EXAM TICKET NO. _________________
Commercial Law: Sales Transactions
Georgetown University Law Center, Spring 1997
Professor Avery Wiener Katz
Midterm Quiz
March 3, 1997
Answers
Questions 1-8 are based on the following facts.
Questions 1-8 are based on the following fact pattern.
Oscar's Access Line [OAL] is an Internet access provider in the Washington, DC area. It sells individual and business
users the right to access the Internet through its facilities, in exchange for a monthly fee. Holders of OAL accounts
are given a password that enables them to communicate with OAL via computer modem, and are entitled to unlimited
use of electronic mail and to a certain amount of storage space on OAL's main computer in Chantilly, Va. Some
of OAL's subscribers also buy directly from OAL the communications and e-mail software that they need to use the
Internet; this software, however, is produced and packaged by third-party suppliers such as Netscape. OAL also
leases computer hardware (computers, monitors, printers) to a fraction of its subscribers. Under their standard
rental contract, the lessee has the option to purchase the leased hardware for a fixed sum anytime after a six-month
period, but the option price is sufficiently high relative to the cost of new equipment that virtually none of
the lessees exercise this option.
Jeanne signs up for a three-month trial period of Internet access with OAL, buying a copy of Netscape Navigator
software at the same time. She pays a total price of $100. The usual price of Internet access is $30/month;
and the usual discounted price of the software is $20. While Jeanne happens to be employed as an attaché
at the Canadian embassy, the software and Internet account are for her own personal use.
1. Jeanne's purchase of the software package is covered by the CISG. F: Under Article 2(a),
the CISG does not apply to consumer contracts.
2. Jeanne's purchase of the software package, considered by itself, is covered by Article 2 of the UCC. T: The software package is movable at the time of identification to the contract [2-105].
3. Jeanne's Internet access agreement, considered by itself, is covered by Article 2 of the UCC. F: It may be a lease or license of OAL's facilities, but it is not a sale of goods.
4. If Jeanne purchases forty copies of software on behalf of the embassy's home office in Ottawa, and OAL is aware that the Canadian government rather than Jeanne is the purchaser, the purchase may be covered by the CISG. T: Under CISG article 1(a). The possible uncertainty goes to whether the Canadian government's place of business, judged for the purposes of this contract, is in Canada or the U.S. See Article 10.
5. With regard to any of Jeanne's purchases that are covered by the CISG, the CISG's provisions will control even when they are inconsistent with the UCC. T: The CISG, as a federal treaty, takes priority over mere state law.
6. A court applying the "predominant purpose" test will find that Jeanne's contract with OAL, taken as a whole, is governed by the UCC. F: Even if software is classed as goods, it makes up less than 25% of the value of the contract.
7. OAL's leases of computer hardware are unlikely to be considered sales under UCC §2-106. T:
Title does not formally pass, and the high option price together with the low frequency of purchases means that
there is no sale in form either.
8. OAL's leases of computer hardware are not covered by the UCC at all. F: They are, at the
least, covered by Article 2A on leases.
Questions 9-16 are based on the following fact pattern.
Pat, owner of Paisano's Pizzeria, a local restaurant, had lunch on June 30 with Sal, sales representative for Sicilia
Sauces, at which the two discussed the possibility of Sicilia becoming a supplier for Paisano's. At the end of
the conversation, Sal departed believing a contract had been concluded under which Paisano would purchase all its
tomato sauce for the next twelve months from Sicilia. The following day, on July 1, Pat received a signed letter
from Sal, via fax, that referred to a contract between the two for "all tomato sauce required by Paisano in
the next twelve months," but made no reference to any price. Pat decided to ignore this fax, since she still
hoped to shop around. On July 20, however, after Pat had not found another supplier, she mailed Sal a letter
that stated, "I accept your offer to supply Paisano's requirements of tomato sauce for the next twelve months,
provided that we reach an understanding that I may withdraw from this contract for any reason upon giving 30 days
notice."
9. Sal's July 1 letter to Pat is insufficient as a matter of form to satisfy the Statute of Frauds, because it
does not mention price. F: There is no requirement under 2-201 that a writing mention price.
10. Sal's July 1 letter to Pat is insufficient as a matter of form to satisfy the Statute of Frauds, because it does not mention quantity. F: The quantity term is provided by the reference to Paisano's requirements.
11. If Sal shows that there really was an oral agreement concluded at the June 30 lunch, he can enforce the agreement against Pat on the basis of his July 1 letter. T: Under 2-201(2), a writing sufficient against Sal become sufficient against Pat after it sits 10 days without a reply.
