BAR FLASHCARDS - C5 Terms of K

Question 1

Terms - Parol Evidence Rule (PER)

Answer 1

Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later final writing
- PER problem requires a writing, so if the fact pattern tells you that the parties only orally agreed, you have a SoF problem, not a PER problem

Parol evidence can be ORAL or WRITTEN!

Question 2

PER Keeps out evidence of….

Answer 2

Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later final writing.
Gist: Final writing supersedes prior oral or written evidence.

Question 3

PAROL EVIDENCE RULE—SUPPLEMENTING, EXPLAINING, OR CONTRADICTING TERMS

Answer 3

When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an “integration.” Any other expressions—written or oral—made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.

Question 4

Exceptions to Parol Evidence Rule (4 main ones)

Answer 4

• Partially integrated writing.
• Defense against formation (not contradict writing, just say “i want out of the deal”, like for fraud or lying.
• Explain vague or ambigious term. Not contradicting, just interpreting.
• Correct Clerical Error

Question 5

Stuff that happens after writing

Answer 5

Not within PER

Question 6

After signing the written lease, the manager promised J. Lo that the Hotel would “throw in the bridal suite for free.” Does the parol evidence rule prevent J. Lo from getting this promise into evidence?

Answer 6

No, this happened after writing so PER doesnt apply. But think about pre-existing legal duty rule and SoF.

Question 7

Partial integration =

Answer 7

a final statement of the terms included, but NOT a complete statement of all terms agreed to

*if you see partial or complete integration answer, it’s probably wrong

Question 8

Partial Integration—Additional Terms Permitted

Answer 8

If an integration is complete, the writing cannot be contradicted or supplemented. If, however, the integration is partial, the writing may not be contradicted but may be supplemented by proving consistent additional terms.
The UCC presumes all writings are partial integrations.

Question 9

Exceptions to PER (so the evidence gets in)

Answer 9

(*) Partially integrated writing
(1) Correct a Clerical Error (e.g. typo)
(2) Establish a Defense Against Formation
(3) Interpret a Vague or Ambiguous Term - Parol Evidence is okay
(4) Add to a Partially Integrated Writing - Parol Evidence is okay
(5).PERadmissibletoshowaconditionprecedent
**Note that PER applies to oral or written evidence (can bring in either if meet one of the exceptions above)
** new consideration?)

Question 10

Is the Writing an “Integration”?

Answer 10

When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an “integration.”
There are two components:
(1) whether the writing was intended as the final expression of the agreement; and
(2) whether the integration was intended to be complete or partial. Evidence is admissible to show the parties’ intent.

Question 11

Effect of Merger Clause

Answer 11

A merger clause recites that the agreement is the complete agreement between the parties.
The presence of a merger clause is usually determinative in large commercial contracts. For most contracts, however, the modern trend is to consider it as one factor in determining integration.

Question 12

A memo prepared by one party and not shown to the other…

Answer 12

A memo prepared by one party and not shown to the other can never be an integration because the parties could not have intended it to be the final complete expression of their agreement when one party has not even seen it. The writing is merely evidence of the agreement. Note that a confirmatory memo may be a partial integration under the UCC because it was sent to the other party and that party was aware of its contents

Question 13

Evidence Outside Scope of PER

Answer 13

Because the rule prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an “integration,” other forms of extrinsic evidence may be admitted if they won’t bring about this result, that is, they will fall outside the scope of the parol evidence rule.
a. validity issues
b. Collateral Agreements and Naturally Omitted Terms
c. Interpretation
d. Showing of “True Consideration”
e. Reformation
f. Subsequent Modifications
g. Additional Terms Under Article 2

Question 14

Validity Issues

Answer 14

A party to a written contract can attack the agreement’s validity. The party acknowledges (concedes) that the writing reflects the agreement but asserts, most frequently, that the agreement never came into being because of any of the following:
- Formation Defects: Formation defects (for example, fraud, duress, mistake, and illegality) may be shown by extrinsic evidence.
- Conditions Precedent to Effectiveness: If a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received.

