Business Law 1 Flashcards
What is a bilateral contract?
A promise in exchange for a promise.
List the classifications of contracts in terms of degree of performance completion.
Executed and Executory.
What is a unilateral contract?
A promise in exchange for an act.
List the sources of contract law and the items to which they apply.
Common law - real estate and services; Uniform Commercial Code - Goods.
Define “contract.”
An agreement supported by consideration between two or more persons with competent capacity for a legal purpose.
List the enforceability classifications of contracts.
Valid, Void, Voidable, Unenforceable.
Define “quasi-contract.”
A contract imposed by law, despite the fact no actual intent to make a contract exists, to prevent unjust enrichment.
What constitutes an executory contract?
A contract not fully performed by both sides.
Define “void contract.”
A contract that violates the law or lacks an element that results in courts lacking authority to have parties honor it.
What is an executed contract?
A contract that is fully performed by both sides.
Define “express contract.”
A contract formed wholly by oral and/or written words.
Define “voidable contract.”
A valid contract for which a party has the option to avoid liability.
Define “unenforceable contract.”
A valid contract that cannot be enforced due to a legal defense.
Define “implied-in-fact contract.”
A contract formed at least in part based on the conduct of the parties.
What happens under Common Law if there are additional terms in an acceptance?
The acceptance is a counteroffer and a rejection.
Describe the general rule of revocation.
An offer can be revoked at any time before acceptance unless offer is irrevocable.
What conditions must exist for the acceptance of a bilateral offer to take place?
Acceptance must be unequivocal and communicated to the offeror.
List the three types of irrevocable offers.
- Options; 2. Sales of goods firm offers; 3. Offers irrevocable by estoppel.
Can silence be considered a form of acceptance to an offer?
Generally not acceptance unless the offeree’s actions indicate an attempt to accept or the offeree has the duty to reject.
When is a revocation by the offeror effective?
When offeree knows of or receives revocation.
Describe the mirror-image rule regarding acceptance of an offer.
Acceptance must be absolute, unequivocal, and unconditional. In common law, if the acceptance is not a mirror image of the offer’s terms, it is a rejection and counter offer.
When is an acceptance of an offer effective?
If sent by authorized medium, effective when delivered to the medium; If sent by unauthorized medium, effective when received by offeror, provided that the offer is still open.
Describe the requirements of an offer.
Objective intent to contract; Common law: subject matter, price, payment terms, time for performance, etc.; Uniform Commercial Code (UCC): subject matter and quantity if more than one; UCC will supply the remaining terms if not in the offer.
Define “option contract”.
An option contract is a distinct contract in which the offeree gives consideration to keep the offer open.
List the requirements of a firm offer for the sales of goods.
- Offeror is a merchant; 2. Offeror using a signed writing; 3. Assures offer will remain open for a stated period of time (without consideration not to exceed three months, regardless).
List the elements of a contract.
Offer, Acceptance, Consideration, Capacity of the parties, Legality, Writing (when required).
When are advertisements considered offers?
Advertisements are generally not offers unless they only invite acceptance.
When are preliminary negotiations considered offers?
Preliminary negotiations are generally not offers unless such negotiations includes price lists, solicitation of bids, and auctions with reserve.
What happens under UCC law if there are additional terms in acceptance and the parties are merchants?
There is a contract with the additional terms unless those terms are material, are objected to, or if the offer was specifically limited to its terms.
List the requirements of an offer.
- Serious intent; 2. Definite Terms; 3. Communication of Offer.
List the ways in which an offer can be terminated by operation of law.
- Lapse of time; 2. Death or insanity of either party (unless offer is irrevocable); 3. Destruction of the specific subject matter of the contract; 4. Intervening illegality.
What happens under UCC if there are additional terms in acceptance and the parties are nonmerchants?
There is a contract, but without the additional terms.
When is the revocation of a public offer effective?
Effective if made in the same medium as the offer.
Describe an expressly authorized or stipulated means of communication.
A means of communicating acceptance that is expressly stipulated in the offer.
List the ways an offer can be terminated by the act of the parties to the offer.
- Revocation; 2. Rejection; 3. Counteroffer.
How is serious intent (objective intent) measured?
Measured by a reasonable person’s interpretation of the circumstances.
