Sales - California Bar Exam 2008

Front 1

What is the Merchants Confirmatory Memo Rule?

Back 1

In contracts between merchants, if one party, within a reasonable time after an oral understanding has been reached, sends a written confirmation thereof that binds the sender, the memo will satisfy the Statute of Frauds requirements against the recipient as well if he had reason to know of the confirmation's contents, unless he objects to its contents in writing within 10 days after it is received.

Front 2

In Contracts between merchants in a battle of the forms situation, what are the exceptions to additional acceptance terms being included in the contract?
(3 exceptions)

Back 2

If both parties to the contracts are merchants, additional terms automatically become part of the contract unless:
(i) they materially alter the original contract;
(ii) the offer expressly limits acceptance to the offer's terms; or
(iii) the offeror objects within a reasonable time.

Front 3

What is the general rule as to Open terms?

Back 3

The fact that one or more terms (including price) are left open does not prevent the formation of a contract if the parties so intended and there is a reasonable basis for giving a remedy.
~ The court can supply reasonable terms for those that are missing.

Front 4

What is the one term that is essential?

Back 4

The one term that is essential (i.e., that the court cannot supply) is quantity.
~ A quantity term must be included to create a sales contract.
~ Contracts for seller's output or a buyer's requirements do satisfy the quantity requirement because the terms usually can be determined objectively.

Front 5

What is the Statute of Frauds as it relates to the sale of goods?

Back 5

Contracts for the sale of goods at a price of $500 or more (including any modifications) are not enforceable unless there is some writing that is signed by the party to be charged.

Front 6

Is a writing that omits a quantity term sufficient to satisfy the Statute of Frauds?

Back 6

No. A quantity must be stated because the contract is not enforceable beyond the quantity of goods shown in the writing.

Front 7

What is the definition of a Merchant?

Back 7

A merchant is one who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge of the goods sold.

Front 8

What is a Merchants' Firm Offers?

Back 8

A Merchants' Firm Offer is a written offer signed by a merchant giving assurances that it will be held open and will be irrevocable (without consideration) for the stated time period or for a reasonable time if no period is expressly stated.
~ The period of irrevocability is not to exceed three months.

Front 9

What are the appropriate Methods of Acceptance, generally?

Back 9

An offer is construed as inviting acceptance in any reasonable manner and by any reasonable medium.
~ Generally, an offer to buy goods for current shipment is construed as inviting acceptance either by a promise to ship or by prompt shipment of conforming or nonconforming goods.

Front 10

In Contracts (U.C.C. Sale of goods) in which at least one party is not a merchant, what governs where the terms in the acceptance are different from or in addition to what was in the offer?

Back 10

The terms of the offer govern.
If one of the parties is a not a merchant, the contract will include only the terms of the offer.

Front 11

When is a writing not required under the Statute of Frauds?
(3 instances)

Back 11

A writing is not required:
(i) If the goods are specially made for the buyer and not suitable for sale to others in the ordinary course of the seller's business, and the seller has started making them or committed for their procurement;
(ii) If the party admits in his pleading or court testimony that a contract was made; or
(iii) If the contract is performed (the goods are either received and accepted or paid for.)

Front 12

What is the test for Unconscionability?

Back 12

The test for unconscionability is whether, at the time of execution, the contract or one of its provisions could result in unfair surprise and was oppressive to a disadvantaged party.

Front 13

What is the rule on Contract modification between merchants?

Back 13

Contract modifications sought in good faith are binding without consideration.
~ Contract modifications must meet the Statute of Frauds requirements if the contract as modified is within the statute.

Front 14

What is the rule as to identified goods that are destroyed before the risk has passed to the buyer?

Back 14

If a contract requires for its performance particular goods identified when the contract is made and, before risk passes to the buyer, the goods are destroyed or damaged without the fault of either party, the contract is avoided.

Front 15

As relating to a sale of goods contract, when will the seller be discharged under the Doctrine of Impracticability?
(as to seller)

Back 15

A seller will be discharged from performing a sales contract under the doctrine of impracticability if:
(i) At the time the parties made their contract, a basic assumption of both parties was that a certain circumstance that would make performance extremely more burdensome would not occur; and
(ii) the circumstance does occur.

