Rights/Obligations Of Buyers And Sellers

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CPA Regulation (REG) › Rights/Obligations Of Buyers And Sellers

Questions 1 - 10
1

Under UCC Article 2, what is the seller's primary obligation when a contract for the sale of goods is formed?

The seller must accept any return of goods the buyer decides to send back within one year.

The seller must deliver goods accompanied by a written warranty for every item sold.

The seller must deliver the goods to the buyer's home regardless of contract terms.

The seller must tender delivery of conforming goods in accordance with the contract terms, including quantity, quality, and time and place of delivery.

Explanation

Under UCC Section 2-301, the seller's basic obligation is to transfer and deliver conforming goods, and the buyer's basic obligation is to accept and pay for them. Conforming goods are those that meet every aspect of the contract description (quantity, quality, specifications, and delivery terms). The seller must make tender of delivery - placing conforming goods at the buyer's disposal and giving reasonable notification so the buyer can take delivery. Answer A incorrectly specifies the delivery location. Answer C is incorrect because written warranties are not always required. Answer D is incorrect because there is no automatic one-year return right.

2

Under UCC Section 2-503, what constitutes a proper tender of delivery by the seller?

The seller ships the goods without notifying the buyer of the shipment.

The seller deposits the goods at a public warehouse and sends the buyer the receipt.

The seller notifies the buyer that the goods are ready and waits indefinitely.

The seller puts and holds conforming goods at the buyer's disposition and gives the buyer any notification reasonably necessary to enable the buyer to take delivery; the seller must do this at a reasonable hour and keep the goods available for a reasonable period.

Explanation

Under UCC Section 2-503(1), tender of delivery requires the seller to put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary for the buyer to take delivery. This must be at a reasonable hour and for a reasonable period. Proper tender entitles the seller to acceptance and payment in accordance with the contract. Answer A is incorrect because the seller cannot wait indefinitely. Answer C is incorrect because notification is required. Answer D describes one form of tender (through a document of title) but overstates it as the general rule.

3

Under UCC Section 2-511, what is the buyer's obligation regarding payment when the seller makes a proper tender of delivery?

The buyer must pay only after physically inspecting and accepting the goods.

The buyer must pay within 30 days of delivery regardless of the contract terms.

The buyer must tender payment concurrent with the seller's tender of delivery, unless the contract provides otherwise; payment may be made by any means customary in the ordinary course of business.

The buyer may delay payment by requesting additional time as long as the request is made in writing.

Explanation

Under UCC Section 2-511(1), unless otherwise agreed, payment is due at the time and place at which the buyer is to receive the goods. The buyer must tender payment concurrently with the seller's tender of delivery - the exchange is simultaneous. Payment may be made by any means or in any manner current in the ordinary course of business, but the seller may demand payment in legal tender and give a reasonable time extension to obtain it. Answer A imposes a 30-day rule not found in the UCC. Answer B is incorrect because payment need not await post-inspection acceptance in all cases. Answer C is incorrect because written extensions are not automatically available.

4

Under UCC Section 2-714, a buyer who has accepted non-conforming goods may recover damages for breach of warranty. How are these damages measured?

The buyer recovers the cost to repair the goods only.

The buyer recovers nothing once acceptance occurs.

The buyer recovers the full contract price paid.

The buyer recovers the difference between the value of the goods as accepted and the value they would have had if they had been as warranted, plus any incidental and consequential damages.

Explanation

Under UCC Section 2-714(2), the measure of damages for breach of warranty is the difference between the value of the goods as accepted (what the non-conforming goods are actually worth) and the value they would have had if they had been as warranted (what conforming goods would have been worth), plus any incidental and consequential damages under Section 2-715. This formula compensates the buyer for the deficiency in value. Answer A is incorrect because the buyer recovers the value shortfall, not the full price. Answer B is incorrect because accepted goods may still support warranty damages with timely notice. Answer D is only the repair cost, which may understate the damages.

5

Under UCC Section 2-507, when does a seller's tender of delivery entitle the seller to payment?

The seller is entitled to payment only after the buyer's inspection period has ended.

The seller may demand payment before delivering the goods.

Tender of delivery is a condition to the buyer's duty to accept and pay; once the seller makes a proper tender, the buyer's obligation to pay arises concurrently.

The seller is entitled to payment at any time within 90 days of shipment.

Explanation

Under UCC Section 2-507(1), tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to the buyer's duty to pay for them. Tender and payment are concurrent conditions - neither party need perform first. The seller's proper tender triggers the buyer's obligation. Answer A incorrectly allows pre-delivery payment demands. Answer B is incorrect because payment is not automatically delayed pending inspection. Answer C invents a 90-day payment window not found in the UCC.

6

Under UCC Section 2-312, the seller's warranty of title includes which of the following?

The seller warrants that the goods are free from all liens, including those the buyer knew about when buying.

The seller warrants that the goods will perform satisfactorily for at least one year.