When does the acceptance of an unilateral offer occur?
Takes place upon completion of the act required by the offeror.
Define “accord and satisfaction.”
Agreement between two parties to settle an unliquidated debt (obligation is acknowledged, but the amount is unclear)(accord); satisfaction is payment of that amount; payment discharges all obligations; is not effective for discharging a liquidated debt, such as an installment loan.
How does an individual incur legal detriment?
An individual can incur legal detriment by (1) doing or promising to do something that he or she had no prior legal duty to do or (2) refraining from or promising to refrain from doing something that he or she had no prior legal duty to refrain from doing (that is, by forbearance).
List the exceptions to a preexisting duty.
- Rescission and new contract; 2. Unforeseen hardship; 3. Sale of goods - modification of contract.
What are the requirements for a consideration in a contract?
Each party to the contract has a benefit and detriment. The promises (detriment) are induced by the benefits and the benefits are induced by the promises (detriment). Bargained-for exchange. Consideration must actually change hands.
What promises are enforceable without consideration?
Good-faith modification under the Uniform Commercial Code (UCC); Charitable subscriptions (promissory estoppels on pledge to make a gift); Promises barred by the statute of limitations.
Describe the requirement for an output contract to be with consideration.
The contract is based on established production or ability to produce by the seller and the seller must sell its production to the buyer.
List the types of contracts with uncertainty of total performance.
- Requirements Contracts; 2. Output Contracts.
Explain the difference between a liquidated and an unliquidated debt.
A liquidated debt is one in which the amount due is agreed upon. An unliquidated debt is one in which the parties acknowledge a debt but disagree as to the amount that is due.
Define “preexisting duty.”
A promise to do what one is already legally obligated to do is without consideration.
What are the elements of a consideration?
Consideration has two elements: (1) there must be a bargained-for exchange between the parties (if a party intends to make a gift, he or she is not bargaining) and (2) what is bargained for must have legal value.
Define the “merchant’s confirmation memorandum.”
A Uniform Commercial Code (UCC) provision that allows one merchant to bind another based on an oral agreement with one signature. For example, if two merchants have underlying oral agreement and one merchant sends the other a fax, letter, or e-mail that confirms the terms of the oral agreements, the contract is enforceable even though only sign/authenticated by one party. The contract is enforceable against both parties.
Describe the statute of frauds.
A contract statute that requires certain kinds of contracts (i.e., contracts for the sale of goods for more than $500) be memorialized in a signed writing with sufficient content to evidence the contract.
Define the “fully integrated contract.”
Contract that is complete, final, and unambiguous.
Describe a situation in which the special-ordered goods exception would apply.
Condition in which the seller has substantially begun performance or has made an irrevocable commitment to do so before the buyer cancels the contract.
Describe the general rule about contracts that involve an interest in real property.
Any contract involving an interest in realty to be enforceable must be in writing or have written evidence thereof, or an applicable exception.
Against whom are ambiguities construed?
Against the party who drafted the contract.
List the minimum requirements for a valid writing or record of a contract.
- Identity of the parties; 2. Subject matter (quantity if more than one); 3. Signature (authentication) by party against whom you want enforcement).
List the types of contracts to which the parol evidence rule applies.
Final, complete, and unambiguous contracts (fully integrated contracts).
What is required for modification of a contract under common law?
Additional consideration.
Describe the one-year rule under the statute of frauds.
Any contract objectively impossible to perform within one year from the date of contract formation (date of acceptance) without breaching the terms, must be in writing or have written evidence of it to be enforceable.
List the situations in which the partial performance exception for real property agreements apply.
- Buyer has made a payment; 2. Buyer has taken possession; 3. Buyer has made improvements.
List the contracts that must be in writing or on record to be enforceable.
- Contracts involving real property sales, transfers, listing, and leases longer than one year; 2. Contracts to pay the debt of another; 3. Contracts that cannot be performed within one year; 4. Contracts for the sale of goods for $500 or more.
What is required under the UCC for modification of a contract?
The parties agree to the modification (although not required to do so; it is their choice), but additional consideration is not required.
Describe the UCC performance exception to the requirement of a record.
If the buyer takes possession or makes a payment accepted by the seller, Statute of Frauds is removed at least for the part possessed or paid for. If the seller accepts payment for the goods, at least for the amount reflected in that payment.