12. If Pat shows that there was no oral agreement concluded at the June 30 lunch, she can enforce an agreement against Sal on the terms of her July 20 letter. F: It is a counteroffer under 2-207(1), since it is expressly made conditional on assent to additional terms.
13. Had Pat included the 30-day notice term in her July 20 letter, but not expressly conditioned her acceptance of Sal's offer on that term, she would be bound to a contract and would not have any right to withdraw. T: Under 2-207(1) her letter would operate as an acceptance. A term conferring a right to cancel a contract unilaterally is a material alteration, so under 2-207(2) it does not become part of the contract.
14. Pat's July 20 letter cannot be a valid acceptance of Sal's July 1 letter, because it was sent by mail instead of by fax. F: Under 2-206, there is no requirement that acceptance take place by any particular medium.
15. Were Sicilia Sauces actually to be based in Sicily (and were Pat to know this), any contract actually reached could be enforced even in the absence of an adequate writing. T: Under CISG article 11, there are no formal requirements for a contract to be enforceable — a writing or otherwise.
16. Under the terms of either the July 1 or the July 20 letter, Paisano's does not have to buy any tomato sauce during periods when it is involuntarily closed down by the Board of Health. T: A requirements contract under 2-306 calls for the buyer to purchase its actual requirements in good faith. [This question turned out to be more confusing than I expected; in retrospect I would have reworded it.]
Questions 17-24 are based on the following fact pattern.
Benjamin Breeder and Greenfield Farms signed a contract for sale of Greenfield's prize breeding cow, Dolly the
2d of Aberlone. At this time, Dolly was carrying an unborn calf (tentatively to be named Dolly the 3d). Greenfield
had already agreed to sell this calf to another cattle trader, Bess Baxter. The Greenfield/Breeder contract was
made explicitly subject to the Greenfield/Baxter contract, which provided that Baxter would take delivery of the
calf as soon as practicable after her birth.
In accordance with the Greenfield/Breeder agreement, Greenfield delivered Dolly to Carter, a common carrier specializing
in livestock who had been hired by Breeder to pick up Dolly and deliver her to Breeder's farm. Unfortunately,
Dolly suffered a miscarriage shortly after she arrived at Breeder's farm, due to trauma suffered in transit.
A subsequent veterinary examination revealed that as a result of the miscarriage, Dolly was also rendered barren,
which substantially reduced her market value. It is agreed, however, that both Greenfield and Carter exercised
ordinary care in moving Dolly and that neither was at fault for what happened. Greenfield's business insurance
policy excludes coverage both for losses to unborn calves, and for any losses suffered in transit.
17. Because Greenfield is in the livestock business, it is not a merchant under Article 2.
F: Greenfield deals in cattle and is thus a merchant under 2-104(1).
18. The sale of Dolly's unborn calf is covered by Article 2. T: Under 2-105(1), "goods"
includes the unborn young of animals.
19. If the sale of Dolly's unborn calf is covered by Article 2, Greenfield must bear the risk of loss for the miscarriage. T: Under 2-509(3). The calf has neither been tendered nor delivered to Baxter. [This was a difficult question, based on the number of people who got it right.]
20. If the sale of Dolly's unborn calf is covered by Article 2, Greenfield is liable to Baxter for breach of contract. F: Because no one was at fault for Dolly's miscarriage, the contract is avoided under 2-613.
21. Breeder may avoid its contract for the purchase of Dolly. F: Under 2-509(1)(a), the risk of loss passed to Breeder upon delivery of Dolly to Carter.
22. If Greenfield had been the one responsible for hiring Carter and for delivering Dolly to Breeder's farm, Greenfield would bear the risk of loss from Dolly's barrenness. T: Under 2-509(1)(b).
23. Had Baxter repudiated its agreement to purchase Dolly's calf just before Greenfield delivered Dolly to Carter, it would bear the risk of loss and would be liable to Greenfield for breach of contract. T: Under 2-510(3), a repudiating buyer bears the risk even of undelivered goods for a reasonable time.
24. If, unbeknownst to the parties, Dolly had already miscarried and become barren before Greenfield and Breeder reached their agreement, Breeder could avoid the sale on grounds of mutual mistake. T: Under 1-103, the common-law doctrine of mistake continues in force under the UCC.
Questions 25-32 are based on the following fact pattern.
