Question 1

Creation of Letters of Credit and General Right

Accepted Answer

A letter of credit can be issued in any form that is a record and is authenticated by a signature, or in accordance with the agreement of the parties, or standard practice of financial institutions Consideration is not required A letter of credit can be revocable, if so provided in the letter. In an international sale of goods where shipment is overseas, the letter is irrevocable, unless otherwise agreed. The buyer's issues with the goods cannot be raised as objections to payment if the terms require payment upon delivery. The correspondent bank cannot substitute its judgment on performance of a contract for the terms of the letter of credit. Parties who want performance-based issues to be satisfied prior to payment must provide for those requirements in the letter of credit.

Question 2

Under a nonnegotiable bill of lading, a carrier who accepts goods for shipment must deliver the goods to: Any holder of the bill of lading. Any party subsequently named by the seller. The seller who was issued the bill of lading. The consignee of the bill of lading.

Accepted Answer

The consignee of the bill of lading. When a seller places goods with a common carrier for delivery, a bill of lading is issued which represents title to the goods and the right of the holder to take possession of the goods. The seller who is issued a bill of lading is the consignor and does not get the right to receive the shipment. That right goes to the consignee, the party to whom the carrier has promised to deliver the goods in the bill of lading.

Question 3

In deciding a controversy involving the question of who has the risk of loss, the court will look primarily to The intent of the parties manifested in the contract. The shipping terms used by the parties. Whether title has passed. The insurance coverage of the parties.

Accepted Answer

The intent of the parties manifested in the contract. The UCC rules concerning risk of loss only apply if the parties have not allocated risk of loss in their contract.

Question 4

Grill deals in the repair and sale of new and used clocks. West brought a clock to Grill to be repaired. One of Grill’s clerks mistakenly sold West’s clock to Hone, another customer. Under the Sales Article of the UCC, will West win a suit against Hone for the return of the clock? No, because the clerk was not aware that the clock belonged to West. No, because Grill is a merchant to whom goods had been entrusted. Yes, because Grill could not convey good title to the clock. Yes, because the clerk was negligent in selling the clock.

Accepted Answer

No, because Grill is a merchant to whom goods had been entrusted. If a person entrusts possession of goods to a merchant, or to his/her agent, who deals in those goods, a good-faith purchaser for value obtains title to those goods _unless s/he knew_ the merchant or agent did not own the goods. 1. One who purchases in good faith from another who has voidable title takes good title Good faith—purchaser unaware of facts that made previous title voidable One may obtain voidable title by purchasing with a check that is later dishonored _EXAMPLE_ : A purchases 1,000 widgets from B. B had purchased these from C but B’s check had been dishonored by the bank before A purchased the widgets. A was unaware of these facts. B’s title was voidable but A takes good title as a good-faith purchaser.

Question 5

Yost Corp., a computer manufacturer, contracted to sell 15 computers to Ivor Corp., a computer retailer. The contract specified that delivery was to be made by truck to Ivor’s warehouse. Instead, Yost shipped the computers by rail. When Ivor claimed that Yost did not comply with the contract, Yost told Ivor that there had been a trucker’s strike when the goods were shipped. Ivor refused to pay for the computers. Under these circumstances, Ivor Is obligated to pay for the computers because Yost made a valid substituted performance. Is obligated to pay for the computers because title to them passed to Ivor when Ivor received them. May return the computers and avoid paying for them because of the way Yost delivered them. May return the computers and avoid paying for them because the contract was void under the theory of commercial impracticability.

Accepted Answer

Is obligated to pay for the computers because Yost made a valid substituted performance. When the agreed manner of delivery of goods becomes commercially impracticable through no fault of either party, a commercially reasonable substituted performance by the seller must be accepted by the buyer. In this case, since the truckers’ strike caused Yost’s delivery by truck to be commercially impracticable, Yost’s delivery by rail is considered a valid substituted performance. Therefore, Ivor is obligated to pay for the computers.

Question 6

Under the UCC Sales Article, a firm offer will be created only if the 1. Offeree is a merchant. 2. Offeree gives some form of consideration. 3. Offer states the time period during which it will remain open. 4. Offer is made by a merchant in a signed writing.

Accepted Answer

Offer is made by a merchant in a signed writing. In order to have a firm offer under the UCC, the offer must be made by a merchant offeror in a signed writing which gives assurance that the offer will be held open. There is no requirement that the offeree also be a merchant. A firm offer does not need to state the period of time for which it is irrevocable. If no time period is stated, the offer will be irrevocable for a reasonable period of time, not to exceed 3 months. A firm offer need not be supported by consideration to be irrevocable.