Define the “parol evidence rule.”
A fully-integrated contract clearly written cannot be contradicted, varied, or altered by evidence of the parties’ prior negotiations, agreements, or contemporaneous oral agreements.
Describe the exception to the written requirement for contracts involving an interest in realty.
If a performance is such that the parties cannot be returned to the status quo, the exception is applicable.
List the exceptions to the parol evidence rule.
- Defenses to formation (misrepresentation, mistake, duress); 2. Modification; 3. Ambiguities (because contract is not fully integrated); 4. Incomplete contract (because contract is not fully integrated).
Define duress.
A forcing of a party to enter into a contract under the fear or threat of violence to that party or member of his or her family, or use of economic pressure to overcome the party’s free will.
When do bilateral mistakes create a binding contract?
When mistake is due to 1. Value, or 2. Quality.
What is the effect of an illegal covenant in a contract?
The court can declare the covenant void; The court can interpret the covenant in order to have it fall within the law.
List the elements that constitute a fraud.
- Intentional Deceit (or negligent misrepresentation); 2. Deceit of a Material Fact; 3. Reliance of the party deceived.
Describe a formation mistake.
When mistake is a clerical/computation error so large that other party should have known.
List the elements for misrepresentation or fraud.
- Misrepresentation of statement of fact; 2. Intent to deceive; 3. Reliance on the misrepresentation.
List the remedies for lack of mutual assent.
- Rescission; 2. Damages; 3. Modification.
What types of contracts are enforced against minors?
- Contracts for necessaries or necessities; 2. Contracts that they ratify after reaching the age of majority.
Under what circumstances can a unilateral mistake become a defense?
When other party knew or should have known of a mistake.
Describe the differences between fraud and misrepresentation.
- Fraud always have malicious intent, Misinterpretation may not have malicious intent to deceive if it happens negligently through a misstatement and/or omission of a material fact(s); 2. Fraud is a civil wrong which entitles a party to claim damages in addition to the right to rescind the contract. Parties to a contract claiming misrepresentation only have the right to rescind the contract and there can be no suit for damages.
Define “undue influence.”
Occurrence in which one party induces another party to enter into a contract by overcoming his or her free will through an abuse of a position of confidence.
List the two types of contractual mistakes that can occur.
- Mutual (bilateral) mistake (defense); 2. Unilateral mistake (not always a defense).
What is the effect of illegal subject matter on a contract?
It makes the contract void.
When can a covenant not to compete be enforced?
When it is: Part of a contract; Necessary to protect one party, such as the buyer of a business; Reasonable in geographic scope and time.
List the types of assent defenses that can be used to invalidate the formation of a contract.
- Mistake; 2. Misrepresentation; 3. Fraud; 4. Duress; 5. Undue influence.
List the ways a contract can be discharged.
- By occurrence of failure of a condition; 2. By performance or breach of contract; 3. By agreement; 4. By operation of law.
What happens when a condition precedent fails?
The duty to perform is discharged.
Define “compensatory damages.”
All costs or loss actually suffered and proved caused by the breach.
List the various types of conditions that can exist in contract sales.
- Precedent; 2. Subsequent; 3. Concurrent.
What is meant by substantial performance?
Substitute performance done in good faith. Substituted performance is for practical purposes just as good. Party can be compensated for substitution.
List the ways a contract can be considered impossible or impracticable.
- Death or Insanity; 2. Destruction of Specific Subject Matter; 3. Illegality; 4. Commercial Impracticability.
What requirements must be present for the enforceable liquidated damages provisions of a contract?
- Damages difficult to estimate if a breach; 2. The amount stated is a reasonable sum estimate (not a penalty).
Define novation.
By a valid contract, a new party is substituted for one of the original parties thereby terminating (discharging) the original contract.
List the types of contractual discharge that can occur by agreement or party action.
- Release; 2. Waiver; 3. Mutual Recission; 4. Novation; 5. Accord and Satisfaction.
Define “quasi-contract recovery.”
A remedy to give a reasonable value benefit to one party and avoid an unjust enrichment received by the other party.
List the ways a contractual obligation can be discharged by operation of law.
