Bar Exam (Next Generation) Quiz: Identification Of Governing Law

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Identification Of Governing LawQuestion 1 of 10

A manufacturer with its principal place of business in Chicago agreed by e-mail to sell 10,000 industrial valves to a distributor with its principal place of business in Munich, Germany. The e-mails did not mention any choice of law. The valves were manufactured in Illinois and shipped FOB to Munich. After the distributor resold some valves, end users complained that the valves were defective. The distributor sued the manufacturer in federal court in Chicago, asserting breach of the implied warranty of merchantability.

Which law governs the distributor's warranty claim?

The UCC as adopted in Illinois, because the manufacturer's principal place of business and the place of manufacture are in Illinois.

The UCC as adopted in Illinois, because the distributor is a merchant and the goods were shipped FOB Illinois.

The CISG, because the parties have places of business in different contracting states and did not exclude its application.

Federal common law, because the dispute is between parties from different countries and affects international trade.

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Bar Exam (Next Generation) Quiz

Bar Exam (Next Generation) Quiz: Identification Of Governing Law

Practice Identification Of Governing Law in Bar Exam (Next Generation) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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Question 1

Which law governs the distributor's warranty claim?

The UCC as adopted in Illinois, because the manufacturer's principal place of business and the place of manufacture are in Illinois.
The UCC as adopted in Illinois, because the distributor is a merchant and the goods were shipped FOB Illinois.
The CISG, because the parties have places of business in different contracting states and did not exclude its application. (correct answer)
Federal common law, because the dispute is between parties from different countries and affects international trade.

Explanation: The CISG automatically applies to contracts for the sale of goods between parties whose places of business are in different contracting states, unless the parties opt out. The United States and Germany are contracting states, and the parties did not exclude the CISG, so it displaces the UCC. State UCC law does not govern this international sale, and no federal common law of contracts applies.

Question 2

A factory owner hired a mechanic to overhaul a large industrial conveyor system. The contract stated: 'Owner will pay Mechanic $8,000 for labor and $2,000 for the replacement motor, belts, and bearings supplied by Mechanic.' The mechanic completed the work, but the system failed a week later. The owner sued, asserting breach of implied warranty.

Which body of law governs the owner's warranty claim?

UCC Article 2, because the replacement parts are goods and were the subject of a separate sale for $2,000.
Common law, because the predominant purpose of the contract was the service of overhauling the conveyor system. (correct answer)
UCC Article 2, because the mechanic is a merchant and the contract price exceeds $500.
Real property law, because the conveyor system was attached to the factory and therefore was not a good.

Explanation: The contract was for an overhaul of a conveyor system. Although the mechanic supplied replacement parts, the predominant purpose was the service of repair and overhaul; the parts were incidental to that service. Therefore common law, not UCC Article 2, governs. The separate parts charge does not convert the transaction into a sale of goods, merchant status does not change the governing-law analysis, and the fixture status of the conveyor system does not make this a real-property transaction.

Question 3

A bakery contracted with an equipment manufacturer for the manufacturer to build, deliver, and install a custom-made commercial oven in the bakery's production facility. The contract price was $250,000. The manufacturer's price for the oven itself was $220,000, and installation, electrical hookup, and testing were valued at $30,000. The contract stated that title to the oven would remain with the manufacturer until the bakery paid the full contract price. The oven was manufactured at the factory, then delivered in sections and bolted together on the bakery's floor. It could be unbolted and removed without material damage to the building. After installation, the oven failed to heat evenly, and the bakery sued.

Which body of law governs the bakery's claims?

UCC Article 2, because the contract is predominantly for the sale of a good, with installation services incidental. (correct answer)
Common law, because the contract required the manufacturer to perform significant installation and testing services.
UCC Article 2A, because the manufacturer retained title to the oven until the bakery paid the full price.
Common law, because the oven was specially manufactured and became attached to the bakery's real property.

