AZ Bar Contracts and Commercial Law 2 — Questions and Answers
Question 1: The perfect tender rule under UCC Article 2 provides that a buyer may reject goods if:
- The seller breaches the contract in any material way
- The goods or the tender of delivery fail in any respect to conform to the contract (Correct answer)
- The goods are more than 10% defective
- The seller ships the wrong quantity
Correct answer: The goods or the tender of delivery fail in any respect to conform to the contract
UCC § 2-601 allows the buyer to reject the whole, accept the whole, or accept any commercial unit if the goods or tender fail in any respect to conform to the contract.
Question 2: A liquidated damages clause in a contract is enforceable if:
- Both parties agreed to it in writing
- The damages were difficult to estimate at the time of contracting and the amount is a reasonable forecast of compensatory damages (Correct answer)
- The clause specifies a definite dollar amount
- The breaching party is a merchant
Correct answer: The damages were difficult to estimate at the time of contracting and the amount is a reasonable forecast of compensatory damages
A liquidated damages clause is enforceable when actual damages were difficult to estimate at contracting and the stipulated amount is a reasonable forecast of actual damages, not a penalty.
Question 3: Under common law, a material breach by one party:
- Gives the non-breaching party the right to suspend performance and ultimately treat the contract as discharged (Correct answer)
- