/2019 Sales Quiz

5/27


at trial. How would this affect the outcome, if at all?

17. 2 201(2) provides a limited exception to the signature requirement of 2 201(1) as between

merchants. Specifically, if within a reasonable time a writing in confirmation of the contract

and sufficient against the sender is received...it satisfies the requirements of subsection (1).

Here, Toro and Johnson are merchants under 1 104 because they deal in goods of the kind.

However, the writing is not sufficient against the seller, because it is does not contain a quantity

term, and thus is not enforceable...beyond the quantity of goods shown in such writing under

subsection (1). Thus, although the memo provides a date and some evidence of the existence of a

contract, it is not sufficient to satisfy the statute of frauds, even between merchants.

18. Assume that the confirmation memo in question 17 above stated: This confirms

your telephone order of September 15th, quantity 100 mowers. Johnson receives thememo without objection and Toro delivers the mowers. Then if Johnson were to refuse

to pay, claiming that there was no contract, could Toro overcome the statute of frauds?

18. Yes. 2 201(2) provides that between merchants, a confirmation memo is sufficient to satisfy

the statute of frauds if sufficient against the sender...and the party receiving it has reason to

know its contents...unless written notice of objection to its contents is given within 10 days after

it is received. Here, the memo is sufficient against the sender because it is sufficient to

indicate that a contract for sale has been made between the parties, it is signed by the sender

(at least it is on his letterhead or form and is thus authenticated under 1 201(39) ), and it

contains a quantity term. The receiving party is a merchant who just placed an order with Toro

and therefore has reason to know the contents of the memo. Furthermore, there was no objection

to the contents. Thus, the memo would overcome the statute of frauds.

19. Thermoplastic makes custom plastic parts for industrial use. Ace Plumbing supply

orders 100 custom made elbow joint pipes from Thermoplastic by telephone.

According to the specifications, each of the custom made pipes is to be embossed with

Aces logo. Thermoplastic immediately begins manufacture of the custom pipes. A daylater, Ace calls to cancel the order. Thermoplastic sues for breach. Will Thermoplastic

be able to overcome the statute of frauds even though there is no written evidence of

the contract?

19. Yes. 2 201(3)(a) provides an exception to the writing requirement based on the partialperformance of the manufacturer. Specifically, if the goods are to be specially manufactured for

the buyer, and are not suitable for sale to others the contract is still enforceable if the

manufacturer has made...a substantial beginning of their manufacture before notice of

repudiation is received and under circumstances which reasonably indicate that the goods are for

the buyer. Here, the goods are specially manufactured because they are custom made to the

buyers specification. Furthermore, they are not suitable for resale because they are embossed

Roger W. Martin 5

8/3/2019 Sales Quiz

6/27

with Aces logo. The manufacture was begun before repudiation. Also, since the goods have

Aces logo, the circumstances reasonably indicate that they are for Ace. Thus, Thermoplastic

can overcome the statute of frauds.

20. Suppose that in the above Question 19, Thermoplastic makes a first batch of 50

pipes, and delivers them to Ace. Ace then pays for the 50. Before Thermoplastic can

begin manufacture of the second batch of 50, Ace states that they do not want any more.

Thermoplastic sues for breach with respect to the remaining 50. Will Thermoplastic beable to overcome the statute of frauds with respect to the remaining 50 units?

20. Probably not. 2 201(3)(c) provides that a contract is enforceable with respect to goods for

which payment has been made. Here, payment has been made with respect to the first 50.

However, since manufacture or commitments for procurement of the next 50 has not yet begun,

2 201(3)(a) does not apply. Thus, the code does not provide for enforceability of the remainder

of the oral contract in this case with respect to the goods for which payment has not yet been

made.

21. (T/F) Evidence of course of dealing or usage of trade may not be offered to explain

or supplement a confirmatory memorandum which was intended by the parties to be

the final and complete expression of the parties agreement.

21. False. 2 202(a) .

22. (T/F) Where a course of dealing between contracting parties is inconsistent with an

applicable local usage of trade, the contract shall be interpreted according to the localtrade usage.

22. False. 1 205(4) .

23. (T/F) Where the express terms of a contract is inconsistent with a course ofperformance, the contract shall be interpreted according to the express terms.

23. True 2 208(2) .

24. (T/F) If the price is left to be agreed upon by the parties, and the parties fail toagree, and the parties otherwise intend to be contractually bound, then the price is a

reasonable price at the time of delivery.

24. True. 2 305(1)(b)

25. (T/F) The obligation of the seller is to transfer and deliver the goods to the buyer.

8/3/2019 Sales Quiz

7/27


25. True. 2 301

26. (T/F) Unless otherwise agreed, the seller determines the place for delivery of the

goods.

26. False. 2 308

27. (T/F) Unless otherwise agreed, the buyer may treat the contract as being canceled

upon the passing of a reasonable time without delivery of the goods by the seller.

27. False. 2 309

28. Seller contracts to sell 1,000 gizmos to the buyer for $3,000. The contract terms are

F.O.B. buyers place of business.

a) What kind of contract is this?

a) This is a destination contract.

b) What kind of shipment does this contract require?

b) Under 2 319(b) , this contract requires that the seller must at his own expense and risk

transport the goods to the buyers place of business and tender delivery of them in the manner

provided in 2 503 .

c). When are the goods delivered?

c). Under 2 503(1) , the goods are delivered when the seller put[s] and hold[s] conforming goods

at the buyers disposition and give[s] the buyer any notification reasonably necessary to enable

him to take delivery. In this example, it would be at the time that the goods arrived at the

buyers place of business, and the buyer was notified.

d). When are the goods required to be delivered?

d). Since the contract does not expressly provide for a delivery date, then 2 309(a) provides that

the goods shall be delivered within a reasonable time. If the reasonable period has already

expired, the seller is not in breach unless the buyer has reasonably notified the seller what the

reasonable time is. See comment 5 to 2 309.

e). Who pays the expense of the freight?

Roger W. Martin 7

8/3/2019 Sales Quiz

8/27

e) The seller must at his own expense...transport the goods under 2 319(1)(b) .

f). When/Where is payment due?

f). Since it has been left out of the contract, 2 310(a) provides for payment at the time and placeat which the buyer is to receive the goods. Here, that is the buyers place of business, on the

date of delivery. The buyer has the right to inspect the goods under 2 513(1) before payment.

g). Who pays for inspection of the goods?

g). Under 2 513(2) the buyer pays for the inspection, but may recover inspection expenses from

the seller if the buyer properly rejects.