The seller warrants that the title conveyed is good, the transfer is rightful, and the goods are delivered free from any security interest or other lien or encumbrance of which the buyer has no knowledge.

The warranty of title requires a separate written statement; it is not implied by law.

Explanation

Under UCC Section 2-312, the warranty of title is implied in every contract for sale unless specifically disclaimed. It warrants: (1) good title is conveyed; (2) the transfer is rightful; and (3) the goods are free from any security interest, lien, or encumbrance of which the buyer at the time of contracting had no knowledge. Answer B describes a performance warranty, not a title warranty. Answer C incorrectly includes liens the buyer knew about; known liens are not covered by the warranty. Answer D is incorrect because the warranty of title is implied and does not require a separate written statement.

7

Under UCC Section 2-510, how does a seller's breach affect the risk of loss allocation?

When the seller breaches, risk of loss is shared equally between buyer and seller.

When the tender or delivery of goods fails to conform to the contract (giving the buyer a right of rejection), the risk of loss remains on the seller until cure or acceptance.

Risk of loss shifts to the buyer automatically upon shipment regardless of breach.

When the seller breaches, the risk of loss remains with the buyer until the seller cures.

Explanation

Under UCC Section 2-510(1), when a tender or delivery of goods fails to conform to the contract such that the buyer has a right of rejection, the risk of loss remains on the seller until cure or acceptance. This prevents the seller from transferring risk to the buyer through non-conforming tender. If the seller cures the defect or the buyer accepts despite the non-conformity, risk then passes to the buyer. Answer A reverses the rule; the risk stays with the breaching seller, not the buyer. Answer B is incorrect because conforming tender is required for risk to pass in a shipment contract. Answer D (shared risk) has no basis in Article 2.

8

Under UCC Section 2-501, what is the significance of a seller 'identifying' goods to a contract?

Identification has no legal significance under the UCC.

Identification gives the buyer a special property interest and an insurable interest in the goods; it also allows the buyer to seek specific performance or replevin in appropriate cases and fixes the goods that are subject to the contract.

Identification transfers title to the buyer immediately upon the seller designating the goods.

Identification allows the seller to substitute different goods at any time before delivery.

Explanation

Under UCC Section 2-501, identification of goods to a contract gives the buyer a special property interest in the identified goods and an insurable interest in them. Once goods are identified, the buyer may: (1) seek specific performance or replevin in cases where the goods are unique or the buyer is unable to cover; (2) recover goods under Section 2-502 if the seller becomes insolvent within 10 days of the buyer's first installment payment; and (3) recover damages based on market price at the time of identification. Answer B is incorrect because identification does not automatically transfer title. Answer C is incorrect because identification has significant legal effects. Answer D is incorrect because identification commits those specific goods to the contract.

9

Under UCC Section 2-716, when may a buyer obtain specific performance as a remedy for the seller's breach?

Specific performance is only available for goods with a value exceeding $100,000.

A buyer may obtain specific performance only if the goods were ordered more than 90 days before the breach.

A buyer may always obtain specific performance if they prefer it to money damages.

Specific performance may be ordered when the goods are unique or in other proper circumstances, such as when the buyer cannot reasonably obtain substitute goods on the market.

Explanation

Under UCC Section 2-716(1), specific performance may be decreed where the goods are unique or in other proper circumstances. Unique goods include rare art, custom-made items, or goods that cannot be purchased elsewhere. 'Other proper circumstances' may include situations where the market for the goods has dried up, the buyer cannot obtain substitute goods, or the goods have special characteristics that make cover impossible. Answer A is incorrect because specific performance requires uniqueness or inability to cover, not mere preference. Answer B (90-day rule) is not in the Code. Answer D (dollar threshold) is not a UCC requirement.

10

Under UCC Section 2-608, when may a buyer revoke acceptance of non-conforming goods?

A buyer may revoke acceptance when: the non-conformity substantially impairs the value of the goods to the buyer; and the buyer accepted either on the reasonable assumption that the non-conformity would be cured, or without discovery of the non-conformity due to the difficulty of discovering it before acceptance. Revocation must occur within a reasonable time.

A buyer may revoke acceptance only if the goods were defective at the time of delivery.

A buyer may revoke acceptance at any time within one year of delivery.

A buyer may revoke acceptance whenever they change their mind about the purchase.

Explanation

Under UCC Section 2-608, revocation of acceptance requires: (1) the non-conformity substantially impairs the value of the goods to the buyer; and (2) the buyer accepted because they reasonably assumed the seller would cure, or because the non-conformity was difficult to discover before acceptance. Revocation must occur within a reasonable time after the buyer discovers or should have discovered the grounds, before any substantial change in condition of the goods. Answer A invents a one-year period. Answer B (change of mind) has no basis in the Code. Answer C is too narrow; the non-conformity need not have existed at delivery if it subsequently emerged and was difficult to discover.

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