Question 15

Collateral Agreements and Naturally Omitted Terms

Answer 15

Parol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation (that is, related to the subject matter but not part of the primary promise) and does not conflict with it.
The Restatements of Contracts include a similar concept with a more definitive approach: the naturally omitted terms doctrine.
The doctrine allows evidence of terms that would naturally be omitted from the written agreement.
A term would naturally be omitted if:
- (1) it does not conflict with the written integration; and
- (2) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.

Question 16

Interpretation

Answer 16

If there is uncertainty or ambiguity in the written agreement’s terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact finder in reaching a correct interpretation of the agreement. However, if the meaning of the agreement is plain, parol evidence is inadmissible.

Question 17

Conduct as a Source of Terms - Categories

Answer 17

(1) Course of Performance
(2) Course of Dealing
(3) Usage of Trade

Question 18

Course of Performance

Answer 18

How parties performed under previous installments of this CURRENT contract
*Course of performance is the best evidence of what parties intended

Question 19

Course of Dealing

Answer 19

What parties did under PRIOR Ks with each other
- less important than the current course of performance

Question 20

Trade Usage

Answer 20

What others in the trade do in similar contracts (less important than both course of dealing and course of performance)

Question 21

Showing of “True Consideration”

Answer 21

The parol evidence rule will not bar extrinsic evidence showing the “true consideration” paid (such as evidence that the consideration stated in the contract was never paid).

Question 22

Reformation

Answer 22

If a party to a written agreement alleges facts (for example, mistake) entitling him to reformation of the agreement, the parol evidence rule is inapplicable.

Question 23

Subsequent Modifications

Answer 23

Parol evidence can be offered to show subsequent modifications of a written contract.

Question 24

Additional Terms Under Article 2

Answer 24

Article 2 generally follows the rules discussed above, providing that a party can’t contradict a written contract but may add consistent additional terms unless:
(1) there is a merger clause, or (2) the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.
Article 2 also provides that a written contract’s terms may be explained or supplemented by evidence of course of performance, course of dealing, and usage of trade—regardless of whether or not the writing appears to be ambiguous.

Question 25

GENERAL RULES OF CONTRACT CONSTRUCTION

Answer 25

a. Contracts will be construed as a “whole”; specific clauses will be subordinated to the contract’s general intent.
b. The courts will construe words according to their “ordinary” meaning unless it is clearly shown that they were meant to be used in a technical sense.
c. If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions.
d. The courts generally will try to reach a determination that a contract is valid and enforceable.
e. Ambiguities in a contract are construed against the party preparing the contract, absent evidence of the intention of the parties.
f. The parties’ course of dealing (that is, the sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding)
g. A usage of trade (that is, a practice or method of dealing, regularly observed in a particular business setting so as to justify an expectation that it will be followed in the transaction in question)
h. The parties’ course of performance (that is, if a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such perfor- mance, any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract)
i. When rules conflict: (1) express terms are given greater weight than course of performance, course of dealing, and usage of trade; (2) course of performance is given greater weight than course of dealing or usage of trade; and (3) course of dealing is given greater weight than usage of trade.

Question 26

ARTICLE 2 PROVISIONS ON INTERPRETING CONTRACTS

Answer 26

Supplemental (“Gap-Filler”) Terms
Recall that the key to forming a contract for the sale of goods is the quantity term. If other terms are missing from the agreement, Article 2 has gap-filler provisions to fill in the missing term(s).
- Price: (1) nothing has been said as to price; (2) the price is left open to be agreed upon by the parties and they fail to agree; or (3) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is a reasonable price at the time for delivery.
- Place of Delivery: If the place of delivery isn’t specified, the place usually is the seller’s place of business, if they have one; otherwise, it’s the seller’s home.
- Time for shipment or delivery: If the time for shipment or delivery isn’t specified, shipment/delivery is due within a reasonable time
- Time for Payment: If the time for payment isn’t specified, payment is due at the time and place at which the buyer is to receive the goods.
- Assortment: If a contract provides that an assortment of goods is to be delivered (for example, blouses in various colors and sizes) and doesn’t specify which party is to choose, the assortment is at the buyer’s option. If the party who has the right to specify the assortment doesn’t do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (for example, choose a reasonable assortment) or treat the failure as a breach.