Sue, a high-living mergers–and–acquisitions lawyer, agreed to sell her used BMW convertible to Brent, an upwardly
mobile college lecturer, for a price of $18,000. They left the question of delivery open pending the arrival of
Sue's new Lexus, which was on order from the auto dealership and was expected within 30 days. They also agreed
to leave off putting the agreement into writing until that time, but Brent gave Sue a check for $500, which she
deposited. The next week, however, Sue discovered that her firm had lost a major client, and canceled her order
for a new Lexus. She then notified Brent orally that she wished to cancel the sale for the BMW, and mailed him
a check for $600. The check prominently contained a notation reading: "refund of all funds deposited, plus
$100 compensation in full settlement for your time and trouble. Void unless cashed within 90 days."
25. Brent can enforce the contract against Sue even though there is no writing. T: Under 2-201(3)(c),
part payment makes the contract enforceable.
26. If Sue changes her mind and goes through with the sale, her obligations will include an implied warranty of merchantability. F: This warranty is only given by merchants.
27. Sue's check constitutes a firm offer under 2-205. F: 2-205 applies only to a merchant's
offer to buy or sell goods, not to a nonmerchant's settlement offer.
28. If Brent cashes Sue's check, he will forfeit any rights he has against Sue under their oral agreement. T: This would be an accord and satisfaction under 3-311. Under revised 1-207, any reservation of rights would be ineffective.
29. Brent's agreement with Sue is too indefinite to enforce, because they never agreed on the time or place for delivery. F: If it is otherwise clear the parties intended a contract, the lack of an explicit delivery date will not prevent a contract from forming under 2-204(3). Under 2-308, the default for place of delivery is either Sue's residence or her workplace; under 2-309, the time of delivery is a reasonable time.
30. Sue is entitled to cancel the deal, since the change in her financial situation makes it impracticable to sell her old luxury car and buy a new one. F: Absent explicit agreement, maintenance of one's financial circumstances is not a "basic assumption under which the contract was made" under 2-615. Parties are expected to be responsible for their own finances.
31. Sue is entitled to keep both the BMW and Brent's $500, since the parties agreed that the delivery date would not be set until Sue's new Lexus arrives; and it has not arrived. F: While there is no provision in the UCC or in Sue and Brent's oral agreement that explicitly forbids Sue from interfering with a condition precedent of the contract, this would easily qualify as a breach of the implied duty of good faith [1-203].
32. If Sue employed a professional broker when selling her BMW, she will be obligated to comply with all reasonable
commercial standards of fair dealing in her actions under the sales contract. T: By employing
a broker, she takes on the duties of a merchant under 2-104, and this includes the merchant's standard of good
faith under 2-103(1)(b).
Questions 33-40 are based on the following fact pattern.
On May 1, Bayer, a New York manufacturer of industrial machinery, entered into a written agreement with Zeller,
a German manufacturer of high-precision machine parts. Under the agreement, Zeller was to supply 200,000 high-precision
widgets of standard manufacture and approximately 200,000 custom–made widgets to be produced according to a specialized
design provided by Bayer, with the specific quantity to be determined according to Bayer's precise needs. The
contract made no mention of the price to be paid for the standard widgets, but it contained a term authorizing
Zeller to set the price of the specialized widgets at the time of shipment, which was scheduled for October 1.
This term provided that the price should be set "with due allowance for all relevant circumstances including
any modifications of this Agreement," and that "Seller's discretion to fix price shall not be limited
by any duty of good faith or otherwise, except that Seller shall notify Buyer within 30 days in advance of shipment
if the price is to exceed $400/thousand." The contract also contained a choice–of–law clause that read: "All
rights and duties arising under this Agreement are to be determined according to the domestic law of the State
of New York, excluding any special rules pertaining to international contracts."
In the late spring and summer, unforeseen bottlenecks and labor disputes in the German machine–part industry, none
of which affected Zeller, caused the price of standard widgets to rise from $350 to $550 per thousand. Due to
their specialized nature, there was no market price for custom–made widgets, although if Zeller had not been obligated
to make such widgets for Bayer, it could have diverted its capacity to the manufacture of standard widgets. On
September 1, Zeller notified Bayer that the price for the custom–made widgets would be $750 per thousand. As it
turned out, Zeller's actual costs were $300 per thousand for the standard widgets, and $350 per thousand for the
custom–made widgets.
33. The contract is valid under either the UCC or the CISG, notwithstanding that the price was not settled at the
time it was entered into. T: Under UCC 2-305 and CISG Article 55.
34. Under the UCC, Bayer is obliged to pay for the standard widgets at a price of $550 per thousand. T:
Under 2-305(1)(a), the default price is a reasonable price at the time for delivery. [This was a difficult question,
based on the number of people who got it right.]
35. Bayer would prefer that the price for the standard widgets be calculated according to the CISG rather than the UCC. T: Under CISG Article 55, the default price is the price generally charged at the time of the conclusion of the contract, which in a rising market is more favorable to the buyer. [This was a difficult question, based on the number of people who got it right.]