29. (T/F) If the court finds a particular contract term to be unconscionable, it mayrefuse to enforce the entire contract, even those terms that are not unconscionable.

29. True. 2 302

30. A 1 Computers sells computer hardware and software to local schools. The

University is setting up a new computer lab, and wants to purchase several newcomputers and associated accessories and software from A 1. A 1 knows that one of the

maker of one of the software packages it sells the University is about to go out of

business, meaning that technical support will no longer be available. The University is

unaware of this future problem, and buys the software. About a year later, theUniversity tries to expand their system, and finds out that they can not upgrade their

software because the maker is out of business. The University sues A 1 computers for

breach of the doctrine of goods faith, seeking to recover the enormous costs that they

have already sunk into the system. What result?

30. 1 203 incorporates a duty of good faith into every contract for the sale of goods. However, it

only imposes the duty on performance or enforcement of the contract, not negotiation of the

contract. Here, A 1 withheld knowledge during negotiation, but did not act in bad faith during

performance or enforcement. 1 103 provides that common law principles that are not

superseded by the code are still applicable. Thus, the University must sue under one of thecommon law principles that regulates contract formation such as fraud, mistake or

unconscionability. However, it is unlikely that any of these would be successful under these

facts due to the relatively equal bargaining position and expected sophistication of the parties.

31. (T/F) Good faith in the case of a merchant means only honesty in fact.

8/3/2019 Sales Quiz

9/27


31. False. 2 103(1)(b)

32. Harrys Auto Shop enters into a requirements contract with Industrial Oil, Inc. to all

of its requirements of motor oil from Industrial at a fixed cost. Shortly after the contract

is made, the price of oil skyrockets due to a crisis in the middle east. Harry realizes that

due to his low contract price he could resell some of the oil that he is getting fromIndustrial to other garages around town at a profit. So Harry immediately increases his

monthly order to Industrial. When Industrial refuses to meet Harrys increased

demand, Harry comes to you with the idea that he will sue Industrial for breach. What

should you tell Harry?

32. 2 306 covers requirements contracts. It provides that a quantity term which is measured by

the requirements of the buyer means such actual...requirements as may occur in good faith. 2

103(1)(b) defines good faith in the a case of a merchant as honesty in fact and the observance of

reasonable commercial standards of fair dealing in the trade. Here, Harry is ordering more

than his actual requirements. Furthermore, it appears that Harry does not even satisfy the

subjective standard of honesty in fact because he is intentionally trying to take advantage of

the requirements contract. 1 203 further imposes a duty of good faith in the enforcement of a

contract. Thus, Harry should be told that he has no case, and furthermore that he should

withdraw his order for more oil and stop any enforcement actions because he has not acted in

good faith.

33. Rowan is a car broker. Martin wishes to buy a particular model of car by a certain

date to drive in a race. Tucker, owns such a car, and offers to sell it to Rowan for

$13,000. However, once Tucker finds out that Rowan intends to resell the car for$15,000 to Martin, Tucker inists on a price increase to $14,500. Rowan finally agrees,knowing that he will lose any sale whatsoever if he doesnt get the car and resell it to

Martin by the day of the race. What advice of Rowan?

33. Although 2 209(1) provides that a modification to a contract requires no additional

consideration to be binding, the comments to that section explain that the modifications must

still meet the good faith test of1 203 . Tucker appears not to be a merchant under 2 104 because

he does not deal in goods of the kind. Thus, the standard of Good faith as defined in 1 201(19)

is honesty in fact. However, since this appears to be mere extortion, Tucker would probably

not even meet that subjective standard. There must be a legitimate commercial reason for themodification, rather than mere extortion of a modification due to bad faith exploitation of the

other partys inability to cover at a late date.

34. John advertises a kitchen table and chairs for sale in the newspaper classifieds.

Larry answers the ad, and comes over to pick up the furniture and pay for it. After

Larry has paid John, he realizes that none of the furniture will fit in the back of his car.

Roger W. Martin 9

8/3/2019 Sales Quiz

10/27

So Larry leaves the furniture in place and decides to quickly go borrow a truck from a

friend and return. However, during the interim, the furniture is destroyed when Johns

house burns down. Larry demands a refund of his payment. John refuses. Is Larryentitled to a refund?

34. No. 2 509(3) provides the risk of loss rules for sales of goods not involving shipment or abailee. Specifically, the risk of loss passes to the buyer on tender of delivery if the seller is not

a merchant. Here, John is clearly not a merchant because he does not deal in goods of the kind

under 2 104(1) . Also John is not a bailee because he simply allowed Larry to postpone the time

of pickup, and thus does not fall under 2 509(2) . Thus, the question is whether John tendered

delivery. 2 503 provides that to tender delivery is to put and hold conforming goods at the

buyers disposition. Here, the goods were clearly available for the buyer to dispose of them. It

was the buyer who delayed in bringing the wrong vehicle. Thus, Larry is not entitled to a refund

because the risk of loss passed to him before the house burned down.

35. Seller in L.A. contracts to ship 100 porcelain toilets to Buyer in N.Y. under a contractthat provides shipment terms F.O.B. Los Angeles. Seller packages the toilets and

arranges for their transport to N.Y. by train. During transportation, several of the

porcelain toilets crack. Upon investigation, it is determined that faulty packaging

during transit caused the cracks. The seller contends that since this was a shipmentcontract, the risk of loss passed to the buyer once the transportation was arranged and

the toilets were loaded on the train. The buyer has come to you for advice. How do

you advise the buyer concerning the risk of loss?

35.2 319(1)(a)

provides that in a shipment contract, the seller bears the risk of putting thegoods into the possession of the carrier and shipping them in the manner provided in 2 504 . 2

504 states that the seller must make such a contract for their transportation as may be

reasonable having regard to the nature of the goods. Here, the seller has improperly packaged

the goods for transit because the nature of porcelain toilets is that they are susceptible to

breakage from repeated vibration and shock. Thus, the seller did not make a proper contract for

their transportation. Since the seller did not comply with the requirements of2 504 , the buyer

should be advised that the risk of loss did not pass to him under 2 319(1)(a) .