- Material Alteration; 2. Statute of Limitations; 3. Bankruptcy Decree; 4. Impossibility or Impracticability of performance.
Other than damages, what are the remedies for contract breaches?
- Specific Performance; 2. Rescission.
Define waiver.
A relinquishment of a right due to a party’s breach.
Define rescission.
The undoing of a contract so as to return the parties to their original position.
List the types of damages available for remedies.
- Nominal; 2. Compensatory; 3. Punitive; 4. Liquidated.
Define “liquidated damages.”
A specific sum is agreed to be paid in the formation of the contract in the event that in the future the contract is breached.
Define “mutual rescission.”
An enforceable mutual agreement to discharge all contract obligations and restore the parties to their pre-contract positions.
Define “third party beneficiary contracts.”
Contract between two parties is set up with the purpose of providing benefits to a third party.
List the various types of third party contracts.
- Assignments; 2. Delegations; 3. Third party beneficiary contracts.
When is an assignment binding on the parties to the original contract?
When the original parties receive notice of the assignment.
When two assignee’s names are on the same contract, which assignment is valid?
- U.S. Rule - first in time of assignment; 2. English Rule - first to give notice of assignment.
List contractual delegation exceptions.
- Terms prohibit delegation; 2. Personal Skill/Special trust; 3. Material variation.
Define “delegation.”
The transfer of the detriment (duties) under a contract to a third party (Mr. Ice asks Ice Inc. to take over ice supply contract for Lobster, Inc.).
Describe the liability of the assignor.
Unless released, assignor remains liable.
List the various types of third-party beneficiaries.
- Donee (Intended); 2. Creditor (Intended); 3. Incidental (Not Intended).
Describe the rights of a creditor beneficiary.
Can recover from original debtor who designated the creditor beneficiary or from party required to pay under contract with debtor (health insurance - hospital can recover from insured or insurer).
Define “assignment.”
The transfer of the benefits under a contract to a third party (contractor assigns payment to lumber company).
Describe the rights of an incidental beneficiary.
Has no right of recover against either party to the original contract (resident of city cannot recover if contractor does build planned city park).
Describe the rights of a donee beneficiary.
Can recover from party required to pay under the contract but not from the party who makes the arrangements for the payment (life insurance arrangement - beneficiary can recover from insurance company but not from the insured).
List contractual assignment exceptions.
- Terms Prohibit Assignment; 2. Statute Prohibits Assignment; 3. Personal Contracts; 4. Materially Increases Risks.
Define “incidental beneficiary.”
A third party who receives an unintended benefit has no legal rights in a contract between two parties.
What elements must be in place for a creditor beneficiary to exist?
- A debtor-creditor relationship must exist; 2. The debtor must make a contract with the third party that benefits the creditor.
What is the result of a shipment of a nonconforming goods delivery?
- Acceptance and automatic breach; 2. Not an acceptance if shipper notifies that shipment is only an accommodation.
In what special circumstances will an offeree’s additional terms not be valid when both parties in the transaction are merchants?
- The offeror limits acceptance to his or her terms; 2. The additional terms materially alter the contract; 3. The offeror specifically with notice objects to the additional terms.
Describe the elements of a merchant’s firm offer.
- Offer by a merchant; 2. States that it will be kept open (max of 3 months); 3. Signed or authenticated by merchant. Irrevocable for time stated or max of 3 months.
What happens to additional terms in acceptance-merchants?
Additional terms become part of the contract unless they are material, the offer is limited, or the party objects.
Is consideration required for the modification of a contract?
No consideration required; good faith is required.
List the requirements for a sale of goods contract.
- Intent; 2. Object; 3. Quantity.
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open place of payment term?
Seller’s place of business or if none residence.
List the three methods by which a seller can accept a buyer’s shipment order.
- Delivery of conforming goods to carrier; 2. A prompt promise to ship; or 3. Shipment of nonconforming goods delivery without notice of accommodation.
Define “goods.”
All movable and tangible personal property other than money, investments, securities and things in action.
What law governs the sale of goods?
Uniform Commercial Code - Article 2.
Describe the concept of a merchant’s battle of the forms.
Formation situation in which boiler plate language in merchant’s individual forms adds terms to the original offer.
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open payment term?
Payment is due at time and place buyer is to receive the goods.