Front 16

What is the Parol Evidence Rule?

Back 16

Evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary contractual terms are inadmissible if the written contract is intended as a complete and final expression of the parties.

Front 17

As exceptions to the Parol Evidence rule, how may terms of a written contract be explained or supplemented?
(4 ways)

Back 17

(i) consistent additional terms may be explained or supplemented,
(ii) course of dealing (a sequence of previous conduct between the parties to a transaction that may be regarded as establishing a common basis of understanding),
(iii) usage of trade or business, or
(iv) course of performance (i.e., repeated occasions for performance and a party has opportunity to object to performance; any performance acquiesced to is relevant in determining the meaning of the contract.)

Front 18

In Noncarrier Contracts, where must the seller tender?

Back 18

the seller must put and hold conforming goods at the buyer's disposition for a time sufficient for the buyer to take possession.
~ In the absence of agreement, the place of delivery is the seller's place of business, or if he has none, his residence.

Front 19

In Shipment Contracts where the Seller Has Not Agreed to Tender at a Particular Destination, what is the seller's obligation?

Back 19

the seller need not see that the goods reach the buyer, but is only required to put the goods into the hands of a carrier, make a reasonable contract for their shipment, promptly tender required documents, and promptly notify the buyer of the shipment.

Front 20

In Destination Contracts, where the Seller Has Agreed to Deliver to a Destination, what is the seller's obligation?

Back 20

a seller is required to see that the goods reach the buyer, and is required to put and hold conforming goods at the buyer's disposition for a time sufficient for the buyer to take possession of the goods at the destination specified.

Front 21

What are F.O.B. contracts?

Back 21

In contracts that specify that delivery is F.O.B. ("free on board") a particular point, the F.O.B. point is the delivery point.

Front 22

What are F.A.S. Contracts?

Back 22

In contracts that specify that delivery is F.A.S. ("free alongside"), the seller must deliver the goods alongside the vessel in the manner usual in the port of delivery or on a dock designated by the buyer, and obtain and tender a receipt for the goods.

Front 23

When is Payment due and in what form?

Back 23

In noncarrier cases, unless the contract provides otherwise, a sale is for cash and the price is due concurrently with tender of delivery.

Front 24

In carrier cases, when is Payment due?

Back 24

~ However, unless otherwise agreed, when goods are shipped by carrier, the price is due only at the time and place at which the buyer receives the goods.

Front 25

What is Shipment Under Reservation?

Back 25

In cases where there is no express provision as to payment or the contract specifies cash, and the contract is one for shipment by carrier, the seller may send the goods "under reservation" so that the buyer will be unable to get the goods from the carrier until he pays.

Front 26

What is Identification?

Back 26

Identification is a designation of specific goods as the ones to be delivered under the contract of sale.
A buyer obtains an interest in goods under a sales contract when the goods can be "identified."
It gives the buyer an insurable interest in the goods and, in certain circumstances, the right to get the goods from the seller and the right to sue third parties for injury to them.

Front 27

When does identification take place for Specific, Ascertained, and Existing Goods?

Back 27

Identification takes place at the time the contract is made if it calls for the sale of specific and ascertained goods currently existing.

Front 28

When does identification take place as to other goods?

Back 28

identification takes place when the goods are shipped, marked, or otherwise designated by the seller as the goods to pass under the contract.

Front 29

In noncarrier cases (in the absence of breach), when does risk of loss pass to the buyer if the seller is a merchant?

Back 29

If the seller is a merchant, risk of loss passes to the buyer only upon the buyer taking physical possession of the goods.
[the rationale is that the seller is in a position to see that the buyer takes possession because of his position as seller].

Front 30

In noncarrier cases (in the absence of breach), when does risk of loss pass to the buyer if the seller is NOT a merchant?

Back 30

If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery (e.g., the seller has goods ready for the buyer to pick up at the time and place specified in the contract).

Front 31

In a shipment contract, in the absence of breach, when does Risk of Loss pass to buyer?