36. (T/F) The buyer must pay the contract price for conforming goods if they are lost

or damaged within a commercially reasonable time after their risk of loss has passed tohim.

36. True. 2 709(1)(a)

37. (T/F) If the cure of a non conforming tender consists of replacing the non

conforming goods with a new tender, the risk of loss remains on the seller with respect

8/3/2019 Sales Quiz

11/27


to the non conforming goods that were originally tendered.

37. True. 2 510(1)

38. A shipment contract calls for the seller in L.A. to ship 10,000 wooden brooms by rail

to the buyer in N.Y.. Due to a mix up in the sellers warehouse, 10,000 plastic broomsare shipped instead. During transit, the train is derailed and the brooms are burned.

During discovery for the sellers action to recover the contract price from the buyer, the

mistake comes to light. Where does the risk of loss lie? With the seller or with the

buyer? Does it matter whether the buyer actually knew that non conforming goodswere shipped?

38. The risk of loss remains with the seller. 2 510(1) provides that where a tender or delivery

of goods...give[s] a right of rejection the risk of their loss remains on the seller until cure or

acceptance. Since the seller shipped plastic brooms instead of wooden brooms, the buyer has a

right of rejection. This is true whether or not the buyer actually knew of the non conformity. It

is the right of rejection which controls the risk of loss, not an actual rejection. Thus, the risk of

loss remains on the seller.

39. Industrial Lighting Co. purchased 2,000 light fixtures from General Electric. The

goods were delivered and accepted without inspection at Industrials warehouse.During a subsequent inspection, Industrial realized that the fixtures were defective and

immediately made a successful revocation. However, before General Electric could

return to pick up the fixtures for rework, they were destroyed by vandals in Industrials

warehouse. Industrial has sufficient insurance coverage to cover the loss. Whatamount of the loss, if any, is GE liable for?

39. None. GE has delivered non conforming goods. However, their risk of loss passed to the

buyer under 2 510(1) when they were originally accepted. Although Industrial has rightfully

revoked, 2 510(2) provides that where the buyer rightfully revokes acceptance he may to the

extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested

on the seller from the beginning. Here, Industrial has sufficient insurance to cover the entire

loss. Thus, there is no deficiency to charge back to the seller.

40. Jenkins agreed to purchase goods from Smedley, F.O.B. Smedleys plant. The goodsin Smedleys plant are separated and stenciled with Jenkins name. Jenkins then

telephones Smedley and repudiates. The goods are subsequently destroyed by fire.Assume that Smedley had no insurance on the goods. If Smedley sues Jenkins for the

purchase price, what result?

40. Under 2 709 , Smedley may recover the price of goods lost or damaged within a

Roger W. Martin 11

8/3/2019 Sales Quiz

12/27

commercially reasonable time after risk of their loss has passed to the buyer. Furthermore,

under 2 510(3) where the buyer as to [1] conforming goods [2] already identified to the

contract for sale repudiates...before risk of loss has passed to him, the seller may to the extent of

[3] any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer

for a commercially reasonable time. Here, the goods are assumed to be conforming. Also, the

goods have been identified, and the deficiency in insurance coverage is 100%. Thus, the only

issue is whether the risk of loss was on the buyer for a commercially reasonable time. If so, then

Smedley may recover the entire amount because the risk of loss would have passed to the buyer.

41. Annette wishes to buy a car from a used car dealer. With regard to a particular Geo

Metro on his lot, the dealer tells Annette, I can really recommend this baby. She can

really go. I know that you live in a hilly neighborhood, but this car can climb hills

easily. Annette purchases the car using a contract that disclaims all impliedwarranties. Shortly after purchasing the car, it stalls on the hill up to her home.

Assuming that the implied warranty disclaimer was effective, would Annette have any

basis to bring an action for breach of express warranty?

41. Yes. 2 313(1) provides guidance on the creation of express warranties. Specifically, any

affirmation of fact or promise or description of the goods which is part of the basis of the

bargain creates an express warranty that the goods will conform to the affirmation, promise, or

description. However, 2 313(2) states that an affirmation merely of the value of the goods...[or]

the sellers opinion or commendation of the goods does not create a warranty. The salesman

here has made several statements. I can really recommend this baby appears to be a clear

statement of opinion or commendation, and thus has no legal effect. She can really go also

appears to be an opinion or commendation, although it may be viewed as creating an expresswarranty that the car at least runs. The scope of the warranty created by that statement alone is

probably insufficient to cover breakdown on a hill. However, by stating that the car can climb

hills easily, the salesman appears to have affirmed or described that the car will at least climb

hills. Especially given the context of the statement that he knows her neighborhood specifically.

The statement is part of the basis of the bargain because Annette heard it during negotiations

for purchase.

42. (T/F) A sample or model which is made part of the basis of the bargain creates an

express warranty that the whole of the goods will be of fair average quality.

42. False. 2 313(1)(c) .

43. (T/F) Goods to be merchantable must be at least adequately contained, packaged,and labeled.

43. True. 2 314(2)(e)

8/3/2019 Sales Quiz

13/27


44. Industrial Iron Works, Inc. is a commercial foundry. Dixieline Lumber entered a

contract with Industrial to manufacture garden tools (rakes, hoes, etc.) for resale byDixieline. Industrial recommended that the tools be manufactured from low grade iron

rather than steel, in order to save costs. However, Dixieline received numerous

complaints about the tools breaking under normal use by customers. Dixieline sues forbreach of implied warranty of merchantability. Industrial claims that there is no breachbecause the tools have no manufacturing defects. Has there been a breach?

44. Yes. Industrial is a merchant with respect to goods of that kind for iron tools. Thus, under

2 314(2)(c) goods, to be merchantable, must be fit for the ordinary purposes for which such

goods are used. Here, the ordinary purpose of a garden tool is normal use by customers in their

garden. The tools in question do not satisfy that standard because of a design defect. Low grade

iron is too weak for the use in garden tools. It does not matter whether the defect was a design

defect or a manufacturing defect. Thus, there has been a breach of the implied warranty of

merchantability.

45. Consumer purchases Flounder Fillets from the local retail grocery store, and is

injured by a bone in the fillets. The grocery stores procedure is to merely unpack the

goods from their shipping containers, and place them on the shelves. Does the

consumer have a claim against the grocery store for breach of the implied warranty ofmerchantability?