Question 27

Seller’s Warranties of Quality in a sale of Goods

Answer 27

(1) Express Warranty
(2) Implied Warranty of Merchantability
(3) Implied Warranty of Fitness for Particular Purpose

Question 28

Warranties

Answer 28

Contracts for the sale of goods automatically include a warranty of title (in most cases). They also may include certain implied warranties and express warranties.

Question 29

Express Warranty

Answer 29

Describe the goods, promise facts about the goods, showing sample or model, but NOT an opinion/puffrey
- example: This ring is solid 24 carat gold (EW)
- all parts of my widgets are “top notch” or “best quality” - NOT EW, mere puffrey

Question 30

Express Warranties

Answer 30

Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain.
For the statement, description, sample, or model to be a part of the basis of the bargain, it need only come at such a time that the buyer could have relied on it when they entered into the contract.
The buyer does not need to prove that they actually did rely, although the seller may negate the warranty by proving that the buyer as a matter of fact did not rely.
It isn’t necessary that the seller intended the affirmation of fact, description, model, or sample to create a warranty.

Question 31

showing sample or model of products

Answer 31

That is an EXPRESS warranty.

Question 32

Statements of Value or Opinion

Answer 32

A statement relating merely to the value of the goods, or a statement purporting to be only the seller’s opinion or commen- dation of the goods, doesn’t create an express warranty.

Question 33

“All parts of my widgets are “top notch” and “best quality.””

Answer 33

NOT a warranty. Just puffery.

Question 34

Implied Warranty of Merchantability

Answer 34

Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable.
To be merchantable, goods must at least be “fit for the ordinary purpose for which such goods are used.”

The goods are fit for their ordinary, foreseeable, purpose; seller is a merchant who deals in goods of the kind (show me a merchant seller that regularly sells that type of good to a consumer, automatically implied by law IWoM).

Question 35

Implied Warranty of Merchantability ONLY applies to…

Answer 35

merchant who regularly sells that kind of goods.

Question 36

Implied Warranty of Merchantability- Seller’s knowledge of defect

Answer 36

Seller’s Knowledge of Defect Not Relevant
As in all implied warranty cases, it makes no difference that the seller didn’t know of the defect or that they couldn’t have discovered it.
Implied warranties aren’t based on negligence but rather on absolute liability that is imposed on certain sellers.

Question 37

Implied Warranty of Fitness for a Particular Purpose

Answer 37

A warranty will also be implied in a contract for the sale of goods whenever:
(1) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods; and
(2) the buyer in fact relies on the seller’s skill or judgment.

The goods are fit for buyer’s particular purpose

Key facts: Seller knows buyer has a special purpose and is relying on seller to select suitable goods

NOTE: Seller does NOT have to be any kind of merchant at all!!
NOTE: where fact pattern alludes to B declining S’s advice, this will maybe destroy this warranty (see activity question on page 37)

Question 38

Implied Warranty of Fitness for a Particular Purpose ELEMENTS

Answer 38

• Buyer comes in with special purpsoe
• Seller knows of special purpose
• Seller picks out goods fit for buyer’s special purpose.

Seller does NOT have to be a merchant here!

Question 39

Warranty of Title and Against Infringement

Answer 39

• Warranty of Title: Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encum- brances against the title of which the buyer is unaware at the time of contracting. This warranty arises automatically and need not be mentioned in the contract.
• Warranty Against Infringement: A merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims.

Question 40

Warranty of Title:

Answer 40

Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. This warranty arises automatically and need not be mentioned in the contract.

Question 41

Warranty Against Infringement:

Answer 41

A merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims.

Question 42

Limitations on Warranty Liability in a Sale of Goods

Answer 42

(1) Disclaimers
(2)Limitations

Question 43

Limitations on Warranty Liability: Disclaimers

Answer 43

A Seller can disclaim implied warranties, BUT NOT express warranties
Two ways to disclaim:
(1) “as is” or “with all faults” make all implied warranties disappear
(2) make a conspicuous disclaimer
- meaning so written that a reasonable person would notice it
- example: NO IMPLIED WARRANTIES OF MERCHANTABILITY

Question 44

Disclaimer of Warranties - Warranty of Title:

Answer 44

Warranty of Title: The title warranty can be disclaimed or modified only by specific language or by circumstances that give the buyer notice that the seller does not claim title or that they are selling only such rights as they or a third party may have (for example, a sheriff’s sale).

