- Under UCC Article 2, when does risk of loss pass from seller to buyer under an FOB shipping point (F.O.B. place of shipment) contract?
Answer: When the seller delivers the goods to the carrier at the shipping point.
Under UCC Section 2-319 and 2-509, in a shipment contract (FOB shipping point), risk of loss passes to the buyer when the seller duly delivers the goods to the carrier at the shipping point. From that moment, if the goods are damaged or destroyed in transit, the loss falls on the buyer. Answer A is incorrect because risk passes at delivery to the carrier, not upon the buyer's receipt or inspection. Answer B is incorrect because simply shipping from the warehouse is not sufficient; delivery to the carrier is the trigger. Answer D is incorrect because payment timing does not determine risk of loss under the UCC.
- UCC Article 2 governs the sale of goods. Which of the following transactions is governed by UCC Article 2?
Answer: A contract for the purchase of 500 units of manufactured widgets.
UCC Article 2 applies to transactions in goods, defined as movable personal property. A contract for 500 units of manufactured widgets is a sale of goods and is therefore governed by Article 2. Answer A (commercial office space lease) involves real property, which is governed by real property law, not Article 2. Answer B (legal services) is a services contract governed by common law. Answer C (patent license) involves intellectual property rights, not tangible movable goods, and is governed by federal IP law and common law.
- Under UCC Section 2-315, the implied warranty of fitness for a particular purpose arises when which of the following conditions are met?
Answer: The seller knows the buyer's particular purpose and knows the buyer is relying on the seller's skill or judgment to select suitable goods, and the buyer does in fact rely on that judgment.
The implied warranty of fitness for a particular purpose under Section 2-315 requires three elements: (1) the seller has reason to know the buyer's particular purpose, (2) the seller knows the buyer is relying on the seller's skill or judgment to select suitable goods, and (3) the buyer actually relies on the seller's selection. This warranty may arise from any seller, merchant or not. Answer B describes conditions for the warranty of merchantability, not fitness for a particular purpose. Answer C is incorrect because no written agreement is required; the warranty arises by implication from the circumstances. Answer D describes an express warranty, not the implied fitness warranty.
- Under UCC Section 2-207, the battle of the forms rule, which of the following correctly describes what happens when a merchant's acceptance contains additional terms not in the original offer?
Answer: The additional terms become part of the contract between merchants unless the original offer expressly limits acceptance to its terms, the additional terms materially alter the contract, or the offeror objects within a reasonable time.
Under UCC Section 2-207, a definite and seasonable expression of acceptance operates as an acceptance even if it states additional or different terms. Between merchants, the additional terms automatically become part of the contract unless (1) the offer expressly limits acceptance to its own terms, (2) the additional terms materially alter the contract, or (3) the offeror notifies the offeree of objection within a reasonable time. Answer A is incorrect because there are three conditions that prevent additional terms from becoming part of the contract. Answer C describes the common law mirror-image rule, not the UCC rule. Answer D is incorrect because under the UCC, an acceptance with additional terms still forms a contract.
- Under UCC Section 2-606, which of the following acts constitutes acceptance of goods by a buyer?
Answer: The buyer fails to make an effective rejection after a reasonable opportunity to inspect, or acts inconsistently with the seller's ownership of the goods.
Under UCC Section 2-606, acceptance occurs when: (1) after a reasonable opportunity to inspect, the buyer signifies the goods conform or will be retained despite non-conformity; (2) the buyer fails to make an effective rejection; or (3) the buyer does any act inconsistent with the seller's ownership (such as using, reselling, or substantially altering the goods). Answer A is incorrect because taking possession alone is not acceptance; the buyer has a right to inspect before accepting. Answer B is incorrect because receiving an invoice is not an act of acceptance by the buyer. Answer C is incorrect because ordering replacement goods is not an act inconsistent with the seller's ownership of the original goods.
- Under UCC Article 2, an express warranty is created in which of the following ways?
Answer: By any affirmation of fact or promise about the goods, any description of the goods, or any sample or model that becomes part of the basis of the bargain.
Under UCC Section 2-313, express warranties are created by (1) any affirmation of fact or promise about the goods that becomes part of the basis of the bargain, (2) any description of the goods that becomes part of the basis of the bargain, or (3) any sample or model that becomes part of the basis of the bargain. No formal language is required, and the seller need not use the words 'warrant' or 'guarantee.' Answer A is incorrect because no written label or formal document is required. Answer C is incorrect because any seller, merchant or not, may create an express warranty. Answer D is incorrect because specific warranty language is expressly not required under Section 2-313(2).
- Seller delivers defective goods; buyer rightfully rejects; goods destroyed before cure. Loss?
Answer: Seller; risk stays until cure
When buyer rightfully rejects nonconforming goods, risk of loss does not pass on delivery; it remains with seller until the seller cures or the buyer accepts. Since the goods were destroyed before cure, the seller bears the loss. The tempting mistake is thinking risk passed on delivery, but rightful rejection keeps risk on the seller.