45. Probably not. There are two questions of fact here. First, the threshold issue is whether the

grocery is a merchant with respect to goods of the kind under 2 314 . Under 2 104 comment

2, the phrase with respect to goods of that kind limits the group of merchants for the purpose

of implied warranties. Also, 2 314 comment 3 implies that a person is not a merchant unless he

makes more than isolated sales. Here, however, the grocery would seem to be have made

repeated sales. A counter argument is that the grocery is not inspecting the goods, and so has

no way of preventing the harm. However, assuming even if the grocery is a merchant, then

there is the further issue of fact as to whether the presence of the bones violates the implied

warranty of merchantability. This turns on whether any of the 2 314(2) standards have been

violated. Even though a product causes harm, it is merchantable if its quality is consistent with

these standards. Here, most fillets probably have bones, and it might be reasonable for a

consumer to expect that a large bone would be present, particularly in the absence of anysuggestion otherwise by the grocery. Thus, the fish would seem to be fit for the ordinary

purpose under 2 314(2)(c) .

46. (T/F) Goods do not breach the implied warranty of fitness for a particular purposeunless they are defective in some way.

Roger W. Martin 13

8/3/2019 Sales Quiz

14/27

46. False. 2 315

47. (T/F) Goods do not breach the implied warranty of merchantability unless they are

defective in some way.

47. True. 2 314

48. John Smith owned a portable electric lift for working on his car. After several years

of use, the hydraulic fluid had mostly leaked out due to leaking by the seals under

normal use. John went to Kragen Auto, where he originally purchased the lift, andasked for assistance in selecting a replacement hydraulic fluid for his electric lift. The

store clerk handed him a bottle of hydraulic fluid, and John made the replacement.

However, due to the nature of the replacement fluid, which was not designed for

electric lifts, the lift failed and damaged his car. What cause of action might John haveagainst Kragen.

48. John probably has a breach of the implied warranty of fitness for a particular purpose under

2 315 . 2 315 provides a warranty if [1] the seller has reason to know [2] of the particular

purpose for which the goods are required and [3] that the buyer is relying on the sellers skill or

judgment to select or furnish suitable goods. Here, John told the seller of his particular purpose

of needing hydraulic fluid for his electric lift. Furthermore, John reasonably relied on the sellers

judgment in selecting the proper type of fluid.

49. Ben Miller purchased a new and expensive Whirlpool gas range home use from

Corona Appliances, the local appliance store. The range malfunctioned and explodedduring normal use. Although no persons were injured, the Millers next door

neighbors house burned down. Bens next door neighbor, Charlie, brings an action

against Corona and Whirlpool for breach of implied warranty of merchantability, and

for damages to his house. What must Charlie argue to recover?

49. Under 2 314(2)(c) the range violates the implied warranty of merchantability because it is

not fit for the ordinary purposes for which such goods are used. However, the real issue is

whether Charlie can recover 1) for the damages to his property (horizontal privity), and 2)

against a remote manufacturer (vertical privity). Hopefully, Charlies jurisdiction has adopted

Alternative C to 2 318 concerning horizontal privity. Alternative C provides that animplied warranty extends to any person who is injured by breach of the warranty, Provided

that they may reasonably be expected to...be affected by the goods. Thus, Charlie would need

to argue that he was reasonably expected to be affected by the goods to be able to recover for

damages to his house from at least the local Corona Appliance store because of horizontal

contractual privity. Whether Ben can recover against Whirlpool depends on whether the local

jurisdiction requires absolute vertical privity. Charlies best argument is that forwarded in

8/3/2019 Sales Quiz

15/27


Randy Knitwear, that the manufacturer relies so heavily on advertising that it would be unfair

for the manufacturer (who is not a retailer) to benefit substantially from the advertising that

induces the local retail sales, but then claim lack of privity if the product fails.

50. (T/F) The disclaimer of an express warranty is effective to the extent that it is

inconsistent with the language of the express warranty.

50. False. 2 316(1)

51. (T/F) A disclaimer of the implied warranty of fitness for a particular purpose must

be in a conspicuous writing.

51. True. 2 316(2) .

52. (T/F) A disclaimer of the implied warranty of merchantability must be in aconspicuous writing.

52. False. 2 316(2)

53. Pacific Surf Shop wishes to buy 10 surfboards from Bill Minard, a local surfboard

shaper. During contract negotiations over price, delivery schedule, etc., Bill insists that

Pacific come by his shaping room and pre inspect the boards to make sure that they are

what Pacific wants. Pacific refuses to do so claiming that it does not have time. Thecontract for sale of the surfboards is signed, and the boards are delivered on time.

Upon receipt of the boards, Pacific is unable to sell them because they are shaped for big

waves, and Pacifics customers mostly surf the smaller local waves. Pacific tries to

return the boards, but Bill will not take them back. Pacific then sues for breach of theimplied warranty of fitness for a particular purpose. What result?

53. 2 315 provides the implied warranty for fitness for a particular purpose. Here, it appears

that Bill had reason to know of the particular purpose for which Pacific ordered the boards, i.e.

for resale to local surfers. It also appears that Pacific relied on Bills skill and expertise in

shaping the boards suitably. However, 2 316(3)(b) extinguishes implied warranties as to

defects which and examination ought to in the circumstances to have revealed to him when

the buyer before entering the contract...has refused to examine the goods. Here, Pacific refusedto inspect the goods before contract formation. Thus, there is no implied warranty applicable to

the sale, and Pacific will not be able to recover under that theory.

54. Consolidated Agricultural Supplies, Inc. manufactures tractors. Jim the farmer

purchased a custom made crop harvester from Consolidated. In the purchase contract,

conspicuously worded, was a statement that read Consolidated warranties that the

Roger W. Martin 15

8/3/2019 Sales Quiz

16/27

8/3/2019 Sales Quiz

17/27


any remedy for that breach.

56. True. 2 607(3)(a)

57. (T/F) If the goods or tender of delivery fail in any respect to conform to the contract

the buyer may reject the whole of the goods provided that such non conformity causesmaterial damage to the buyer.

