Chapter Two: Sales
B. Grand would not be considered to have breached the contract until Axle rejected the standard
cabinets.
C. Grand made a counteroffer by shipping the standard cabinets.
5. A. Axle is entitled to specific performance from Grand because of the unique nature of the goods.
B. Axle is required to purchase substitute goods (cover) and is entitled to the difference in cost from
Grand.
C. Axle is entitled to punitive damages because of Grand’s intentional shipment of nonconforming
goods.
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NUMBER 2
Angler Corp., a food distributor, is involved in the following disputes:
• On September 8, Angler shipped the wrong grade of tuna to Mason Restaurants, Inc. under a contract that stated as follows: "F.O.B. - Angler's loading dock." During shipment, the tuna was destroyed in an accident involving the common carrier's truck. Mason has refused to pay for the tuna, claiming the risk of loss belonged to Angler at the time of the accident.
• On October 3, Angler shipped 100 bushels of peaches to Classic Foods, Inc., a retail grocer. Because of a delay in shipping, the peaches rotted. Classic elected to reject the peaches and notified Angler of this decision.
Angler asked Classic to return the peaches at Angler's expense. Classic refused the request, claiming it had no obligation to do so.
• On October 23, Angler orally contracted to sell Regal Fast-Food 1,000 pounds of hamburger meat for $900.
Delivery was to be made on October 31. On October 29, after Angler had shipped the hamburger meat to Regal, Regal sent Angler the following signed correspondence:
"We are not going to need the 1,000 pounds of meat we ordered on October 23. Don't ship."
Regal rejected the shipment and claimed it is not obligated to purchase the hamburger meat because there is no written contract between Angler and Regal.
Required:
a. State whether Mason's claim is correct and give the reasons for your conclusion.
b. State whether Classic's claim is correct and give the reasons for your conclusion.
c. State whether Regal's claim is correct and give the reasons for your conclusion.
NUMBER 3
On October 10, Vesta Electronics contracted with Zap Audio to sell Zap 200 18" stereo speakers. The contract provided that the speakers would be shipped F.O.B. seller's loading dock. The contract was silent as to when risk of loss for the speakers would pass to Zap. Delivery was to be completed by November 10.
On October 18, Vesta identified the speakers to be shipped to Zap and moved them to the loading dock. Before the carrier picked up the goods, a fire on Vesta's loading dock destroyed 50 of the speakers. On October 20, Vesta shipped, by common carrier, the remaining 150 18" speakers and 50 16" speakers. The truck carrying the speakers was involved in an accident resulting in damage to 25 of the 16" speakers. Zap received the 200 speakers on October 25, and on October 27 notified Vesta that 100 of the 18" speakers were being accepted but the rest of the shipment was being rejected. Zap also informed Vesta that, due to Vesta's failure to comply with the terms of the contract, Zap would contest paying the contract price and would sue for damages.
The above parties and transactions are subject to the Uniform Commercial Code (UCC).
Required:
Answer the following questions, and give the reasons for your conclusions.
a. 1. Who bears the risk of loss for the 50 destroyed 18" speakers?
2. Who bears the risk of loss for the 25 damaged 16" speakers?
b. 1. Was Zap's rejection of the 16" speakers valid?
2. Was Zap's acceptance of some of the 18" speakers valid?
c. Under the UCC, what duties are required of Zap after rejecting all or part of the shipment?
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NUMBER 4
Debco Electronics, Inc. sells various brands of computer equipment to retail and business customers. An audit of Debco's 1991 financial statements has revealed the following transactions:
• On September 1, 1991, a Debco salesperson orally agreed to sell Rapid Computers, Inc. eight TMI computers for $11,000, to be delivered on October 15, 1991. Rapid sells computers to the general public. The Debco salesperson sent Rapid a signed confirmation of the sales agreement. Rapid received the confirmation on September 3, but did not respond to it. On October 15, 1991, Debco tendered delivery of the computers to Rapid. Rapid refused to accept delivery, claiming it had no obligation to buy the computers because it had not signed a contract with Debco.
• On October 12, 1991, Debco mailed TMI Computers, Inc. a signed purchase order for certain specified computers for delivery by November 30, 1991. the purchase order also stated the following:
This purchase order will not be withdrawn on or before October 31, 1991. You must accept by that date or we will assume you cannot meet our terms. Ship F.O.B. - our loading dock.
TMI received the purchase order on October 15, 1991.
• On October 25, Debco mailed the following signed correspondence to TMI, which TMI received on October 29:
Cancel our October 12, 1991, purchase order. We have found a better price on the computers.
