Review for Exam 3
Review for Exam 3 BLAW 3311 - 001
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BLAW 3311 - 001
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This 7 page Study Guide was uploaded by Sarah Sierra on Tuesday April 19, 2016. The Study Guide belongs to BLAW 3311 - 001 at University of Texas at Arlington taught by John V Dowdy in Spring 2016. Since its upload, it has received 29 views. For similar materials see LAW II in Business Law at University of Texas at Arlington.
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Date Created: 04/19/16
Review for Exam #3 1. What is the difference between a contract for the sale of goods and any other kind of contract? a. Sales of goods governed by UCC article 2 b. Common law 2. What is a sale or return contract and when do title and risk of loss pass from seller to buyer? a. The buyer is in possession of the product for resale purposes (automobile mechanics example). The buyer has the right to return the product to the seller with no further obligations but in the mean time while the buyer is in possession of the product the buyer has both title and risk of loss. 3. What is a sale on approval contract and when do title and risk of loss from seller to buyer? a. Buyer is in possession of the product to test it to or use it to see if she/ he wants to buy it for his or her own use. Risk of loss remains in the seller until the buyer accepts the product. Buyer has the right to return the product to the seller with no obligation until the product is accepted by the buyer the seller remains both title and risk of loss. 4. What body of law governs contracts for the sale of goods? a. Article 2 of UCC 5. What body of law governs contracts for the lease of goods? a. Article 2a of UCC 6. What are the rules regarding risk of loss - - - when the goods are not to be moved - - - when the goods are to be moved? What is the difference between a shipment contract (aka seller’s plant contract) and a delivery contract (aka destination contract or buyer’s plant contract)? How does a breach of contract alter the risk of loss rules? a. Risk of loss passes from the seller to the buyer in a contract of sale of goods; risk of loss has passed from the seller to the buyer when the seller has completed all the sellers’ obligation under the contract. b. If the goods are not to be moved, buyer is going to pick the goods up at the seller’s place of business, the seller has done everything the seller can do. c. Is the goods are to be moved, it depend on whether the contract is a shipment contract or a delivery contract. In a shipment contract, once the seller delivers physically the goods to the buyer, that is when the risk of loss passes to the buyer. Delivery contract – while the goods are in transit the seller is in risk of loss. d. Buyer breaches contract- buyer notifies the seller that he doesn’t need them anymore; the seller has the right to treat the risk of loss to the buyer at a reasonable length of time. What is the reasonable length of time? It depends. (Look at remedies) e. Seller breaches- truck arrives and discovered they are not nonconforming, giving the buyer the right to reject the goods. Goods are in the buyer’s possession and the buyer is saying he is rejecting them, and then a tornado comes through. Well the buyer will have the right to treat the risk of loss as being shifted back to the seller under the ordinary rule presupposing no breach the risk of loss wouldn’t have passed through the buyer. (Look at remedies). 7. ABC Corporation, as seller, and XYZ Corporation, as buyer, contracted for the purchase and sale of 450 steel parts at $10 per units. The contract was a shipment contract. ABC delivered the goods to the carrier for shipment to XYZ. The goods were loaded on the truck. 40 miles into its journey to the XYZ warehouse, the truck was involved in an accident, resulting in the destruction of the cargo, including the tool cabinets. Who had the risk of loss and how does that effect whether XYZ has to pay for the goods? a. The buyer had the risk of loss because it was a shipment contract. 8. S Corporation, as seller, and B Corporation, as buyer, contracted for the purchase and sale of a quantity of goods, the contract specifying that it was a “destination” contract. The seller delivered the goods to the carrier for shipment to the buyer, at which time the goods were loaded in the carrier’s truck. The truck was involved in an accident 50 miles into the journey, and the goods were destroyed. Who had the risk of loss and how does that effect whether B Corporation has to pay for the goods? a. The seller had the risk of loss 9. Seller Corporation and Buyer Corporation made a seller’s plant (shipment) contract for the purchase and sale of goods. However, before the seller delivered the goods to the carrier for shipment to the buyer, the buyer notified the seller that buyer was pulling out of the