57. False. 2 601 .

58. Hartz Seed Co. is a supplier of soy beans. Colman contracted with Hartz for the

delivery of one ton of soy bean seeds, for delivery at Colmans plant. After delivery,

Colman began the process of inspecting the soy bean seeds for quality. The inspection

testing procedure is involved, and usually takes several weeks to complete because itinvolves growing at least some of the seeds. After one month, Colman noticed several

defects in the seedlings that were growing. Colman immediately notified Hartz of thedefects, and rejected the entire lot. Hartz comes to you for advice concerning a possible

action for breach against Colman. Specifically, Hartz asks you whether Colman hasaccepted the seeds, or properly rejected the seeds. How do you advise Hartz?

58. To make an effective rejection, the buyer must have had the right to reject under 2 601 .

However, that standard is fairly low in that the buyer has the right to reject the whole if the

goods fail in any respect to conform to the contract. Here, the seeds are defective, and thus

Colman had the right to reject. Colman must take some affirmative action to exercise that right

of rejection. Under 2 606(1)(b) , acceptance may occur if the buyer fails to make an effective

rejection...but such acceptance does not occur until the buyer has had a reasonable opportunity

to inspect the goods. Furthermore, under 2 602 the rejection of the goods must occur within a

reasonable time after their tender or delivery, and the rejection is ineffective unless the buyer

seasonably notifies the seller. Thus, the issue here is whether the rejection and notice occurred

within a reasonable time. Due to the involved nature of the inspection process, Colman did not

have a reasonable opportunity to inspect the goods under 2 606(1)(b) until it grew some of the

seedlings because it could not discover the defect until then. Thus, Hartz should be advised that

Colman did not accept, but rather made an effective rejection of the seeds.

59. (T/F) The buyers failure to state in connection with a rejection a particular defectwhich is ascertainable by reasonable inspection precludes him from relying on theunstated defect to justify rejection where the seller could have cured the defect if the

buyer had stated it seasonably.

59. True. 2 605

Roger W. Martin 17

8/3/2019 Sales Quiz

18/27

60. (T/F) If the time for performance has not yet expired, the seller may seasonably

notify the buyer of his intent to cure, and then make a conforming delivery provided

that the seller had reasonable grounds for believing that the non conforming tenderwould be acceptable.

60. False. 2 508(1)

61. Paul buys a toaster at the local appliance store. The toaster is in a box, factory

sealed, and unopened. When Paul returns home and plugs in the toaster, it shorts out.

Paul returns the toaster to the store and demands his money back. The appliance storemanager tells Paul that he will fix the toaster by replacing a part. Paul refuses,

demanding his money back. Does the appliance store have the right to repair the

toaster instead of refunding the money?

61. Yes. Although Paul has the right to reject under 2 601 , and has taken steps to rightfully

reject under 2 602 (and thus has not accepted under 2 606 because of his right to inspect the

goods before acceptance), the appliance store may suspend Pauls right to reject for a further

reasonable time under 2 508(2) . Specifically, 2 508(2) requires that the seller have reasonable

grounds to believe that the toaster would have been acceptable, and that he seasonably notify

the buyer of his intent to cure. Here, assuming that the appliance store did not have a rash of

defective toasters, it has reasonable grounds to believe that a toaster in a factory sealed unopened

box would be acceptable to the buyer. Thus, the appliance store is entitled to the further

reasonable time to cure the defective toaster by repairing. It would not affect the value of the

toaster if it had a single part replaced, and thus repairing it would make it conform to the

contract.

62. (T/F) In an installment contract, the buyer has the right to reject any installment

which is non conforming if the non conformity substantially impairs the value of that

installment and cannot be cured.

62. True. 2 612(2) .

63. (T/F) In order for a seller to have the right to cure a defective tender of a particularinstallment in an installment contract, the seller must have had reasonable grounds to

believe that the tender would have been acceptable.

63. False. 2 612(2)

64. (T/F) In a shipment contract, the buyer has the right to reject the goods if the

tender or delivery fails in any manner to conform to the contract.

8/3/2019 Sales Quiz

19/27


64. False. 2 504

65. Bill ordered an airplane from Fullerton Aircraft for his own personal use. Bill took

delivery of the aircraft, and flew it for several months before determining that it caused

him joint pain due to vibration. Bill wishes to return the airplane and either have the

vibration dampened, or get a refund. In the purchase contract, no mention is made ofparticular vibration specifications, and a test of the aircraft shows that it does not

experience more than an normal level of vibration. Bill has come to you for advice on

whether to proceed with an action for breach of contract. How should you advise Bill?

65. Under 2 606(b) , Bill has accepted the airplane because he has failed to make an effective

rejection (i.e. he has not notified the seller in a reasonable time after delivery under 2 602 ) after

a reasonable opportunity to inspect it. Here, Bill has flown the aircraft for several months,

and that is probably beyond a reasonable time for initial rejection. Thus, Bills only option is to

attempt to revoke. 2 608(1) provides that a buyer may revoke if the non conformity

substantially impairs its value to him. Here, Bill may be overly sensitive to vibration, so the

value of the aircraft may actually be substantially less to him personally. However, this

subjective standard only applies if there is a non conformity in the first place, which is

determined by reference to the contract. Here, the contract is silent on vibration, and so there is

no express warranty. There is an implied warranty of merchantability under 2 314 , but that

only requires that the goods be fit for their ordinary purpose or pass without objection in the

trade. Since the airplane only has a normal level of vibration, it does not breach the implied

warranty of merchantability. Also, there is no implied warranty of fitness under 2 315 for Bills

particular sensitivity because there is nothing in the facts to show that the seller had reason to

know of Bills condition at the time of contracting. Thus, there appears to be no nonconformity which would give rise to a right to revoke.

66. Unique Systems, Inc. develops and manufactures hair spray. Zotos, Inc. is a

distributor of cosmetic products. Zotos and Unique enter into a contract for Unique to

develop a new hair spray, and for Zotos to purchase a large quantity of that hairsprayfor resale. After contract formation, but prior to delivery of the new hair spray, Zotos

decides that it wishes to perform a marketability test of a small lot of the hairspray to

determine the anticipated demand before committing to accepting delivery of the whole

amount. Although the contract does not include any such provision, Zotos makes its

intention not to comply with the contract unambiguously clear to Unique. Uniqueapproaches you concerning its rights under the contract. Specifically, Unique asks you

whether it may immediately stop production of this new hairspray and withhold any

delivery without breaching the contract. How do you advise Unique?