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open time for contracted performance?
In absence of agreement, it is a reasonable time.
Define “merchant.”
A person who deals in goods of the kind being sold, or a person who by occupation holds himself or herself out as having knowledge or skill.
Define “sale of goods.”
- Passage of title to goods (personal property) from a seller to a buyer for a price. 2. No passage of title required for a bailment. 3. No price required for a gift.
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open price term?
A reasonable or market price at the time of delivery will apply or if price is to be fixed by either party good faith is required in doing so.
What happens to additional terms in acceptance-non-merchants?
Additional terms do not become part of the contract - original offer terms control.
Define “tender.”
The seller’s holding out to the buyer the goods in a reasonable manner, for a reasonable time, to allow the buyer to take possession of the goods.
When does the passage of title occur in a non-delivery contract?
If there is a document of title, title passes when buyer has the document. If there are other documents, title passes when buyer has those documents. If there are no documents, title passes at the time of contracting.
When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods are not represented by a document title?
- Title passes when the contract is made; 2. If seller is a merchant, risk of loss does not pass until buyer gets possession; 3. If seller is a nonmerchant, risk of loss passes upon seller’s tender of goods to the buyer.
When does title/risk of loss occur for a sale or return?
Title and risk of loss pass as with an ordinary complete sale of goods.
When does title/risk of loss pass for a sale on approval?
Neither title nor risk of loss pass until acceptance by the buyer.
Define “identification.”
Occurs when goods are shipped, marked, or otherwise designated for the buyer; identification must occur before title and risk of loss pass.
What effect does a breach of a contract have on the passage of risk of loss?
Risk of loss does not pass until goods are conforming; if they never conform, risk of loss does not pass and return is at seller’s risk.
Define “future goods.”
For contracts under which goods are to be manufactured, identification occurs when the goods are in existence and either shipped, marked, or otherwise designated for buyer.
When does title/risk of loss pass when the shipping terms of cost, insurance, and freight are used?
When the seller: 1. delivers identified conforming goods to the carrier; 2. obtains a negotiable bill(s) of lading covering transportation to named destination; 3. procures an insurance policy; and 4. forwards to buyer all documents.
Define “void title.”
A thief in the chain of title.
How is the title/risk of loss affected by the passage of goods in a sale or return?
Passes upon possession of Buyer - returns to Seller if Buyer returns properly the goods.
When does the title/risk of loss pass for sales on approval?
Title and risk of loss remain with seller until buyer accepts.
At what point does title/risk of loss pass when the terms are Free on Board the seller’s place (city, business, warehouse, or ship point)?
Delivery of conforming goods to carrier.
At what point does title/risk of loss pass when the terms are Free on Board the buyer’s place (city, warehouse, or residence)?
Upon the seller’s tender of conforming goods at place of contract destination.
What does the acronym BFP stand for?
Bona fide purchaser or good-faith purchaser (pure heart and an empty head because they do not know of any problems with the title).
List the ways in which a buyer can accept title of goods?
- Due notification of acceptance; 2. Failure to reject within trial period; 3. Does any act inconsistent with seller’s ownership.
Describe the general rule regarding passage of title and risk of loss.
In absence of agreement, the time title and risk of loss to identified goods passes from the seller to the buyer is dependent upon the contract’s delivery terms.
What does the acronym FOB mean?
A shipping term - Free on board.
Describe the differences between the timing of risk of loss and the title in shipment contracts and non-shipment contracts.
In shipment contracts, risk of loss and title pass at the same time. In non-shipment contracts, risk of loss and title do not pass at the same time and depends on whether there is a document of title and whether there is a merchant or non-merchant seller for risk of loss.
What does the acronym C&F mean?
A shipping term - Cost and freight.
Describe determination of “place of delivery.”
Unless the contract provides for shipment, delivery is the seller’s place of business or residence. There are no delivery terms under Uniform Commercial Cod Article 2 unless provided for in the contract.
Define “voidable title.”
Title to goods that has come through a voidable contract, as when a minor purchases a car and then sells it to a third party.
When does the risk of loss pass in a non-delivery contract?
If seller is a merchant, risk of loss passes when buyer has actual receipt. If seller is a non-merchant, risk of loss passes when goods are tendered to buyer.