contract, and that the seller should not send the goods. This notification occurred at a time when the seller had already identified the goods to the contract. Shortly and within a reasonable time after such notification, and without the seller’s fault, a fire occurred on the seller’s premises, and the goods were destroyed. The contract price was $45,000, and the seller had no insurance coverage on the goods. What is Buyer’s liability to the Seller? What if the Seller had insurance coverage on the goods in the amount of $1,500? a. Contract price ($4500) b. 3,000 10. Seller and buyer contracted for the sale of goods in a seller’s plant contract. The goods were delivered by the carrier to the buyer’s warehouse, where the buyer subjected the goods to an initial reasonable inspection. Upon such inspection, the buyer discovered the goods to be nonconforming. The buyer notified the seller that the goods were rejected. Shortly after such notification of rejection, and without the buyer’s fault, there was a fire in the buyer’s warehouse, and the goods were destroyed. The contract price of the goods was $5,500, and the buyer did not have the goods insured. What is Buyer’s liability to the Seller? What if the Buyer had insurance coverage on the goods in the amount of $1,500? Assume that there was no fire and that the goods were not destroyed. Also, assume that the buyer subjected the goods to an initial reasonable inspection, but did not discover any defects in the goods. Subsequently, once the buyer started to use the goods, defects appeared in the goods, and the buyer now wants to revoke acceptance of the goods. Under these facts, in order for the buyer to revoke acceptance, the buyer must show that? a. None. b. Seller would be entitled to that and the seller would eat the $4,000 deficiency. c. Show a material nonconformity and that either the nonconformity was non discoverable by the buyer under a reasonable inspection. Or maybe the buyer did notice the nonconformity and told the seller that the buyer was rejecting the goods but the seller promised the buyer that the buyer would go ahead and accept the product if seller would cure the nonconformity and now the seller failed to cure. 11. Can a contract for the sale for the sale of goods be modified without consideration? What is the significance of the Firm Offer Rule found in Section 2-205 of the UCC? a. Yes, but a common law contract then no. b. Firm offer rule – merchant is bound to keep that open for the time stated even without consideration but if there was no time stated then he is bound to leave the window open for a reasonable length of time. Should not exceed three months. c. There are three questions on exam 12. What are difference among the following theories of recovery is defective products case - - - breach of warranty (express and implied) and the tort theories of negligence and strict liability? What are the elements of a cause of action based on strict liability (restatement, law of tort, sec. 402A)? In what kinds of these cases is there common law authority for a cause of action based on strict liability? a. Breach of warranty is a contract theory, what if the warranty is disclaimed? Well that’s a goods defense to a breach of warranty cause of action. b. If it were a tort theory of negligence or strict liability then the disclaimer would not be a goods defense. c. If seller is a merchant, dealing with goods in that kind, and the product is unreasonably dangerous to the user or consumer or property and it causes harm, well then, the seller of that product is going to be liable even though the seller exercise all possible care in the preparation in the sale of product. d. Oldest case where strict liability has been applied is where cases have extra hazardous activity. 13. What are the buyer’s remedies when a seller breaches a contract for the sale of goods? What are the seller’s remedies when a buyer breaches a contract for the sale of goods? a. Remedies for breach 1. Buyer’s (lessee’s) remedies when seller (lessor) breaches * If the seller has a contract with the buyer, and then the seller notifies the buyer that the seller is not going to perform or maybe the goods arrive and they are nonconformity, here’s where the sales of goods is consisted with the common law. a. Cancellation i. Buyer doesn’t have to deal with that seller because the seller has materially breached the contract by failing to deliver the goods or by nonconforming. b. Cover i. That the buyer is going to make a contract with another vendor to buy substitutes goods. What if the buyer has to pay more on that cover contract than the buyer is supposed to pay on the original contract? Well, the buyer sues the seller for the difference. c. Ordinary measures of damages i. The buyer’s ordinary measure of damages, seller has breach so the buyer has canceled and the buyer has gone out and purchased substitute goods from another