66. 2 610 provides that when either party repudiates the contract with respect to a

performance not yet due the loss of which will substantially impair the value of the contract to

Roger W. Martin 19

8/3/2019 Sales Quiz

20/27

the other, the aggrieved party may...suspend his own performance. Here, Zotos has repudiated

because it has clearly indicated its intention not comply with the contract by unilaterally

inserting the additional testing requirement. Zotos obligation under 2 301 is to accept and pay

in accordance with the contract. Clearly, this repudiation will substantially impair the value of

the contract to Unique. Thus, Unique is entitled to suspend its own performance by stopping

production and withholding any delivery.

67. (T/F) If a repudiating party timely retracts the repudiation, the aggrieved party may

still demand adequate assurances of performance under 2 609 .

67. True. 2 611(2) .

68. S.J. Groves & Sons Co. is a general construction contractor. Warner Co. is a concrete

supplier. Groves and Warner enter into an installment contract for Warner to supply

Groves weekly requirements of concrete during its construction of a building. Onseveral occasions, Warners deliveries are short because it is unable to keep up with

Groves construction schedule. This results in heavy costs of overtime and schedule

slippage to Groves. Groves has come to you seeking advice. Specifically, Groves wishes

to know whether it can cancel the contract with Warner, and instead enter into a newand similar contract with a different supplier at the same price. How do you advise

Groves?

68. Installment contracts are governed by 2 612 . 2 612(3) provides that whenever non

conformity or default with respect to one or more installments substantially impairs the value of

the whole contract, there is a breach of the whole. Here, more than one of the deliveries has beenshort. Also, since Groves has incurred considerable expenses and schedule slippage due to the

short deliveries, the value of the whole contract is substantially impaired. Thus, Groves may

treat the entire contract as being breached and cancel under 2 711(1) . Since the new contract

would be similar and at the same price, there is no appearance of bad faith for Groves to cancel

the contract. However, Groves must be careful under 2 612(3) not to accept any further non

conforming installments without seasonably notifying of cancellation, otherwise, he may

reinstate the contract. However, since it is more clear that reasonable grounds for insecurity

have arisen than it is clear that the value of the whole contract is substantially impaired, a safer

course may be for Groves to demand adequate assurances of performance under 2 609 . For

example, Groves may ask for payment for the losses already incurred and a performance bondagainst future losses. Failure of Warner to provide adequate assurance within a reasonable time

would be repudiation under 2 609(4) .

69. (T/F) Where the buyer rightfully rejects, then with respect to the goods involved,

the buyer may cancel and whether or not he has canceled, may recover so much of theprice as has been paid.

8/3/2019 Sales Quiz

21/27


69. True. 2 711(1)

70. A, in New York, contracts to buy lockers from B in V.A. for $80,000 F.O.B. sellers

plant in VA. The buyer, A, had already determined that shipping costs between VA

and NY were $7,000, and that a local contractor would install them for $2,000, bringingthe total cost to A to $89,000 installed. B, the seller, repudiated. After incurring $50

long distance phone bills, A covered under a contract with a local provider C that cost

$92,000 delivered and installed. What are As damages against B?

70. 2 712(1) provides that the buyer may cover in good faith any reasonable purchase

of...goods in substitution for those due from the seller. Here, it appears that the cover contract

was a reasonable substitution because they were both for lockers. Under 2 712(2) the buyer may

recover the difference between the cost of cover and the contract price, together with any

incidental or consequential damages...but less expenses saved in consequence of sellers breach.

2 715(1) defines incidental damages expenses reasonably incurred...in connection with

effecting cover. Thus, the difference between the cost of cover and the contract price is $92,000

$80,000 = $12,000. The expenses saved in consequence of the sellers breach were the shipping

and installation costs of $7,000+$2,000=$9,000. Thus, the buyer may recover $12,000

$9,000=$3,000 on the contract, plus $50 of incidental damages for the long distance bill

incurred in covering.

71. Seller (NY) and Buyer (LA) enter into a contract for the sale of a pot hole fillingmaterial. The contract price is $2,000 and the shipping expense from NY to LA is $100.

The shipment date by the seller is September 1st, at which time the price in NY has goneup to $2,100 and the price in LA has gone up to $2,200. The arrival date in LA is

September 15th, at which time the price in NY has gone up to $2,300, and the price inLA has gone up to $2,400.

(a) Assume the contract terms are F.O.B. NY and that the goods are shipped properly.

What are the buyers damages if buyer discovers non conformity upon receiptinspection and properly rejects?

(a) Under 2 713(1) provides that the damages are the contract market differential, together with

incidental and consequential damages, less the amount saved by the breach. The time ofmeasuring the market price is the time the buyer learned of the breach. Here, the buyer

learned of the breach on the date of arrival. 2 713(2) provides that the market price is to be

determined in the cases of rejection after arrival..., as of the place of arrival. Here, there is a

rejection after arrival, so LA is the place of the market. The market price in LA on the date of

arrival is $2,400. Thus, the damages are $2,400 (mkt.) $2,000 (contract) $100 (expenses

saved) = $300.

Roger W. Martin 21

8/3/2019 Sales Quiz

22/27

(b) Assume that the contract terms are F.O.B. NY, but that the goods are not shipped.

What are buyers damages if buyer is not aware of the non shipment until his inquiryon the arrival date?

(b) 2 713(1) provides that the market price for damages is to be measured at the time the buyerlearned of the breach. Here, that is the date of arrival. 2 713(2) provides that the place for

measuring market price damages is the place for tender unless there is a rejection after arrival.

Here the place for tender is N.Y. because this is a shipment contract under 2 319(1)(a) . Thus,

the market damages are to be measured from the NY market on the date of arrival. They are

$2,300 (mkt.) $2,000 (contract) = $300. There is no deduction for the cost of transportation,

because that has not been saved. Furthermore, there is no addition for cost of transportation,

because that is a cost the buyer would have borne under the original contract anyway.

(c) Assume the contract terms are F.O.B. LA (destination contract) but the goods are not

shipped. What are the buyers damages if Buyer is not aware of the non shipment until

his inquiry on the arrival date?