Back 31

In a shipment contract (i.e., the seller is to ship the goods by carrier but is not required to tender delivery at a particular destination) the risk of loss passes to the buyer when the goods are duly delivered to the carrier.

Front 32

In a Destination contract, in the absence of breach, when does risk of loss pass to buyer?

Back 32

In a destination contract (i.e., the seller must tender delivery at a particular destination), the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.

Front 33

If the goods are Defective, when does risk of loss pass to the buyer?

Back 33

If the goods are so defective that the buyer has a right to reject them, the risk of loss does not pass to her until the defects are cured or she accepts the goods anyway.

Front 34

Where Goods are defective, and the buyer rightfully revokes acceptance, does this affect the risk of loss?

Back 34

If the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning for any losses not covered by the buyer's insurance.

Front 35

If the buyer breaches, what is the affect on risk of loss?

Back 35

Where the seller has identified conforming goods to the contract and the buyer repudiates or otherwise breaches the contract before the risk of loss passes to her under the contract, any loss occurring within a commercially reasonable time after the seller learns of the breach falls on the buyer to the extent of any deficiency in the seller's insurance coverage.

Front 36

When does Acceptance of goods occur?
(3 instances)

Back 36

a. The buyer, after reasonable opportunity to inspect them, indicates to the seller that they conform or that she will keep them in spite of nonconformance;
b. The buyer fails to reject them within a reasonable time after tender or delivery of the goods or fails to seasonably notify the seller of her rejection; or
c. The buyer does anything inconsistent with the seller's ownership.

Front 37

What are the buyer's options under a Right of Rejection (prior to acceptance) for nonconforming goods?

Back 37

The buyer may either keep them (and sue for damages) or, under some circumstances, reject the goods and either cancel the contract or sue.

Front 38

What is the buyer's Right of Rejection in a Single Delivery Contracts?
(3 options)

Back 38

If the goods or the tender fail to conform, the buyer may:
(i) reject all,
(ii) accept all, or
(iii) accept any commercial units and reject the rest.

Front 39

Is a Failure to Make a Reasonable Contract with a Carrier or a failure to Notify the Buyer grounds for rejection?

Back 39

The seller's failure to make a reasonable contract with a carrier or his failure to notify the buyer that the goods have been shipped are grounds for rejection only if material loss or delay results.

Front 40

When is the buyer's Right of Rejection in an Installment Contract?

Back 40

In an installment contract (goods are delivered in installments), the buyer can reject an installment only if the nonconformity substantially impairs the value of that installment and cannot be cured.

Front 41

What are the Formal Requirements for Rejection?

Back 41

Rejection must be within a reasonable time after delivery or tender and before acceptance.
~ The buyer must seasonably (occurring or performed at the proper time) notify the seller.

Front 42

If the buyer fails to state that the goods have a particular defect ascertainable by reasonable inspection, in what cases can the buyer not rely on that defect to justify rejection or show the seller's breach?
(2 instances)

Back 42

(i) the seller could have cured the defect if he had been told about it; or
(ii) in contracts between merchants the seller has, after rejection, made a request in writing for a full and final written statement of all defects upon which the buyer proposes to rely.

Front 43

What is the Buyer's Responsibility for Goods After Rejection?

Back 43

the buyer has an obligation to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them or give instructions as to what to do with the goods.

Front 44

Where a buyer has rejected goods, how does the seller cure within the time originally provided for performance?
(2 elements)

Back 44

(i) he must give reasonable notice of his intention to cure; and
(ii) make a new tender of conforming goods, which the buyer must then accept.

Front 45

What is the rule regarding a seller's Limited Right to Cure Beyond the Original Contract Time?

Back 45

If the seller sends the buyer nonconforming goods that he reasonably believes will be acceptable to the buyer, but the buyer rejects, the seller will get a reasonable time to cure, even though the original time for performance has passed.

Front 46

What is the Seller's Right to Cure in Installment Contracts?

Back 46

A defective shipment in an installment contract cannot be rejected if the defect can be cured.

Front 47

Why is the time of acceptance important?