vendor. So, the buyer has covered buy what the buyer may do here, instead of suing the seller the difference between the cover price and the original contract price, the buyer may instead elect to pursue the buyer’s ordinary measure of damages. How will they be measure? They will be measured by the difference between the contract price (the original price) and the fair market value of the goods at the time the buyer learned the breach. Lets say the seller breach the contract, notified the buyer in advance, if by the time the buyer learned the breach the fair market value was greater than the original contract price. The buyer can sue for that difference, instead of suing for the difference between the cover and the original contract price. Buyer can choose but cant get both for that will be a double recovery. d. In case of seller’s insolvency i. Well the code gives the buyer a special remedy, incase the seller is insolvent. Insolvency means debt exceed assets and you owe more than you have. Is it possible for somebody who is insolvent in the equity sense to still pay bills on time? Yes. Not really the kind of insolvency we’re talking about, the one we are talking about is the bankruptcies sense. Meaning not paying debts as they come do, not paying obligations on time. e. Specific performance (recovery of purchase price or lease payments) i. Under what circumstance, a buyer could get a specific performance under the contract of sales of goods? If the buyer is not able to cover within reason, even though the goods may not have uniqueness. f. Incidental and/or consequential damages i. Having to advertise to pay a periodical trade charge to advertise those goods, that would be incidental damages. Which the buyer be entitled to collect in addition to the difference between the cover price and the original contract price and maybe it cost the buyer a lost of profits. The seller’s breach, that is, cause the buyer lost of profits because the buyer’s cover price was greater than it should’ve been and that cut into the buyer’s profit that would be consequential damages. 2. Seller’s (lessor’s) remedies when buyer (lessee) breaches Seller and buyer went into a contract, buyer anticipatory breach contract. Buyer notified the seller for an advance breach. Or maybe the goods arrived and the buyer wrongfully rejects the conforming goods. a. Withhold or stop delivery i. What if the buyer is suppose to send an advanced payment, the seller is supposed to receive 35% of the purchase price before the day the seller puts the goods on the truck. The money doesn’t come, the buyer has breached and that will give the seller the right to withhold or stop the delivery. OR if the goods are already on the truck, seller tells carrier to drop goods at nearby warehouse because the buyer’s breach is a material breach. b. Resale i. Seller goes out and tries to find another buyer for the goods. So, the seller finds another buyer but what if the seller’s resale contract price is less than the original contract price? Seller can sue for the difference. c. Ordinary measure of damages i. Measure the difference original contract price and fair market price. Damages are measured differently, difference contract price and market price of goods at the time and place of tender of the goods. ii. Example: 1. K price- 20,000 2. Resale k – 15,00 3. Advertise- 1,000 4. Saving of shipment cost (freight cost) – 1,000 5. Total not recovery from the buyer – 5,000 iii. Example: 1. K price – 20,00 (shipment k) 2. Seller – is located in Tyler, Texas 17,000 (market price) 3. Buyer – located in El Paso ,Texas 15,000 (market price) 4. 15-20 of May 5. The time and place goes to the seller because it is a shipment d. In case of buyer’s insolvency i. The contract called for the seller to sell a quantity of computers. Goods are being moved. Buyer is to pay 30 day after receiving goods. Seller gets told that the buyer is not paying debt. Seller entitled to withhold delivery except for cash. Change (change of remedy without a breach) the contract to a credit deal to a cash upfront deal. e. Specific performance (recovery of purchase price or lease payments) i. If the remedy of resale is not reasonably available. f. Incidental and/or consequential damages i. Seller suing the difference between original contract and resale contract price (incidental and/or consequential) in addition to the resale contract price and the original contract price. 14. What are the rules regarding a buyer’s right to inspect the goods? Can the buyer waive these rights? a. Before accepting and paying for them b. Yes. 15. When can a seller pass to a buyer a greater title than the seller has? a. Look the example case where the thief broke into a warehouse and found the list of receipt on the owner’s desk. The thief sold the items on that list and the buyer went to the warehouse to purchase them.
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