• On October 31, 1991, TMI mailed the following signed correspondence to Debco, which Debco received on November 3:
We have set aside the computers you ordered and turned down other offers for them. Therefore, we will ship the computers to you for delivery by November 30, 1991, F.O.B.--your loading dock with payment terms 2/10; net 30.
There were no further communications between TMI and Debco.
TMI shipped the computers on November 15, and Debco received them on November 29. Debco refused to accept delivery. In justifying its refusal to accept delivery, Debco claimed the following:
• Its October 25 correspondence prevented the formation of a contract between Debco and TMI;
• TMI's October 31 correspondence was not an effective acceptance because it was not received by Debco until November 3;
• TMI's October 31 correspondence was not an effective acceptance because it added payment terms to Debco's purchase order.
Debco, Rapid, and TMI are located in a jurisdiction that has adopted the UCC.
Required:
a. State whether Rapid's claim is correct and give the reasons for your conclusions.
b. State whether Debco's claims are correct with regard to the transaction involving TMI and give the reasons for your conclusions.
2Q-12
NUMBER 5
Pharo Aviation, Inc., sells and services used airplanes. Sanders, Pharo's service department manager, negotiated with Secure Equipment Co. for the purchase of a used tug for moving airplanes in and out of Pharo's hangar. Secure sells and services tugs and related equipment. Sanders was unfamiliar with the various models, specifications, and capacities of the tugs sold by Secure; however, Sanders knew that the tug purchased needed to have the capacity to move airplanes weighing up to 10,000 pounds. Sanders and the sales representative discussed this specific need because Sanders was uncertain as to which tug would meet Pharo's requirements. The sales representative then recommended a particular make and model of tug. Sanders agreed to rely on the sales representative's advice and signed a purchase contract with Secure.
About a week after Sanders took delivery, the following occurred:
x Sanders determined that the tug did not have the capacity to move airplanes weighing over 5,000 pounds.
x Sanders was advised correctly by Maco Equipment Distributors, Inc., that Maco was the rightful owner of the tug, which it had left with Secure for repairs.
Pharo has commenced a lawsuit against Secure claiming that implied warranties were created by the contract with Secure and that these have been breached. Maco has claimed that it is entitled to the tug and has demanded its return from Pharo.
Required:
Answer each of the following questions, and set forth the reasons for your conclusions.
a. Were any implied warranties created by the contract between Pharo and Secure and, if so, were any of those warranties breached?
b. Is Maco entitled to the return of the tug?
NUMBER 6
John Barr purchased a new fork-lift for use in his business from Fiber Corp. Fiber designs, manufactures, and assembles fork-lifts, shipping them directly to customers throughout the U.S. The contract between Barr and Fiber contained a clause in fine print disclaiming "all warranties express or implied other than the limited warranty provided for on the face of this contract." The limited warranty included in the contract provided that "the buyer's sole and exclusive remedy shall be repair or replacement of defective parts and the seller shall not be liable for damages or personal injuries." The contract was a standard form used by Fiber, and as a matter of policy Fiber does not negotiate the terms and conditions of the contract with its customers.
Within one week of the purchase date, Barr was seriously injured when the steering wheel locked causing him to lose control of the fork-lift. Barr brings an action against Fiber for the personal injuries that he sustained based on the following causes of action:
x Negligence x Breach of warranty x Strict liability in tort
Fiber has asserted that the action brought by Barr should be dismissed due to the disclaimer.
Required: Answer the following, setting forth reasons for any conclusions stated.
(a) Discuss in separate paragraphs the prerequisites necessary to sustain each of the three causes of action asserted by Barr.
(b) Discuss the validity of the disclaimer with regard to the breach of warranty cause of action.
2Q-13
NUMBER 7
On May 1, Starr Corp., a manufacturer and supplier of computers, mailed a proposed contract to Magic, Inc., offering to sell 20 items of specified computer equipment for $18,000. Magic was engaged in the business of selling computers to the public. Magic accepted Starr's offer by executing and returning the contract to Starr. Starr failed to sign the contract.
On May 15, Starr advised Magic by telephone that, due to certain market conditions, the price of computer parts had increased. Therefore, in order to avoid a loss on the sale to Magic, Starr requested an increase in the sales price to
$20,000, which was orally agreed to by Magic. On May 17, Starr sent to Magic a signed letter acknowledging this agreement. Magic did not respond to the letter.