Explanation: In a mixed goods-and-services contract, courts use the predominant-purpose test. The oven was a movable good, removable without material damage, and accounted for $220,000 of the $250,000 price; installation was incidental. Retention of title until payment creates only a security interest and does not turn the sale into a lease. The common-law service and fixture arguments fail.

Question 4

A construction company entered into a written agreement labeled 'Equipment Lease' with a finance company for a crane. The construction company agreed to pay $4,000 per month for 60 months, which equaled the crane's purchase price plus interest. At the end of the term, the construction company could buy the crane for $1. The finance company retained title to the crane during the term. After 18 months, the construction company stopped paying, and the finance company sued for the remaining payments. The construction company argued that the agreement was not a true lease but a sale with a security interest.

If the construction company is correct, which body of law governs the finance company's right to recover the remaining payments?

UCC Article 2A, because the agreement is in writing and labeled a lease, and the finance company retained title.
UCC Article 2, because the transaction is a sale of goods with a security interest retained by the seller. (correct answer)
Common law, because the finance company is in the business of lending money, not selling cranes.
UCC Article 9 only, because the finance company's rights are purely those of a secured creditor.

Explanation: Because the option price is nominal ($1) and the total payments equal the crane's price plus interest, the transaction is not a true lease; it is a sale with a retained security interest. UCC Article 2A expressly excludes leases intended as security. Article 2 governs the sale aspects, while Article 9 governs the security interest. The label 'lease' and retention of title are not controlling, and the finance company's lending purpose does not make the transaction common law.

Question 5

A landowner entered into a contract with a mining company, granting the mining company the right to enter the land and extract limestone in exchange for a royalty. In a separate contract, the landowner agreed to sell to a contractor 'all limestone that the landowner removes from the property' during the next two years. After the landowner had removed and stockpiled a quantity of limestone, the contractor refused to accept delivery, and the landowner sued.

Which body of law governs the contract between the landowner and the contractor?

UCC Article 2, because the limestone is to be severed from the land by the seller. (correct answer)
Common law, because the contract concerns an interest in real property and the limestone has not yet been severed.
UCC Article 2, because the contract is for the sale of minerals regardless of which party severs them from the land.
Common law, because the landowner is not a merchant and the contract is for the sale of a natural resource.

Explanation: Under UCC Section 2-107(1), a contract for the sale of minerals to be removed from real property is a contract for the sale of goods if they are to be severed by the seller. Because the landowner agreed to sell limestone that the landowner would remove, the contract is for goods. If the buyer were to sever, the contract would generally be treated as involving an interest in real property. Merchant status is irrelevant.

Question 6

A manufacturer agreed in a signed writing to sell 1,000 custom circuit boards to a computer company for $50,000. Before delivery, the parties orally agreed that the price would be increased to $60,000 because of increased component costs. After the manufacturer delivered the boards, the computer company paid $50,000, and the manufacturer sued for the additional $10,000.

Which body of law governs whether the manufacturer may enforce the oral modification?

UCC Article 2, because the contract is for the sale of goods and the UCC supplies the rules governing modifications. (correct answer)
Common law, because the contract is for specially manufactured goods and the service of manufacturing is the predominant purpose.
Common law, because the modification was oral and unsupported by consideration, so the original contract terms continue.
UCC Article 2, because the modification was made by merchants and is therefore effective without consideration or a writing.

Explanation: Because the contract is for the sale of goods, Article 2 of the UCC supplies the rules governing modification; the common-law consideration requirement does not apply. Under UCC Section 2-209, a modification needs no consideration to be binding, but the Statute of Frauds may still apply to the contract as modified. The custom manufacture of the boards does not turn the contract into a service contract. Answer D is wrong because merchant status is not the basis for the UCC modification rule, and the statement that a writing is never required is overbroad.

Question 7

A manufacturer agreed to sell to a buyer 'all machinery, equipment, raw materials, and finished inventory located at the seller's plant, together with the seller's customer list and the right to use the seller's trade name for five years.' The price was $2.5 million. The tangible goods were valued at $2.3 million, and the customer list and trade-name license were valued at $200,000. The seller retained ownership of the plant. After the sale, the buyer discovered that an industrial press was defective and sued for breach of warranty.