36. Absent the clause purporting to grant it unlimited discretion, Zeller could charge no more than $400 per thousand for the custom–made widgets. F: Under 2-305(2), the seller has an obligation to fix the price in good faith. Because the market price for standard widgets has risen to $550, however, and because Zeller gave up the ability to serve this market in order to make the custom widgets, it may be in good faith to charge more than $400. In any event, Zeller is entitled to an ordinary profit.
37. Under the contract as written, Zeller may charge any price it wishes for the custom–made widgets. F: Under 1-102(3), parties may not disclaim the obligation of good faith.
38. In light of the increase in market price, Bayer may reduce its purchases of custom–made widgets from 200,000 to 100,000. F: While the contract quantity is approximate, this is not a requirements contract, and in any event 2-306(1) provides that the buyer cannot demand a quantity disproportionate to a stated estimate.
39. Notwithstanding the choice–of–law clause, the parties' rights and duties will be determined by the CISG.
F: Parties to contracts otherwise covered by the CISG can opt out of its provisions under
Article 6. [In retrospect I would have reworded this question.]
40. If the choice–of–law clause fails, the CISG requires Zeller to accept payment for the standard widgets in U.S.
dollars rather than in Deutschmarks. F: There is no CISG provision dealing with the currency
in which payment is to be made.
Questions 41-48 are based on the following fact pattern.
Floyd's Fashions placed orders with Snazzy Slacks, Inc. in March for assorted quantities of teenage fall clothing,
with delivery scheduled for "June–August." When the clothing arrived in mid-August, Floyd refused to
accept delivery, arguing that the term "June–August" has a specialized meaning in the clothing business
— specifically, that around one-third of the goods are supposed to be delivered in June, one-third in July, and
one-third in August. Snazzy, who claimed to be unaware of any such specialized meaning, was forced to sell the
rejected clothing on the spot market, which was suffering from depressed prices due to unexpectedly high imports
from Mexican producers taking advantage of reduced tariffs under the NAFTA agreement. As a result, Snazzy lost
over $35,000 compared to what it expected to earn under the contract, while Floyd, who was able to buy his fall
inventory at fallen market prices, earned a windfall of almost $10,000 notwithstanding the inconvenience and delay
caused by the dispute. Snazzy then brought suit against Floyd, citing a clause in their contract that stated,
"This document represents the parties' entire final agreement on all terms; and no other understanding will
be recognized by either party hereto."
41. Floyd will be permitted to present evidence that the term "June–August" has a specialized meaning
in the clothing business. T: Under 2-202(a), trade usage is admissible to explain a written
agreement.
42. If Snazzy can show that Floyd has accepted its deliveries in August for the past five years under an identical contract without objection, this will rebut Floyd's assertions regarding specialized trade meaning. T: Under 1-205(4), course of dealing controls usage of trade.
43. Snazzy will be permitted to present evidence that the parties had a prior oral understanding that it could apportion its deliveries under the contract however it found convenient. F: The merger clause bars evidence of such an oral understanding under 2-202(b).
44. If indeed the parties had a prior oral understanding that Snazzy could apportion its deliveries under the
contract however it found convenient, and if Floyd's rejection of the August delivery was motivated by the drop
in market price, he is in breach of the implied duty of good faith. T: Good faith requires honesty
in fact under 1-201(19).
45. If a similar dispute were to arise between Floyd and one of his Mexican suppliers, the parties would be permitted
to introduce evidence both of specialized business meanings and prior oral understandings.
T: Such a contract would be covered by the CISG, which does not have any parol evidence rule. Indeed, CISG Article
8(3) specifically directs factfinders to give due consideration to all prior negotiations.
46. Any specialized business meaning of which Snazzy is unaware cannot be used to explain or interpret the contract. F: Under 1-205(2), the existence of a trade usage is based on the objective regularity of observance;
and under 1-205(3), the contract contains any trade usage of which the parties "are or should be aware."
47. Snazzy will be permitted to present evidence that, subsequent to their written agreement, the parties reached
an oral understanding that it could apportion its deliveries under the contract however it found convenient. T: This is a subsequent modification, and under 2-202, the parol evidence rule applies only to prior
or contemporaneous agreements. [This was a difficult question, based on the number of people who got it right.]
48. Floyd's rejection of Snazzy's shipment was economically inefficient, ignoring any effects on third parties.
T: The loss it imposed on Snazzy was substantially greater than the gain it afforded Floyd.
.
END OF QUIZ