Back 47

it terminates the buyer's power to reject and obligates her to pay the price less any damages because of the seller's breach.

Front 48

When may the buyer revoke her acceptance of goods?
(2 instances)

Back 48

If the defect substantially impairs their value to her and:
(i) she accepted them on the reasonable belief that the defect would be cured and it has not been (estoppel); or
(ii) she accepted them because of the difficulty of discovering defects or because of the seller's assurance that the goods conformed to the contract.

Front 49

When must Revocation of acceptance occur?

Back 49

Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the defect and before any substantial change in the goods not caused by their own defect.
~ A proper revocation of acceptance has the effect of rejection.

Front 50

When may the buyer replevy (obtain) goods in the seller's possession?

Back 50

The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing (2-716)

~ The buyer may replevy identified, undelivered goods from the seller if the buyer has tendered full payment or(?) made at least part payment and either:
(i) the seller becomes insolvent within 10 days after receiving the buyer's first payment, or
(ii) the goods were purchased for personal, family, or household purposes.

Front 51

What is the Buyer's Right to Specific Performance?

Back 51

The court may order specific performance "where the goods are unique or in other proper circumstances" (e.g., perhaps inability to cover) even if the goods have not been identified to the contract.

Front 52

What are the Buyer's Damages for Rejection or Revocation of Acceptance (or Nondelivery)?

Back 52

The buyer's damages are measured by the difference between the contract price and either the market price or the cost of buying replacement goods.
~ In either case, the buyer is also entitled to incidental and consequential damages less expenses saved as a result of the seller's breach.

Front 53

What is the Buyer's measure of damages for Accepted goods?

Back 53

If the buyer accepts goods that breach one of the seller's warranties, the buyer may recover as damages the difference between the value of the goods delivered and the value they would have had if they had conformed to the contract plus incidental and consequential damages.
~ To recover damages for any defect as to accepted goods the buyer must, within a reasonable time after he discovers or should have discovered the breach, notify the seller of the defect.

Front 54

What is the Seller's Right to Withhold Goods?

Back 54

If the buyer fails to make a payment due on or before delivery, the seller may withhold delivery of the goods.

Front 55

What is the Seller's Right to Recover Goods based on the buyer's insolvency?

Back 55

When a seller learns that a buyer has received delivery of goods on credit while insolvent, he may reclaim the goods upon demand made within 10 days after the buyer's receipt of the goods.
~ The seller may also stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer is insolvent.

Front 56

What is the Seller's Right to Force Goods on a Buyer?

Back 56

A seller may only force goods on a buyer if the seller is unable to resell the goods to others at a reasonable price or if the goods have been lost or damaged within a reasonable time after the risk of loss has passed to the buyer.

Front 57

What are the three measures of a Seller's Damages available when the buyer wrongfully repudiates or refuses to accept conforming goods?

Back 57

The seller may:
(i) Recover the difference between the market price and the contract price.
(ii) Resell the goods and recover the difference between the contract price and the resale price.
(iii) Recover, under a "lost profits"" measure, the difference between the list price and the cost to the seller.
~ Note that, under the lost profits measure, if the seller is a dealer, his costs would be the costs incurred in obtaining the goods from a manufacturer or another dealer; where the seller is a manufacturer, his costs would be the costs of manufacturing the goods.
Note: The Code provides that the lost profits measure may be used only when the other measures will not put the seller in as good a position as he would have been in if the buyer had not breached.

Front 58

What are examples of Incidental Damages available for the seller?

Back 58

Incidental damages include such expenses as: the cost of storing, shipping, and reselling the goods incurred as a result of the buyer's breach.

Front 59

What is the Right to Demand Assurances, available to both the buyer and seller?

Back 59

If reasonable grounds for insecurity arise with respect to the performance of either party, the other party may, in writing, demand adequate assurances of due performance.
~ Until he receives adequate assurances, he may suspend his own performance.
~ If proper assurances are not given within a reasonable time (not over 30 days), the party seeking assurances can treat the contract as repudiated.