When does the risk of loss pass in a warehouse (third party) delivery?
Risk of loss and title pass to buyer when the buyer has all necessary documents and the goods are available for pick-up.
What does the acronym CIF mean?
A shipping term - Cost, insurance and freight.
Describe the free-on-board place of destination term.
Risk of loss and title pass from seller to buyer when goods have been tendered to the buyer at the destination.
When does title/risk of loss pass in free alongside shipping terms?
Title and risk of loss pass upon seller’s delivery of conforming goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer.
Describe the free-on-board place of shipment term.
Risk of loss and title pass from seller to buyer when the goods are delivered to the carrier.
Define “fungible goods.”
Fungible goods are those that cannot be distinguished either because of homogenous qualities or because they are so mixed together; identified when shipped, marked, or otherwise designated.
What does the acronym FAS mean?
A shipping term - Free alongside vessel (ship).
When does title/risk of loss pass when delivery is required by the seller without physical movement and the goods are represented by a nonnegotiable document of title?
- Title passes to buyer upon receipt of document; 2. Risk of loss passes after buyer receives document and has a reasonable time to present document to receive the goods.
When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods are represented by a negotiable document of title?
Title and risk of loss pass upon buyer’s receipt of document.
Give examples of language that effectively disclaims implied warranties of merchantability and fitness for a particular purpose.
- “As is” sale; 2. “Sold with all faults;” 3. Any other language brought to Buyer’s attention plainly making a disclaimer.
Describe the elements of a disclaimer of a warranty of title.
Must be in writing and conspicuous or be obvious from the nature of the goods or the transaction that there is no warranty of title.
What is the difference between recovery under strict tort liability and recovery under negligence?
Punitive damages are available for negligence.
Can an express warranty be withdrawn?
It is not possible to make an express warranty and then withdraw it when it has been a basis of the bargain.
Describe the elements of a disclaimer of an implied warranty of merchantability.
If written, must be conspicuous. Must use terms such as “No warranty of merchantability” or general disclaimer of “As is,” “With all faults,” or “As they stand.”
What are the necessary requirements for a party in a transaction to disclaim an implied warranty of fitness for a particular purpose?
- Must be in writing; 2. Conspicuous.
List the requirements for establishing negligent product liability.
- Product is in a defective condition that is unreasonably dangerous by design, production, or lack of warning. 2. Seller is in the business of manufacturing, distributing, or selling the product. 3. The product reaches the buyer in the same condition as when it left the seller’s possession (i.e., it has not been altered) 4. Seller had knowledge that the product was defective and did not take steps to fix the problem.
List the four types of warranties that are given under Article 2 sales contracts.
- Express Warranties; 2. Implied Warranty of Title; 3. Implied Warranty of Merchantability; 4. Implied Warranty of Fitness for a Particular Purpose.
What are the necessary requirements for a party in a transaction to disclaim an implied warrant of merchantability?
- Must mention word merchantability; 2. Can be in writing or oral; 3. If in writing, must be conspicuous.
List the criteria required for an implied warranty of fitness for a particular purpose.
- The seller must expressly or impliedly know the purpose or buyer’s use; 2. The buyer must rely on seller in making selection.
Describe the elements of a disclaimer of an implied warranty of fitness for a particular purpose.
Must be written; must be conspicuous; General disclaimer of “As is,” “With all faults,” or “As they stand” disclaims this and warranty of merchantability.
List the requirements for establishing strict tort liability.
- Product is in a defective condition that is unreasonably dangerous by design, production, or lack of warning. 2. Seller is in the business of manufacturing, distributing, or selling the product. 3. The product reaches the buyer in the same condition as when it left the seller’s possession (i.e., it has not been altered).
List the protections given by the implied warranty of title.
- Seller has a good title and transfer is rightful; 2. There are no outstanding liens, encumbrances or security interests; 3. If seller is a merchant, goods shall be delivered free from third party infringement claims.
What are the requirements for a disclaimer of oral express warranties?
- Specific; 2. Unambiguous; 3. Clearly and conspicuously drawn to attention of buyer.
When does an implied warranty that arises from a course of dealing or trade usage apply?
When both parties have a knowledge of a well-recognized usage of trade, or by numerous past performances, infer a warranty course of action intended to be performed.