On September 15, Starr notified Magic that the equipment was ready for delivery. Due to substantial changes in computer technology subsequent to May 15, Magic indicated that it no longer wanted the equipment and that it would not pay for it. Starr was unable to resell the computer equipment for any price despite its reasonable efforts to do so. Therefore, Starr commenced a breach of contract action against Magic. Magic asserted the following defenses:
x The May 1 written contract between Starr and Magic is not enforceable because of the statute of frauds.
x Even if the May 1 contract is enforceable, the May 15 oral agreement to change the price of the equipment is not enforceable because the agreement lacked consideration and failed to satisfy the statute of frauds.
x In any event, Starr is not entitled to recover the full sales price because the equipment is still in Starr's possession.
Required:
Discuss Magic's assertions, indicating whether each is correct or incorrect and setting forth the reasons for any conclusion stated.
NUMBER 8
Anker Corp., a furniture retailer, engaged Best & Co., CPAs, to audit Anker's financial statements for the year ended December 31, 1988. While reviewing certain transactions entered into by Anker during 1988, Best became concerned with the proper reporting of the following transactions:
x On September 8, 1988, Crisp Corp., a furniture manufacturer, signed and mailed a letter offering to sell Anker 50 pieces of furniture for $9,500. The offer stated it would remain open until December 20, 1988. On December 5, 1988, Crisp mailed a letter revoking this offer. Anker received Crisp's revocation the following day. On December 12, 1988, Anker mailed its acceptance to Crisp, and Crisp received it on December 13, 1988.
x On December 6, 1988, Dix Corp. signed and mailed a letter offering to sell Anker a building for $75,000. The offer stated that acceptance could only be made by certified mail, return receipt requested. On December 10, 1988, Anker telephoned Dix requesting that Dix keep the offer open until December 20, 1988 because it was reviewing Dix's offer. On December 12, 1988, Dix signed and mailed a letter to Anker indicating that it would hold the offer open until December 20, 1988. On December 19, 1988, Anker sent its acceptance to Dix by a private express mail courier. Anker's acceptance was received by Dix on December 20, 1988.
2Q-14
After reviewing the documents concerning the foregoing transactions, Best spoke with Anker's president who made the following assertions:
x The September 8, 1988 offer by Crisp was irrevocable until December 20, 1988, and therefore a contract was formed by Anker's acceptance on December 12, 1988.
x Dix's letter dated December 12, 1988 formed an option contract with Anker.
x Anker's acceptance on December 19, 1988 formed a contract with Dix.
Required:
In separate paragraphs, discuss the assertions made by Anker's president. Indicate whether the assertions are correct and the reasons therefore.
NUMBER 9
On June 1, Classic Corp., a manufacturer of desk chairs, orally agreed to sell 100 leather desk chairs to Rand Stores, a chain of retail furniture stores for $50,000. The parties agreed that delivery would be completed by September 1, and the shipping terms were "F.O.B. seller’s loading dock". On June 5, Classic sent Rand a signed memorandum of agreement containing the terms orally agreed to. Rand received the memorandum on June 7 and made no response.
On July 31, Classic identified the chairs to be shipped to Rand and placed them on its loading dock to be picked up by the common carrier the next day. That night, a fire on the loading dock destroyed 50 of the chairs. On August 1, the remaining 50 chairs were delivered to the common carrier together with 50 vinyl chairs. The truck carrying the chairs was involved in an accident, resulting in extensive damage to 10 of the leather chairs and 25 of the vinyl chairs.
On August 10, the chairs were delivered to Rand. On August 12, Rand notified Classic that Rand was accepting 40 of the leather chairs and 10 of the vinyl chairs, but the rest of the shipment was being rejected. Rand also informed Classic that, due to Classic’s failure to perform under the terms of the contract, Rand would seek all remedies available under the Sales Article of the UCC.
Classic contended that it has no liability to Rand and that the shipment was strictly an accommodation to Rand because Rand failed to sign the memorandum of agreement, thus preventing a contract from being formed.
The above parties and the transactions are governed by the provisions of the Sales Article of the UCC Required:
a. Determine whether Classic’s contention is correct and give the reasons for your conclusion
b. Assuming that a valid contract exists between Classic and Rand, answer the following questions and give the reasons for your conclusions. Do not consider any possible liability owed by the common carrier.
1. Who bears the risk of loss for the 50 destroyed leather chairs?
2. Who bears the risk of loss for the 25 damaged vinyl chairs?
3. What is the earliest date that title to any of the chairs would pass to Rand?
c. With what UCC requirements must Rand comply to be entitled to recover damages from Classic?
d. Assuming that a valid contract exists between Classic and Rand, state the applicable remedies to which Rand would be entitled. Do not consider any possible liability owed by the common carrier.
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