USF Business Law Questions

BUSINESS LAWJohn M. Harding, Esq.
QUIZ 10 (Actual)
(Cheeseman, Ch 20-21)
The partners of Sterling Cooper have moved the firm to Gotham, California.
Assume that all persons named are natural persons (and not corporate or other
entities) and are residents of California, unless the question states otherwise1.
In all instances, apply either the standard common law rules of contract or the
UCC rules, as appropriate.
In selecting an answer, if several seem possible, choose the best answer.
1.
Ken over at Big Al’s Auto Emporium leases Roger a BMW 750i automobile,
delivery to Roger’s house by July 1. On June 15, however, Ken delivers a BMW
550i to Roger, who indignantly rejects it. What are Ken’s options?
a)
b)
c)
d)
Demand acceptance of 550i as an accommodation
Replace 550i with 750i by July 1
Replace 550i with 750i by a reasonable time after July 1
No acceptance or cure possible
2.
Harry contracts to sell George Habash 500 cartons of Popular Chips.
When Harry tenders delivery, George inspects the cartons and notices some of
the Chips were damaged in transit. If George does not expressly reject
delivery, which of the following actions by George would NOT constitute
implied acceptance?
a)
b)
c)
d)
Putting the Chips temporarily in storage
Putting the Chips in storage for a year
Offering the Chips for sale
Selling the Chips
1
3.
Jiang contracts with Betty to sell her 100 lbs. of Workers’ Playtime
coffee for $1,000, in 10 even deliveries, payment in installment on approval of
each delivery. Jiang hires UPS, and has used them to make 8 deliveries when
Betty tells Jiang that the deal is off. Jiang wants to resell the 9th and 10th
shipments to Roger for $300 total (i.e., for both shipments). If Jiang sues Betty
for breach of contract, what measure of damages?
a)
b)
c)
d)
($100) Credit to Betty
$0
$100
$200
4.
Bert is trying to sell his valuable painting “The Kraken” to Lane for
$50,000. During negotiations, Lane asks Bert what the appraised value of the
painting is, and Bert winks at him. Is there an express warranty?
a)
b)
c)
d)
Yes: affirmation of fact or promise about goods
Yes: description of goods
No: statement of opinion
No: no statement
5.
Don is an ad executive who sells his truck to Betty for $10,000. Betty has
told Don that she needs a truck that can pull her horse trailer, and Don says,
“My truck is great!” After Betty buys the truck she soon finds that not only can
it not pull a horse trailer, it cannot even be safely driven in ordinary traffic.
Betty sues Don for breach of express warranty (EW), implied warranty of
merchantability (IWM) and implied warranty of fitness for particular purpose
(IWF). Who wins?
a)
b)
c)
d)
Betty: breach of EW
Betty: breach of IWM
Betty: breach of IWM and IWF
Don: no actionable warranties
6.
EXTRA CREDIT. What did Hayes buy?
a)
b)
c)
d)
Diamonds
Emeralds
Rubies
Sapphires
2
BUSINESS LAW
SALES AND LEASES (GOODS)
Three Easy Pieces
You want to know
three things
about the UCC:
Applicability
Differences
Additions
Additions in the UCC
The UCC supplements the
common law in:
• Title
• Risk of Loss
• Performance
• Remedies
• Warranties
Performance: Tender of Delivery
The Perfect Tender Rule
Perfect Tender
• Conforming Goods (CG)
match the contract
terms.
• If Seller tenders CG,
Buyer must accept and
pay for them.
Imperfect Tender
Nonconforming Goods
(NCG) do NOT match the
contract terms.
If Seller tenders NCG,
Buyer may do any of the
following:
•
Accept the whole
•
Reject the whole
•
Reject in part
Inspection
How does Buyer
know if there are
CG? She takes a
look. This is Buyer’s
right of inspection.
Seller’s Right of Cure
• If there is problem with
the tender, Buyer needs
to tell Seller.
• Seller can cure the
defect by repairing or
replacing the NCG
(within a certain time).
Prompt Cure
How fast does Seller need to act?
Within the contract time, or a little
longer if Seller reasonably believed
the NCG would be accepted.
Acceptance
If there’s a perfect tender, Buyer must accept.
If there’s an imperfect tender, Buyer may accept.
How does Buyer accept?
Buyer signifies by words or conduct her
intention to accept, OR
Buyer fails to reject within a reasonable time
after tender.
Words Can Mean More Than One Thing
Acceptance of an offer (contract formation)
means it’s unequivocal, a mirror image,
subject to the mailbox rule.
Acceptance of goods (UCC performance)
means Buyer agrees that the goods tendered
are CG or abandons the right to demand CG.
If the buyer accepts NCG, she may still seek
contract damages.
Revocation of Acceptance
Buyer may subsequently revoke
acceptance of NCG of lesser value IF:
Seller promised to timely cure, but
fails, OR
Buyer failed to discover the defect
due to difficulty of detection, OR
Buyer failed to discover the defect
due to Seller’s assurance of CG.
Remedies in Sales Contracts
Seller’s
Remedies
Buyer’s
Remedies
Seller’s Remedies
Withhold delivery
Stop delivery
Reclaim goods
Dispose of goods
Recover purchase price
Recover K damages
Cancel K
Buyer’s Remedies
Reject NCG
Recover goods
Specific performance
Recover K damages
Cancel K
“Cover”
Cover
Under the common law,
you get the “benefit of
the bargain.”