Which body of law governs the buyer's warranty claim?

UCC Article 2, because the predominant purpose of the contract was the sale of goods, with the intangibles incidental. (correct answer)
Common law, because the contract included a customer list and a trade-name license, which are not goods.
UCC Article 2, because the parties expressly valued the customer list and trade-name license.
Common law, because the contract was for the sale of a business as a going concern.

Explanation: The contract's predominant purpose was the sale of tangible goods: machinery, equipment, raw materials, and inventory were valued at $2.3 million of the $2.5 million price. The customer list and trade-name license were incidental intangibles. UCC Article 2 therefore governs. A contract for the sale of a business as a going concern can be common law, but this contract was a sale of assets with the seller retaining the plant and no transfer of the business as a whole.

Question 8

A clothing retailer headquartered in New York entered into a contract with a manufacturer headquartered in California for the sale of 5,000 jackets. The contract's governing-law clause stated: 'This agreement shall be governed by the laws of the State of New York, without regard to its conflict-of-laws principles.' The jackets were manufactured in California and delivered to the retailer's warehouse in New York. A dispute arose over whether a term in the manufacturer's written acknowledgment became part of the contract.

Which body of law governs the dispute over the acknowledgment term?

The UCC as adopted in New York, because the parties' choice-of-law clause is effective and the contract is for the sale of goods. (correct answer)
The UCC as adopted in California, because the contract was formed when the manufacturer sent the acknowledgment from California.
The common law of New York, because the governing-law clause selects New York law and the dispute concerns contract formation.
Federal law, because the transaction involves interstate commerce and the UCC is not uniform.

Explanation: Parties may choose the law governing their contract. The contract is for the sale of goods, so the chosen New York law includes New York's UCC. The choice-of-law clause is effective because the transaction bears a reasonable relation to New York, including the retailer's headquarters and delivery there. California's UCC and the common law do not displace the chosen law, and there is no federal general contract law.

Question 9

In March, a farmer entered into a written contract with a grain processor. The farmer agreed to sell to the processor 'the entire corn harvest from the 200 acres the farmer will plant this spring' at a fixed price per bushel, with delivery to occur after harvest. A severe drought reduced the harvest to one-third of the expected amount. The processor sued the farmer for breach, and the farmer argued that the contract was not a contract for the sale of goods.

Which body of law governs whether the farmer is obligated to deliver the promised quantity?

UCC Article 2, because corn that is growing and will later be severed from the land is a good for purposes of the UCC. (correct answer)
Common law, because the contract concerns farmland and the corn has not yet been severed from the land at the time of contracting.
UCC Article 2A, because the farmer's obligation to deliver the harvest is functionally a lease of the crop to the processor.
Common law, because the farmer is not a merchant and the contract is primarily for agricultural production services rather than a sale.

Explanation: UCC Article 2 applies to transactions in goods. Goods include growing crops, and future crops to be grown and severed by the seller are treated as goods under Article 2. The common law does not govern because the contract is not for an interest in land. Article 2A is inapplicable because no lease exists, and Article 2 does not require the seller to be a merchant.

Question 10

A diner ordered and paid for a chicken entrée at a restaurant. After eating the entrée, the diner became ill because the chicken was undercooked. The diner sued the restaurant, asserting breach of the implied warranty of merchantability.

Which body of law governs the diner's warranty claim?

UCC Article 2, because the restaurant's sale of food to the diner was a sale of goods. (correct answer)
Common law, because the predominant purpose of a restaurant transaction is the service of preparing and serving food.
UCC Article 2A, because the diner's payment was for the right to use the restaurant's facilities and services.
Common law, because the chicken was not identified to the contract at the time the diner ordered.

Explanation: Food sold in a restaurant is a good under UCC Article 2, and a restaurant is a merchant with respect to food. The transaction is therefore a sale of goods subject to the implied warranty of merchantability. The service aspects of dining do not predominate for this purpose. Article 2A and identification-to-contract arguments are inapplicable.