- Under UCC Section 2-708, which of the following measures a seller's damages when a buyer wrongfully rejects or repudiates a contract for the sale of goods?
Answer: The seller recovers the difference between the market price at the time and place for tender and the unpaid contract price, plus incidental damages, less expenses saved; if this measure is inadequate, the seller may recover lost profits.
Under UCC Section 2-708(1), the primary seller's damage measure is the difference between the market price at the time and place for tender and the unpaid contract price, plus incidental damages, less expenses saved by non-performance. If this measure does not adequately compensate the seller (e.g., a lost-volume seller who would have made the sale regardless), Section 2-708(2) allows recovery of lost profit including reasonable overhead. Answer A is incorrect because the contract price is the remedy only when goods cannot be resold at all under Section 2-709. Answer B is incorrect because resaleability reduces but does not eliminate the seller's right to damages. Answer C describes the Section 2-706 resale damages remedy, which is an alternative, not the primary Section 2-708 measure.
- Under UCC Section 2-201, which of the following qualifies as an exception to the Statute of Frauds requirement for contracts of $500 or more?
Answer: A written confirmation sent by one merchant to another that is not objected to within 10 days after receipt, binding the recipient even without a signed contract.
Under UCC Section 2-201(2), the merchant's confirmatory memo exception provides that if one merchant sends a written confirmation of an oral agreement to another merchant, and the recipient does not object within 10 days of receipt, the confirmation satisfies the Statute of Frauds against the recipient even though the recipient did not sign it. Additional exceptions include: goods specially manufactured for the buyer, partial performance (for the quantity delivered and accepted), and judicial admissions. Answer B (partial oral discussion) does not satisfy the Statute of Frauds. Answer C (mental commitment) creates no binding obligation. Answer D (email without quantity) does not satisfy the writing requirement because quantity is essential.
- Under the perfect tender rule in UCC Article 2, a buyer may reject goods if the goods or tender of delivery fail in any respect to conform to the contract. Which of the following correctly identifies an exception to the perfect tender rule?
Answer: A buyer under an installment contract may reject an installment only if the non-conformity substantially impairs the value of that installment and cannot be cured.
The perfect tender rule allows a buyer to reject for any non-conformity. However, a key exception applies to installment contracts under UCC Section 2-612: a buyer may reject a particular installment only if the non-conformity substantially impairs the value of that installment and cannot be cured. The buyer may cancel the entire contract only if the non-conformity of one installment substantially impairs the value of the whole contract. Answer A is incorrect because the perfect tender rule does not allow substitutions; the buyer has the right to exact conformance. Answer B is incorrect because no 5% variance exception exists in Article 2. Answer D is incorrect because the perfect tender rule applies to all Article 2 contracts, including those between merchants.
- Buyer accepts 100 chairs; two have minor scratches. May buyer revoke acceptance?
Answer: No; not substantial enough
You can revoke acceptance only when the nonconformity substantially impairs the value of the goods. Two chairs with minor scratches do not meet that bar, so acceptance stands. The tempting mistake is thinking any defect justifies revocation, but the UCC requires a substantial impairment, not perfect tender.
- Under UCC Section 2-609, a party to a sales contract who has reasonable grounds for insecurity about the other party's performance may demand adequate assurance of performance. What happens if the demanded assurance is not provided within a reasonable time, not to exceed 30 days?
Answer: The failure to provide adequate assurance within 30 days is treated as a repudiation of the contract, allowing the demanding party to treat the contract as breached.
Under UCC Section 2-609(4), if a party fails to provide adequate assurance of due performance within a reasonable time not exceeding 30 days after receipt of a justified demand, the failure is treated as a repudiation of the contract. This allows the demanding party to exercise all remedies for anticipatory repudiation, including treating the contract as breached and seeking damages. Answer B is incorrect because no 30-day suit deadline exists; the failure to assure is treated as repudiation, not a litigation trigger. Answer C is incorrect because the demanding party may go beyond suspension and treat the contract as repudiated. Answer D is incorrect because the contract does not terminate automatically; the party must elect to treat it as repudiated.
- After breach, buyer promptly covers in good faith at $18/unit; market $16; contract $15. Damages?
Answer: Cover less contract price
Because the buyer actually covered in good faith, damages are the cover price minus the contract price: 18 - 15 = 3 per unit. The market price of 16 doesn't replace the actual cover under UCC 2-712. The tempting market-less-contract approach is wrong; it applies only if the buyer did not cover.
- Under UCC Section 2-712, a buyer who covers after a seller's breach by purchasing substitute goods may recover damages equal to which of the following?
Answer: The difference between the cover price and the contract price, plus incidental and consequential damages, less expenses saved.