Explain when the implied warranty of merchantability is given.
- Seller is a merchant; and 2. Goods are warranted to be fit for ordinary use, of proper kind, properly packaged, and conform to the label.
List the justifications that a party in a transaction can use as a warranty defense.
- Lack of Privity; 2. Statute of Limitations; 3. Failure of Notice of Breach.
List three types of express warranties.
- Affirmations of fact or promises; 2. Sales by description; 3. Sales by sample or model.
What actions constitute the acceptance of a product by the buyer?
- After opportunity to inspect signifies goods are conforming or will accept anyway; 2. Fails to reject after inspection or reasonable opportunity to do so; 3. Does act inconsistent with seller’s ownership of product.
What actions should occur to ensure a proper rejection of nonconforming goods?
- Must do so within reasonable time after tender; 2. Must be known by Seller - generally with specific reasons for rejection; 3. If Buyer in possession - Buyer needs to exercise reasonable care of goods; 4. If goods need to be sold (e.g., perishable) - Buyer must make reasonable effort to do so; Buyer to receive reimbursement for cost plus 10% sales commission.
Describe the general rules of performance for a seller and a buyer.
- Seller obligated to ship or tender delivery of conforming goods; 2. Buyer a duty to accept and pay for conforming goods.
Describe the concept of “right to demand assurances.”
Right of one party to demand additional guarantees of performance under the contract when none has taken place or cannot take place.
List the rights of a buyer upon delivery of the goods.
- Right of inspection unless agreed to the contrary; 2. Right to reject any nonconforming tender.
List the options that a buyer has when a seller tenders goods that fail to confirm to the contract (i.e., the perfect tender rule).
- Reject the entire shipment; 2. Accept the entire shipment; 3. Accept any commercial unit and reject the rest.
List the possible actions of a non-breaching party if an anticipatory breach has occurred.
- For a commercially reasonable time await performance; 2. Treat breach as final and resort to remedies; 3. Suspend their own performance without liability for breach.
List the conditions that must exist to revoke a previous acceptance of goods.
- Buyer was given reasonable assurance of cure and cure has not occurred; 2. Buyer was assured goods were conforming and later discovered they were not; 3. Buyer’s discovery of the nonconforming was difficult to detect.
Define “cure.”
If a seller tenders delivery of nonconforming goods prior to the contract date, and buyer rejects the goods, the seller can with notice indicate the intent to cure, and the seller is not in breach if the seller tenders conforming goods within the contract time period.
List the rights and duties of a seller or buyer upon either party’s failure to perform.
- Right of assurance to performance; 2. Duty of cooperation.
Define “substituted performance.”
If without fault of the seller the agreed facilities or type of contract carrier is not available or delivery impractical, but a commercially reasonable substitute carrier is available, seller must use substitute carrier and buyer must accept delivery and pay.
Define “anticipatory breach.”
Occurs when either the seller or the buyer repudiates the contract prior to the required contract date of performance.
Describe a buyer’s right of inspection.
Available to buyer for reasonable time; right to open packages, examine goods and conduct tests.
Describe the perfect tender rule.
Seller must deliver goods to buyer that conform in every respect; no standard of material breach here but, rather, any breach.
What option does the buyer have for tender of payment?
- Can be by any customary means; 2. Seller could demand cash.
Upon a buyer’s breach, what remedies does the seller have when the seller retains possession of the goods?
- Withhold delivery; 2. Identify Goods to Contract and proceed with other remedies; 3. Cancel and/or rescind contract; 4. Resell the goods; 5. Sue for breach of contract.
When is a seller entitled to the full contract price when the buyer breaches?
When the goods cannot be resold, such as in specially manufactured goods.
What are the buyer’s remedies when the seller tenders nonconforming goods or refused to deliver conforming goods?
- Cancel and with notice Rescind; 2. Cover; 3. Sue for breach of contract; 4. Specific performance; 5. Replevin; 6. Buyer can recover prepayment if Seller becomes insolvent within 10 days of receipt or pay balance and get the goods.
Describe the concept of replevin.
If seller refuses to tender delivery of identified goods to the buyer, and the buyer cannot cover, the buyer can file a suit in equity requiring the seller to deliver the goods to the buyer.