Front 60

What is Anticipatory Repudiation and what are the options available to the aggrieved party?
(3 options)

Back 60

In cases where the other party's words, actions, or circumstances make it clear that he is unwilling or unable to perform, the aggrieved party may:
(i) for a commercially reasonable time await performance;
(ii) resort to any remedy for breach even though he has also urged the other party to perform; or
(iii) suspend his own performance.

Front 61

When is a Retraction of Repudiation allowed?

Back 61

A repudiating party may, at any time before his next performance is due, withdraw his repudiation unless the other party has canceled, materially changed his position in reliance on the repudiation, or otherwise indicated that he considers the repudiation final.

Front 62

When does the Right to Sue a Third Party to the contract arise?

Back 62

Where a third party deals with goods identified to a contract for sale so as to injure a party to the contract (e.g., a negligent bailee), the seller may sue if he has either title or a security interest in the goods
~ the buyer may sue if the goods have been identified to the contract.

Front 63

What is the Warranty of Title?

Back 63

Any seller of goods impliedly warrants that the title transferred is good, the transfer is rightful, and that there are no liens or encumbrances against title of which the buyer is unaware at the time of contracting.

Front 64

What is the Warranty Against Infringement?

Back 64

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

Front 65

What is the Implied Warranty of Merchantability?

Back 65

The Implied Warranty of Merchantability says that In every sale by a merchant who deals in goods of the kind sold, there is an implied warranty that the goods are merchantable (fit for the ordinary purpose for which such goods are used).
~ The most important test for the warranty is whether the goods are "fit for the ordinary purpose for which such goods are used," and a failure of such is the usual claim in a merchantability suit.

Front 66

What is the Implied Warranty of Fitness for a Particular Purpose?

Back 66

The Implied Warranty of Fitness for a Particular Purpose arises when 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.

Front 67

In addition to a conspicuous writing, how else may the Implied warranties of merchantability and fitness for a particular purpose be disclaimed?

Back 67

These two implied warranties may also be disclaimed by:
(i) "as is" language or "with all faults" language;
(ii) inspection at least as to defects that a reasonable inspection would reveal; or
(iii) course of dealing, course of performance, or usage of trade.

Front 68

What is the definition of an Express Warranty?

Back 68

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 (i.e., the buyer could have relied on it).

Front 69

How are Express Warranties disclaimed?

Back 69

The Code requires that language limiting express warranties be read consistently with the express warranty and to the extent they are inconsistent, the disclaimer is not given effect.
~ The effect of this requirement is to make it, for practical purposes, extremely difficult to negate an express warranty.

Front 70

How are Implied Warranties disclaimed?

Back 70

The implied warranty of merchantability may be specifically disclaimed by mentioning "merchantability," and if the disclaimer is in writing it must be conspicuous.
~ The warranty of fitness for a particular purpose may be specifically disclaimed by a conspicuous writing; it need not mention fitness for a particular purpose.

Front 71

What is Strict Liability, generally?

Back 71

Many states have adopted a strict tort liability theory to make a manufacturer or seller of goods liable for injuries to persons or property caused by defects in goods sold.
~ The theory allows a purchaser to recover from all sellers in the distributive chain without regard to privity of contract.
~ It also allows an injured person who is not a purchaser to recover from the same parties.

Front 72

What is the result if a thief steals goods from a true owner and then sells them to a good faith buyer?

Back 72

The thief is unable to pass good title to the buyer (because the thief's title is void).
~ Therefore, in such a situation, the true owner can recover the stolen goods from the buyer, even if the buyer is a good faith purchaser for value.

Front 73

What is the rule if a sale is induced by fraud?

Back 73

Generally, if a sale is induced by fraud, the seller can rescind the sale and recover the goods (voidable title).
Exception: The defrauded seller may not recover the goods from a good faith purchaser for value from the fraudulent buyer. The rights of the good faith buyer cuts off the rights of the defrauded seller.

Front 74

When is Retention of possession by a seller of goods conclusively fraudulent as against the seller's creditors?

Back 74

Retention of possession by a seller of goods is conclusively fraudulent (as against the seller's creditors) unless the sale is evidenced by a written bill of sale.
~ Therefore, the seller's creditors can reach the goods while they are in the seller's hands.