(c) Like (b) above, the market price is measured on the date of arrival, i.e. when the buyer learned

of the breach. However, since this was a shipment contract under 2 319(1)(b) , the place for

tender under 2 713(2) is the place of arrival. Thus, the market damages are to be measured

from the LA market on the date of arrival. They are $2,400 (market) $2,000 (contract) $100

(expense saved) = $300.

72. Arthurs Pawn Shop sells an electric guitar to Jim for $1,000. Arthur specificallywarrants that the electric guitar is a genuine Les Paul model, and not a copy. The

guitar has a defective pickup which fails about after about a week. Jim takes the guitar

to a local repair shop to have it fixed, and finds out that the electric guitar is actually a

copy, and thus is only worth about $400. Nevertheless, Jim decides to keep the guitarand fix it. The repairs cost $150. What damages would Jim be entitled to?

72. Arthur made an express warranty under 2 313(b) that the guitar was not a copy. That

express warranty was breached. Furthermore, there is a breach of the implied warranty of

merchantability under 2 314(2)(c) because an electric guitar with a broken pickup is not fit for

the ordinary purpose of electric amplification. Thus, Jim would have a remedy for breach ofwarranty under 2 714(2) which provides, the measure of damages for breach of warranty is the

difference at the time and place of acceptance between the value of the goods accepted and the

value they would have had if they had been as warranted. The goods, as accepted, are a copy of

a guitar with a street value of $400, in need of $150 of repair. Thus, the goods as accepted are

worth $400 $150 = $250. The goods, if they were as warranted, would be worth the purchase

price of $1,000. Thus, Jim is entitled to damages of $750.

8/3/2019 Sales Quiz

23/27


73. (T/F) A buyer may recover consequential damages resulting from the sellers

breach including any injury to person or property proximately resulting from anybreach of warranty, provided that the seller, at the time of contracting, had reason to

know that the goods were dangerous.

73. False. 2 715(2)

74. Hayes, Inc. manufactures and sells computer modems. Earthnet, Inc. is an internet

service provider that requires a large and complex modem to serve its customers. Dueto high demand, Earthnet is planning to expand its customer base from 10,000

subscribers to 15,000 subscribers. 10,000 of the subscribers can be handled by the

existing modems that Earthnet already has. However, in order to accommodate the

additional 5,000 subscribers, Earthnet contracts with Hayes to purchase 5 additionalmodems at a cost of $2,000 each. The contract specifies a delivery date of March 1st.

Earthnet spends $1,000 in advertising during the month of February announcing theplanned service, and is confident that it will be able to sign up an additional 1,000

subscribers in the month of March after installation of the new modems. On Feb. 1st,Hayes calls and repudiates stating that it is unable to meet the March 1st delivery due to

a backlog of orders, but would be able to deliver by April 1st. As of Feb. 1st, Earthnet

would be able to cover at a cost of $2,300 per modem and get the replacement modems

by March 1st, but it chooses to wait for the later delivery. After the modems aredelivered and installed, Earthnet brings an action for the lost revenues from an

anticipated 1,000 subscribers over the month of March ($20,000), the cost of advertising

during the month of February ($1,000), and the cost of advertising during the month of

March ($1,000). Which, if any, of these costs is recoverable?

74. Under 2 610 , the buyer may only await performance by a repudiating party for a

commercially reasonable time. Here, the repudiation occurred a month before time for delivery.

Given that cover was immediately available, it would probably be a commercially unreasonable

time to wait a month and rack up such substantial damages. Under 2 711(1) , where the seller

repudiates, the buyer may either cover under 2 712 or recover contract market damages under

2 713 , and in either case, get incidental and consequential damages under 2 715 . Since

Earthnet chose not to cover, he must accept the contract market damages of $2,300 $2,000 =

$300 per modem times 5 modems = $1,500, plus incidental and consequential damages. As to

the incidental cost of advertising during the month of February, that cost did not result[] from

the sellers breach because it would have been incurred regardless of the breach, and thus can

not be counted as damages under 2 715(1) . As to the cost of advertising during the month of

March, it did not result from the sellers breach either because if Earthnet had covered, it would

not have been necessary. Finally, the consequential damages of $20,000 could have reasonably

[been] prevented by cover and so likewise are not countable under 2 715(2)(a) . As such, the

Roger W. Martin 23

8/3/2019 Sales Quiz

24/27

total measure of damages is what Earthnet would have recovered if they had made a cover,

because their wait was unreasonably long.

75. Charlies Chevrolet, Inc. contracts to sell Sedmak a limited edition Indy Pace Car

Corvette. For the year of interest, there were only 10 of these models made, which

include fancy paint and trim work. After contract formation, and while the car is beingshipped across the country to be delivered to the lot, Charlies Chevrolet receives an

order from another customer who will pay $20,000 more for the car. Charlies sells the

car to the other customer, and offers Sedmak a refund of his money plus $5,000 in

liquidated damages. Sedmak refuses the money and insists on the car itself. Sedmakhas come to you seeking assistance. How do you advise Sedmak?

75. 2 716(1) provides that specific performance may be decreed where the goods are unique or

in other proper circumstances. Here, the goods are a limited edition car. The code rejects the

previous common law requirement that the goods be one of a kind. Specifically, the code

comments provide that market realities, such as inability to cover, are a relevant consideration

and strong evidence of proper circumstances for specific performance. Thus, although Sedmak

would be $5,000 richer if he accepted the liquidated damages, he would also not have the car he is

entitled to by contract, and not be able to purchase one like it to cover. It would likely cost more

than $5,000 more to convince one of the other 9 owners to part with their car, as is evidenced by

the $20,000 higher bid locally. Thus, this would probably be a proper case for specific

performance, especially since the bad faith of Charlies puts the balance of equity strongly in

Sedmaks favor.

76. Apex Oil Co. produces and sells industrial grade oil. The Belcher Co. contractedwith Apex to buy 10,000 barrels of oil at $50 per barrel. The contract date of delivery

was June 1st. The day before the date of delivery, Belcher called Apex to repudiate the

contract. On June 1st, Apex sold 10,000 barrels of oil to another customer at $51 per

barrel. Two months later, on August 1st Apex sold 10,000 barrels of oil to yet anothercustomer for $48 per barrel. Apex brings a breach of contract action against Belcher for

the difference between the contract price of $50 per barrel, and the August 1st resale

price of $48 per barrel. Is this the proper measure of Apexs damages?