Under UCC Section 2-712, a buyer who covers in good faith without unreasonable delay may recover the difference between the cover price and the contract price, plus incidental and consequential damages, minus any expenses saved due to the seller's breach. This is the primary buyer's damage remedy when cover is made. Answer B is incorrect because awarding the full cover price would give the buyer a windfall since the buyer would have paid the contract price anyway. Answer C describes the market price remedy under Section 2-713, which applies when the buyer does not cover. Answer D is incorrect because cover does not require identical goods; commercially reasonable substitute goods qualify.
- Under UCC Section 2-711, which of the following remedies is available to a buyer when a seller fails to deliver goods or repudiates the contract?
Answer: The buyer may cancel the contract and recover any amounts paid, seek cover and recover the difference between the cover price and the contract price, or recover market-price damages.
When a seller fails to deliver or repudiates under UCC Section 2-711, the buyer's primary remedies include: (1) cancel the contract and recover payments made; (2) cover by purchasing substitute goods and recover the difference between the cover price and the contract price under Section 2-712; or (3) recover market-price damages under Section 2-713 (contract price minus market price at the time of breach). Specific performance and replevin are also available in appropriate cases. Answer B is incorrect because specific performance is only one option and requires unique goods; it is not the only remedy. Answer C is incorrect because no statutory 20% penalty exists in the UCC. Answer D is incorrect because the buyer is not required to accept substitute goods; the right to cover is an option, not an obligation.
- Merchant buyer's PO is silent on arbitration; seller's acknowledgment adds it. Both merchants; no objection. Result?
Answer: Material term; excluded
Under UCC 2-207, additional terms in a merchant's acceptance can become part of the contract unless they materially alter it. An arbitration clause is a material alteration because it changes the parties' dispute-resolution rights, so even with no objection it is excluded. The tempting trap is treating both-merchant no-objection as enough to include the term, but material alterations require explicit assent.
- Under UCC Section 2-305, a contract may be formed even if the price is left open. Which of the following correctly describes the effect of an open price term?
Answer: If the parties intended to be bound despite the open price, the price is a reasonable price at the time of delivery.
Under UCC Section 2-305, parties may form a contract even if the price is not yet settled. If the parties intend to be bound, the price is a reasonable price at the time for delivery. The court does not void the contract for indefiniteness as it would at common law; the UCC supplies the missing term. Answer A is incorrect because the UCC specifically provides for open price contracts, unlike the common law. Answer B is incorrect because the price is not set unilaterally by the buyer; it is a reasonable market price. Answer D is incorrect because prior transaction prices are not the statutory gap-filler; reasonable price at delivery is the rule.
- A buyer purchases goods and discovers after delivery that the seller has a voidable title (e.g., the seller obtained the goods through fraud). The buyer purchased in good faith for value without knowledge of the defect. Under UCC Section 2-403, which of the following is correct?
Answer: The buyer takes good title to the goods because a person with voidable title may transfer good title to a good-faith purchaser for value.
Under UCC Section 2-403(1), a person with voidable title has the power to transfer good title to a good-faith purchaser for value. Even though the seller obtained the goods through fraud (giving the seller only voidable title), a buyer who purchases in good faith for value receives good title. This protects the flow of commerce. Answer A is incorrect because the UCC specifically allows transfer of good title by a person with voidable title to a bona fide purchaser for value. Answer B is incorrect because the good-faith purchaser has acquired good title and need not return the goods. Answer C is incorrect because the form of payment is not the determining factor; good faith and value are the relevant requirements.
- Under UCC Article 2, which of the following describes the parol evidence rule as applied to contracts for the sale of goods?
Answer: Parol evidence may be used to explain or supplement a written contract with consistent additional terms and course of dealing, usage of trade, or course of performance evidence, but may not contradict the written terms.
Under UCC Section 2-202, a written contract intended as a final expression of the parties' agreement may not be contradicted by evidence of prior or contemporaneous oral or written agreements. However, the writing may be explained or supplemented by course of dealing, usage of trade, or course of performance evidence, or by evidence of consistent additional terms (unless the writing was intended as a complete and exclusive statement of the terms). Answer A is too broad; supplementing with consistent terms and trade usage is allowed. Answer B is incorrect because parol evidence may not contradict written terms. Answer D is incorrect because adding any oral terms would often contradict or vary the written agreement, which is not permitted.
- Under UCC Section 2-316, which of the following correctly describes how a seller may disclaim the implied warranty of merchantability?
Answer: By using the word 'merchantability' in the disclaimer, and if the disclaimer is in writing, it must be conspicuous.
Under UCC Section 2-316(2), to disclaim the implied warranty of merchantability, the disclaimer must mention the word 'merchantability' and, if in writing, must be conspicuous. The word 'merchantability' specifically is required; a general disclaimer is not sufficient for this warranty. Answer A is incorrect because an oral disclaimer is permitted for merchantability but must still use the specific word 'merchantability.' Answer C is incorrect because an 'as is' clause under Section 2-316(3) effectively disclaims all implied warranties, including merchantability, not just the fitness warranty. Answer D is incorrect because buyer review and signature are not specifically required by the UCC; conspicuousness and the specific word are what matter.