Question 45

Disclaimer of Warranties - Implied Warranties:

Answer 45

Implied Warranties: The implied warranties of merchantability and fitness for a particular purpose can be disclaimed by either specific disclaimers or general methods of disclaimer.

Question 46

Two ways sellers can disclaim implied warranties

Answer 46

• Magic Words: By saying “as is” or “with all faults”.
• By using a conspicuous disclaimer

Question 47

Specific Disclaimers: Disclaimer of Warranty of Merchantability

Answer 47

The warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability.
If the sales contract is in writing, the disclaimer must be conspicuous.

Question 48

Specific Disclaimers: Disclaimer of Warranty of Fitness for a Particular Purpose

Answer 48

The warranty of fitness for a particular purpose can be specifically disclaimed only by a conspicuous writing. A written disclaimer is sufficient if it says, for example, “there are no warranties which extend beyond the description on the face hereof.”

Question 49

Disclaimer: By “As Is” or Similar Language

Answer 49

By “As Is” or Similar Language: Unless the circumstances indicate otherwise, the implied warranties of merchantability and fitness can be disclaimed by expressions such as “as is,” “with all faults,” or other expressions that in common understanding call the buyer’s attention to the fact that there are no implied warranties. Although this type of disclaimer does not have to be conspicuous, a hidden or fine-print disclaimer of this type is not effective.

Question 50

“Conspicuous” Defined

Answer 50

So written that a reasonable person would notice it. “NO IMPLIED WARRANTIES”.

A term is conspicuous when it is “so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it.” Language in the body of a writing is conspicuous if: (1) it is in larger type than surrounding text; (2) it is in a contrasting type, font, or color; or (3) it is set off from the text by marks that call attention to it. The court, not the jury, decides any fact question as to conspicu- ousness.
— Other Methods of Disclaiming Implied Warranties: The UCC also provides several more general methods for disclaiming implied warranties.

Question 51

Disclaimer: By Examination or Refusal to Examine

Answer 51

If the buyer, before entering into the contract, has examined the goods or a sample or model as fully as they desire or has refused to examine, there is no warranty as to defects that a reasonable examination would have revealed.

Question 52

By Course of Dealing, Etc.

Answer 52

Implied warranties may also be disclaimed by the course of dealing, course of performance, or usage of trade.

Question 53

Express Warranties

Answer 53

Basically can’t be disclaimed.
The UCC provides that words or conduct relevant to the creation of express warranties and words or conduct tending to negate such warranties shall wherever possible be construed as consis- tent with each other, but “negation or limitation is inoperative to the extent that such construction is unreasonable.” In other words, once an express warranty is made, it is very difficult to disclaim.

Question 54

Limitations on Warranty Liability: Limitations of Buyer’s Remedies - limitations on damages clauses

Answer 54

Gen. Rule: S can limit B’s remedies for breach of any warranty (express or implied) as long as the limitation is NOT unconscionable
Exception: Limiting Buyer’s remedies for personal injury in the case of consumer goods is presumed to be unconscionable
*remember that unconscionability is determined at the time the K was made (not later)

Question 55

Limitations on Damages Clauses

Answer 55

Parties may include in their contract a clause limiting the damages available in the case of breach of warranty (for example, “remedy for breach of warranty is limited to repair or replacement of the defective goods”).
However, such a limitation won’t be upheld if it’s unconscionable (for example, causes the remedy to fail of its essential purpose or limits personal injury damages for consumer goods.
Moreover, warranty disclaimers that limit damages for personal injury caused by a breach of warranty on consumer goods are prima facie unconscionable.

Question 56

Timing—Disclaimers and Limitations in the Box

Answer 56

To be effective, a disclaimer of warranty or limitation on remedies must be agreed to during the bargaining process. Thus, although a few courts hold otherwise, most hold that a warranty disclaimer or limitation on remedy included inside the packaging of goods is not effective against the buyer.