76. No. Under 2 703(d) , when a buyer breaches, the seller may resell and recover resale

damages under 2 706 . 2 706 provides that the measure of damages is the difference betweenthe resale price and the contract price provided that the resale is made in good faith and in a

commercially reasonable manner. 2 103(1)(b) provides an objective standard of good faith for

merchants, in that they must observe reasonable commercial standards of fair dealing.

Furthermore, 2 610 provides that when either party repudiates, the other party may only await

performance for a commercially reasonable time. In this case, since the market price was

higher on the contract date of delivery, but lower on the date of claimed resale, it is clear that

8/3/2019 Sales Quiz

25/27


Apex has not acted in a commercially reasonable manner. Furthermore, in a volatile market

such as oil, waiting two months to resell is not a commercially reasonable time. Thus, Apex

has violated good faith and commercial standards in waiting so long to resell, so that it could

speculate on the market at Belchers expense. The more reasonable measure of damages would be

to define the 10,000 sold on June 1st at $51 per barrel as the resale. This would give Apex no

damages (except incidental damages, if any) because of the higher market price on the resale date.

77. (T/F) In the case of a repudiation by the buyer, the sellers damages are determined

according to the market price at the time the seller learned of the breach.

77. False. 2 708(1) .

78. Pacific Marine, Inc. is a boat retailer. Pacific contracts to sell a 20 sailboat to Fred Jones for $25,000. However, Fred repudiates before he is to take delivery. Pacific

promptly resells the same boat to Shirley Walker for $25,500. At the time of the resale,

Pacific had at least two other identical boats on its lot. Pacific purchased the boat

wholesale for $20,000. Pacific brings an action for damages for Freds breach. Fredinsists that since the same boat was resold for $500 more, that Pacific does not have any

damages. Is Fred correct?

78. No. Fred appears to be calculating damages by 2 706(1) which provides the standard

measure of damages for resale as the resale price minus the contract price (plus incidental

damages and minus expenses saved). However, due to the nature of the seller, this is not a

standard resale transaction. 2 708(2) , if the standard measure of damages (i.e. contract

market) is inadequate to put the seller in as good a position as performance would have donethen the measure of damages is the profit...the seller would have made from full performance by

the buyer. Here, because Pacific would likely have sold the additional boat to Shirley regardless

of Freds breach, Pacifics real interest in the transaction was the profit generated by the sale.

Thus Pacifics real loss is the loss of profit from Freds sale. As such, Pacific may be

characterized as a lost volume seller. Since the standard measure of damages would not put

Pacific in as good a position as it would have been had Fred taken delivery, it is entitled to the

profit of $5,000 that it would have made from the sale to Fred.

79. Creative Computers manufactures and sells custom computer systems. All Day

Car Rental places a custom order with Creative for the purchase of 10 speciallydesigned computer terminals, and 1 central server computer. The contract price is

$10,000. To fill this order Creative begins to assemble various components and parts tobuild the system. The total cost in parts and labor to Creative is $5,000 for a finished

system like this one. When Creative is about half way done with the order, All Day

calls to repudiate. What are Creatives damages if it completes manufacture of the

computers and resells the system to another customer for $9,000? What are Creatives

Roger W. Martin 25

8/3/2019 Sales Quiz

26/27

damages if it decides to stop manufacture and sell the partially assembled system for

$4,000 scrap value after expending $2,000 in parts and $1,500 in labor?

79. Under 2 704(2) , where the goods are unfinished an aggrieved seller may in the exercise of

reasonable commercial judgment...either complete the manufacture...or cease the manufacture

and resell for scrap or salvage value. Under 2 706(2) , it is not necessary that the goods be in

existence in order to perform a proper resale. Thus, if Creative resells the finished product, it

may recover resale damages of $1,000 under 2 706 (i.e. contract price resale price). However,

if Creative decides to sell the scrap, then the standard measure of damages (market price

contract price of2 708 = $1,000) would be inadequate to put the seller in as good a position as

performance would have done, because performance would have given Creative a profit of

$5,000. Thus, Creative is entitled to the lost profits of $5,000 under 2 708(2) .

80. MagnaLite, Inc. of New York manufactures and sells flashlights. SDG&E of San

Diego enters into a contract to purchase 1,000 flashlights from MagnaLite. The contract

provides shipment terms of F.O.B. sellers plant. MagnaLite properly ships theflashlights to SDG&E. SDG&E properly rejects them under 2 602 upon arrival due to a

non conformity reported by one of their receiving inspectors. However, when theflashlights get back to MagnaLite, it discovers that the rejection was wrongful because

the alleged non conformance did not actually exist (it was operator error by SDG&Es

inspector). MagnaLite thereafter sues, claiming that the rejection was wrongful, and so

SDG&E is liable for the contract price. Is MagnaLite correct?

80. No. Under 2 709(1)(a) , a seller may recover the contract price of goods accepted.

However, here SDG&E has properly rejected, even though it has not rightfully rejected. That isto say that although SDG&E did not have the right to reject, it did follow the procedures of2

602. Thus, SDG&E has precluded acceptance under 2 607(2) , and according to 2 602(3) the

sellers rights with respect to such wrongfully rejected goods are governed by 2 703 . 2 703

provides that in a proper case, the seller may recover the contract price under 2 709 , however

since the goods were not accepted, this is not a proper case for recovery of contract price.

81. Assume the same facts as Question 80 above, except that the flashlights weredestroyed during original shipment from MagnaLite to SDG&E (i.e. they never arrived).

Would MagnaLite be entitled to the contract price?

81. Yes. Under 2 709(1) the buyer is liable for the price of goods lost or damaged within a

commercially reasonable time after risk of their loss has passed to the buyer. Under 2 319(a) ,

the F.O.B. term here creates a shipment contract. Thus, under 2 509(1)(a) , since the goods were

not required to be delivered at a particular destination, the risk of loss passes to the buyer when

the goods are duly delivered to the carrier. The facts state that MagnaLite properly shipped the

flashlights, and so the risk of loss passed to the buyer upon placing them with the carrier. Thus,

8/3/2019 Sales Quiz

27/27


SDG&E is liable for the contract price.

82. (T/F) When a buyer fails to pay the price as it becomes due, the seller may recover,

together with any incidental and consequential damages, the price of goods accepted.

82. False. 2 709(1) (incidental damages only).

sales quiz

Documents