Question 7

UCC Firm Offer Requirements

Accepted Answer

Firm offer—a written, signed offer concerning the sale of goods, by a merchant, giving assurance that it will be held open for a specified time is irrevocable for that period, not to exceed 3 months 1. Note that only offeror need be a merchant under this rule 2. If firm offer does not state specific time, it will remain open for reasonable time, not to exceed 3 months 3. Written form may be supplied by either party as long as it is signed by merchant-offeror

Question 8

When do title and risk of loss for conforming goods pass to the buyer under a shipment contract covered by the Sales Article of the UCC? 1. When the goods are identified and designated for shipment. 2. When the goods are given to a common carrier. 3. When the goods arrive at their destination. 4. When the goods are tendered to the buyer at their destination.

Accepted Answer

When the goods are given to a common carrier. This contract is a shipment contract not a destination contract; therefore the goods only need to get to the carrier, the shipping point, to transfer title and risk of loss.

Question 9

On Monday, Wolfe paid Aston Co., a furniture retailer, $500 for a table. On Thursday, Aston notified Wolfe that the table was ready to be picked up. On Saturday, while Aston was still in possession of the table, it was destroyed in a fire. Who bears the loss of the table? 1. Wolfe, because Wolfe had title to the table at the time of loss. 2. Aston, unless Wolfe is a merchant. 3. Wolfe, unless Aston breached the contract. 4. Aston, because Wolfe had not yet taken possession of the table.

Accepted Answer

Aston, because Wolfe had not yet taken possession of the table. Provided there is no agreement to the contrary and neither party is in breach, risk of loss will in the case of a merchant seller, pass to the buyer on physical receipt of the goods. In this situation, Aston Co., a merchant, will bear the loss of the table since Wolfe had not yet taken possession of it.

Question 10

The Uniform Commercial Code provides for a warranty against infringement. Its primary purpose is to protect the buyer of goods from infringement of the rights of third parties. This warranty 1. Only applies if the sale is between merchants. 2. Must be expressly stated in the contract or the Statute of Frauds will prevent its enforceability. 3. Protects the seller if the buyer furnishes specifications which result in an infringement. 4. Cannot be disclaimed.

Accepted Answer

Protects the seller if the buyer furnishes specifications which result in an infringement. In a sale by a merchant, the merchant warrants that the goods are free from a rightful claim of infringement of patent or trademark by third parties. (A seller will be protected against liability under a warranty against infringement if the buyer furnishes the specifications used to manufacture the product that infringes upon another party’s patent or trademark rights.)

Question 11

Under the UCC, an action for breach of the implied warranty of merchantability by a party who sustained personal injuries may be successful against the seller of the product only when 1. The injured party is in privity of contract with the seller. 2. The seller is a merchant with respect to the product involved. 3. An action based on strict liability in tort can also be successfully maintained. 4. An action based on negligence can also be successfully maintained.

Accepted Answer

The seller is a merchant with respect to the product involved. Under the UCC, every merchant seller of goods implicitly warrants that the goods are fit for the ordinary purpose for which such goods are used, are adequately packed and labeled, and conform to the promises or affirmation of fact made on the package or label. An injured party may recover under any one of the three theories of liability: breach of warranty, negligence, or strict liability. The injured party must only establish one of these theories in order to be successful against a seller.

Question 12

On April 5, Anker, Inc. furnished Bold Corp. with Anker’s financial statements dated March 31. The financial statements contained misrepresentations which indicated that Anker was solvent when in fact it was insolvent. Based on Anker’s financial statements, Bold agreed to sell Anker 90 computers, “FOB—Bold’s loading dock.” On April 14, Anker received 60 of the computers. The remaining 30 computers are in the possession of the common carrier and in transit to Anker. If on April 28, Bold discovered that Anker was insolvent, then with respect to the computers delivered to Anker on April 14, Bold may 1. Reclaim the computers upon making a demand. 2. Reclaim the computers irrespective of the rights of any subsequent third party. 3. Not reclaim the computers since 10 days have elapsed from its delivery. 4. Not reclaim the computers since it is entitled to recover the price of the computers.

Accepted Answer

Reclaim the computers upon making a demand. A seller who discovers that an insolvent buyer has received goods on credit may reclaim the goods by making a demand for their return within 10 days after receipt of the goods by the buyer. This 10-day limitation, however, does not apply if the buyer made a written misrepresentation of its solvency within 3 months prior to its receipt of the goods. Anker’s fraudulent financials constitute a written misrepresentation of solvency; therefore, Bold may demand return of the goods even though 14 days have passed.

Question 13

Moreno Company contracted with a common carrier to have goods transported that she had sold to a customer FOB destination. The contract between the common carrier and Moreno specified in clear terms that liability of the common carrier is limited to $100 per shipment unless a higher limit is chosen by paying more. Moreno did not select a higher limit. The goods, worth $900, were destroyed in transit. Which of the following is not true? 1. If the cause of the loss was a flood, the common carrier is not liable for any damages. 2. The clause limiting liability to a $100 limit is invalid as against public policy. 3. If the goods were damaged because Moreno improperly packaged the goods, the common carrier is not liable for any damages. 4. The common carrier is liable for $100 at most but may be liable for no damages.