Question 57

Clickwrap”

Answer 57

Computer software often comes with terms that appear on the user’s computer screen during the installation process, and the purchaser must click to agree to the terms before installing.
Such limitations and disclaimers typically are upheld on the rationale that the purchaser can return the software if they disagree with the conditions.

Question 58

Unconscionability and Warranty Disclaimers

Answer 58

Some courts will, in addition to determining whether disclaimers have met the formal requirements discussed above, test warranty disclaimers by the unconscionability standards.

Question 59

Buyer’s Damages for Breach of Warranty: In General—Difference Between Goods Tendered and as Warranted

Answer 59

Generally, the measure of damages for breach of any warranty is the difference between the value of the goods accepted and the value of the goods as warranted, measured at the time and place of acceptance. If there are special circumstances, damages may be measured differently to account for those circumstances. In addition, the buyer can recover appropriate incidental and consequential damages.

Question 60

Buyer’s Damages for Breach of Warranty: Breach of Warranty of Title

Answer 60

If the warranty of title is breached, the goods are reclaimed by the true owner or lienholder, thus dispossessing the buyer. The buyer may then rescind the contract, revoke acceptance of the goods, or sue for damages. The value of the goods accepted is deemed to be nothing; so the damages are the value of the goods as warranted. Often, but not always, that’s the same as the purchase price.

Question 61

Buyer’s Damages for Breach of Warranty: Special Circumstances—Appreciation and Depreciation

Answer 61

If there are special circumstances, the value of the goods is measured at the time of the dispossession rather than at the time of acceptance. A great appreciation (such as, art) or deprecia- tion (for example, a car) in the value of the goods from the time of delivery until dispossession is usually considered a special circumstance.

Question 62

To Whom Do Warranties Extend?

Answer 62

UCC section 2-318 provides alternative provisions for determining to whom warranty liability extends beyond the initial buyer. Most states have adopted the narrowest provision, Alternative A, which provides that the seller’s warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest in the buyer’s home if it is reasonable to expect that the person may use, consume, or be affected by the goods and that person suffers personal injury because of a breach of warranty.

Question 63

Delivery Terms and Risk of Loss

Answer 63

All contracts for the sale of goods require delivery of the goods.
A contract’s delivery terms are important because they determine when risk of loss passes from the seller to the buyer if the goods are damaged or destroyed.

Question 64

Risk of loss terms

Answer 64

Who bears the risk of loss if lost or damages.

Question 65

Risk of Loss in Sale of Goods

Answer 65

Issue: when goods are damaged before buyer gets them and neither buyer nor seller is to blame, who bears the risk of loss?

Question 66

If Seller Bears Risk of Loss

Answer 66

S must provide new goods for buyer for no additional cost, or be liable for breach

Question 67

If Buyer bears the risk of loss

Answer 67

Buyer must still pay the contract price even though goods are destroyed

Question 68

Hierarchy of determining who bears Risk of Loss

Answer 68

(1) Agreement Allocates Risk - not frequently tested because obvious, the agreement of the parties controls
(2) Breach - breaching party bears risk (does not matter if breach unrelated to bearing risk of loss)
(3) Delivery by Common Carrier (e.g. UPS, Amtrak)
(4) Non-carrier Cases (e.g. buyer picks up or the seller delivers)

Question 69

Effect of Breach on Risk of Loss: Defective Goods

Answer 69

If the buyer has a right to reject the goods, the risk of loss doesn’t pass to the buyer until the defects are cured or the buyer accepts the goods in spite of their defects. Note that a buyer generally has the right to reject for any defect.

Question 70

Effect of Breach on Risk of Loss: Revocation of Acceptance

Answer 70

If the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer’s insurance coverage.

Question 71

Noncarrier Case

Answer 71

A noncarrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier (for example, when you buy groceries).
If the seller is a merchant, risk of loss passes to the buyer only when they take physical possession of the goods.
If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery - meaning they make goods available to the buyer.