Under the UCC, if the
exact same goods are not
available, you can cover
by buying a commercially
reasonable substitute.
Next: Warranties
BUSINESS LAW
SALES AND LEASES (GOODS)
Three Easy Pieces
You want to know
three things
about the UCC:
Applicability
Differences
Additions
Additions in the UCC
The UCC supplements the
common law in:
• Title
• Risk of Loss
• Performance
• Remedies
• Warranties
Warranties
Warranty of Goods
A warranty
relates to the
• Character
• Quality
• Identity
• Condition, or
• Title to goods
Kinds of Warranties
Express
Implied
Statutory
Express (E/W): As the UCC Expresses It
“Any affirmation of fact or promise made by
the seller to the buyer which relates to the
goods and becomes part of the basis of the
bargain creates an express warranty that
the goods shall conform to the affirmation
or promise.” (2-313(1)(a).)
E/W: The Elements
Which
relates to
the goods
and
Affirmation
of fact or
promise
Made by
the seller
to the
buyer
Becomes
part of the
basis of the
bargain
Element 1: It’s Factual
Affirmation of fact or
(factual) promise
It’s Not Puffing
Notice that this is about fact and not
mere opinion. Salesmen get to tell
you their products are great, and this
is considered “puffing,” which is not
an express warranty.
It’s Enforceable
If you think about enforceability, this should make sense. You are
asking the court to enforce the terms of your agreement.
A court can determine damages if a car has a V-6 engine
instead of the V-8 engine it was said to have.
However, a judge will be scratching her head if you tell her that a
car was said to be “super,” and you do not think it really is super.
Element 2: Made by Seller to Buyer
Formed
by the
seller’s
words
Formed
by the
seller’s
conduct
Any Seller, Even a Remote Seller
Manufacturer’s
brochure
Salesperson’s
assertions
Element 3: It Relates to Goods
This is still Article
2/2A of the UCC.
It applies to
tangible, movable
property.
Element 4: Reliance
An express warranty has to be part
of the “basis of the bargain.”
So if a salesperson says that a car
has a green carburetor and the
buyer could not have cared less
about the color at the time of the
deal, the buyer cannot later
complain if the carburetor is black.
But in California
In California, however, the
courts have made things a
little easier for the buyer;
any factual representation
by the seller will be
presumed to be part of
the basis of the bargain,
and it will be up to the
seller to show that the
buyer did not rely on that
representation.
Implied Warranties
Merchantability (I/M)
Fitness (I/F)
I/M: What It Warrants
• The fundamental concept
of the implied warranty of
merchantability is that
the goods are fit for their
ordinary purposes.
• A car should be able to
stop and start, and drive
on roads and highways.
That’s what a car does.
I/M: Requirements
• The implied warranty of
merchantability
requires a merchant
seller.
I/F: What It Warrants
• The implied warranty of
fitness for a particular
purpose is the companion
to the implied warranty of
merchantability.
• Merchantability looks at
the ordinary purpose of
something, while
particular purpose looks
at the particular purpose
of something.
I/F: Particular Purpose
If you want a car that you can drive at
very high speed, this would be a
particular purpose, since cars
ordinarily are not meant to be driven
beyond what is safe on the freeways.
I/F: Knowledge and Reliance
(and Knowledge)
Formation
1. Knowledge by the
seller of the purpose,
since by definition it is
out of the ordinary
2. Reliance by the
buyer on the seller’s
expertise in selecting
something that
satisfies the purpose
3. Knowledge by the
seller that the buyer is
in fact relying upon
the seller’s expertise
Usually, Pretty Basic
“Hi, I’d like a car that
can go 150 mph.”
“Yes, sir. This car here
can go 150 mph.”
“Great, I’ll take it.”
I/F: Requirements
I/F does not require a
merchant; ordinarily there
is one, since a merchant is
the sort of person who
would have special
expertise, but any person
with that expertise (or
holding himself out as
having it) will satisfy the
requirements.
Statutory Warranties
Title
Infringement
Why Are These Not Implied?
The UCC uses this unique category (“statutory”)
to protect these warranties from disclaimers
that refer broadly to implied warranties.
S/T (Statutory/Title)
Seller must deliver good title.
Good title is one that will not expose the buyer to a lawsuit.
Seller need not be a merchant.
Seller need not know of the defective title.
Seller need only have good title at the time of delivery.
S/I (Statutory Infringement)
A merchant seller warrants that the
goods are not subject to any valid
third party claim for infringement
of a patent or trademark.
Warranty Damages
If a seller breaches a
warranty, the court will
award compensatory
damages (remember,
warranties are contractual
in nature).
Warranted
Value
– Actual
Value
= Damages
Warranty Damages
For example, E/W:
• Car with V-8 = $10K
• Car with V-6 = $8K
• Damages = $2K
Warranty Disclaimers
For E/W, the disclaimer must be
express.
For I/M, the disclaimer must
mention “merchantability” and
(if written) the disclaimer must
be conspicuous.
For I/F, the disclaimer must be
in writing and conspicuous.
For S/T and S/I, the disclaimer
must be specific as to title
and/or IP rights.
Next: Secured Transactions