Accepted Answer

The clause limiting liability to a $100 limit is invalid as against public policy. Common carriers are allowed to limit liability to a dollar amount specified in the contract. The common carrier is not liable for losses called acts of God.

Question 14

Calvin Poultry Co. offered to sell Chickenshop 20,000 pounds of chicken at 40 cents per pound under specified delivery terms. Chickenshop accepted the offer as follows: “We accept your offer for 20,000 pounds of chicken at 40 cents per pound per city scale weight certificate.” Which of the following is correct? 1. A contract was formed on Calvin’s terms. 2. Chickenshop’s reply constitutes a conditional acceptance, but not a counteroffer. 3. Chickenshop’s reply constitutes a counteroffer and no contract was formed. 4. A contract was formed on Chickenshop’s terms.

Accepted Answer

A contract was formed on Chickenshop’s terms. Between merchants, additional and different terms become part of the contract unless they materially alter it, notification of objection to them is given within a reasonable time, or the original offer expressly limited acceptance to the terms of the offer. The additional and different term added by Chickenshop is neither material nor contrary to the terms of the original offer. And the original offer did not expressly limit acceptance to its terms. Therefore, a contract was formed on Chickenshop’s terms.

Question 15

Sand Corp. sold and delivered a photocopier to Barr for use in Barr’s business. According to their agreement, Barr may return the copier within 30 days. During the 30-day period, if Barr has not returned the copier or indicated acceptance of it, which of the following statements is correct with respect to risk of loss and title? 1. Risk of loss and title passed to Barr. 2. Risk of loss and title remain with Sand. 3. Risk of loss passed to Barr but title remains with Sand. 4. Risk of loss remains with Sand but title passed to Barr.

Accepted Answer

Risk of loss and title remain with Sand. Provided there is no agreement to the contrary and neither party is in breach, both risk of loss and title to goods being purchased on a sale on approval basis remain with the seller until the sale is completed. Since in this case Barr has not indicated acceptance of the copier, the sale is incomplete, and the risk of loss and title remain with Sand during the 30-day period.

Question 16

In deciding a controversy involving the question of who has the risk of loss, the court will look primarily to 1. The intent of the parties manifested in the contract. 2. The shipping terms used by the parties. 3. Whether title has passed. 4. The insurance coverage of the parties.

Accepted Answer

The intent of the parties manifested in the contract. The UCC rules concerning risk of loss only apply if the parties have not allocated risk of loss in their contract. Risk of loss is _independent of title under UCC_, but rules regarding the transfer of both are similar as in common law.

Question 17

Flax telephoned Sky Corp. and ordered a specially manufactured air conditioner for $1,900. Subsequently, Flax realized that he miscalculated the area which was to be cooled and concluded that the air conditioner would not be acceptable. Sky had already completed work on the air conditioner, demanded payment, and was unable to resell the unit at a reasonable price. If Flax refuses to pay and Sky brings an action seeking as damages the price plus reasonable storage charges of $50, Sky will recover 1. Nothing, because of the Statute of Frauds. 2. Only its lost profit. 3. The full $1,950. 4. Only $1,900.

Accepted Answer

The full $1,950. When a buyer fails to pay the price as it becomes due, the seller may recover the purchase price of the goods identified to the contract plus incidental damages if the seller is unable to resell them at a reasonable price after making a reasonable effort. Sky Corporation will be able to recover the purchase price of $1,900 plus the incidental costs of $50 for storage for a total of $1,950 from Flax.

Question 18

Tint is suing the manufacturer, the wholesaler, and the retailer for bodily injuries caused by a snowblower Tint purchased. Under the theory of strict liability 1. Contributory negligence on Tint’s part will always be a bar to recovery. 2. Privity will be a bar insofar as the wholesaler is concerned if the wholesaler did not have a reasonable opportunity to inspect. 3. Tint may recover despite the fact that he cannot show that any negligence was involved. 4. The manufacturer will avoid liability if it can show it followed the custom of the industry.

Accepted Answer

Tint may recover despite the fact that he cannot show that any negligence was involved. Under strict liability a seller engaged in the business of selling a product is held liable for injuries caused by that product if it was in a defective and unreasonably dangerous condition when sold. A seller is, therefore, liable _regardless of whether he was negligent_ or at fault for the defective condition of the product. Finally, a seller engaged in the business of selling the product is defined to include not only the buyer’s immediate seller, but also the prior sellers in the distribution chain such as the wholesaler and manufacturer. _Defense of contributory negligence, comparative negligence, disclaimer or lack of privity is unavailable _

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