Question 72

Non-Carrier Cases (e.g. buyer picks up or the seller delivers)

Answer 72

Risk of loss depends on whether the seller is a merchant

Merchant- Seller: S bears the risk of loss until B takes possession of the goods

Non-Merchant Seller: Risk of loss passes sooner: b bears RoL once seller “tenders” the goods (make them available to B).
Tender = Telling them where it is and how to get it.

Question 73

Delivery by Common Carrier

Answer 73

Risk of loss shifts to Buyer when Seller completes its “delivery obligations” (not when actual delivery occurs)

1st possibility: Shipment Contract –> S must get the goods to a (1) common carrier, (2) make delivery arrangements, and (3) notify B
- in shipment K’s Buyer must pay for the freight charge

2nd possibility: Destination Contract –> S must get the goods all the way to a specific destination (usually where buyer is located)

**FOB followed by Seller city: Shipment K
**FOB followed by any other city: Destination K
**shipment K’s most often tested on bar

Question 74

two types of carrier cases:

Answer 74

shipment contracts and destination contracts.

Question 75

shipment contracts

Answer 75

If the contract authorizes or requires the seller to ship the goods by carrier but does not require them to deliver the goods at a particular destination, it is a shipment contract and risk of loss passes to the buyer when the goods are delivered to the carrier.
In the absence of a contrary agreement, Article 2 presumes a contract is a shipment contract.
- Seller Delivers goods to commmon carrier
- Seller arranges for delivery, AND
- Seller notifies buyer
- THEN, risk of loss passes to buyer on delivery to carrier

Question 76

Seller’s Duties Under Shipment Contract

Answer 76

In a shipment contract, the seller must:
(1) make a reasonable contract with the carrier on behalf of the buyer;
(2) deliver the goods to the carrier;
(3) promptly notify the buyer of the shipment; and
(4) provide the buyer with any documents needed to take possession of the goods

Question 77

destination contracts.

Answer 77

If the contract requires the seller to deliver the goods at a particular destination, the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.

Question 78

Assume ____ contract on bar exam unless indicated otherwise

Answer 78

Assume shipment contract on bar exam unless indicated otherwise. BUYER bears RISK OF LOSS before she ever gets the goods

Question 79

FOB

Answer 79

FOB stands for “free on board.”
The letters FOB are always followed by a location (for example, a city name), and the risk of loss passes to the buyer at the named location.
The seller bears the risk and expense of getting the goods to the named location.
These contracts can be either shipment contracts or destination contracts, depending on the location named.
if FOB SELLER CITY NAME: Shipment Contract - seller has to get them to CC, make arrangemenets, notify buyer, then they’re good.
if FOB BUYER CITY NAME: Delivery Contract.

Question 80

FAS

Answer 80

FAS stands for “free alongside.” The term is generally used only when goods are to be shipped by boat. Risk of loss passes to the buyer once the goods are delivered to the dock.

Question 81

A contract that doesn’t contain an FOB term or any other term explicitly allocating the risk of loss is a ___ contract.

Answer 81

A contract that doesn’t contain an FOB term or any other term explicitly allocating the risk of loss is a shipment contract.

Question 82

Risk in Sale or Return and Sale on Approval Contracts: Sale or Return

Answer 82

For the purpose of determining the risk of loss, a sale or return contract (meaning, the buyer takes goods for resale but may return them if they are unable to resell the goods) is treated as an ordinary sale and the above rules apply. If the goods are returned to the seller, the risk remains on the buyer while the goods are in transit.

Question 83

Risk in Sale or Return and Sale on Approval Contracts: Sale on Approval

Answer 83

In a sale on approval (that is, the buyer takes goods for use but may return them even if they conform to the contract), the risk of loss does not pass to the buyer until they accept.

Question 84

Goods Destroyed Before Risk of Loss Passes

Answer 84

This is an exam favorite, particularly on the essay portion.
If goods that were identified when the contract was made are destroyed (1) without fault by either party and (2) before the risk of loss passes to the buyer, the contract is avoided (that is, the seller’s performance is excused).
If the goods were not identified until after the contract was made, the seller in this situation would have to prove impracticability.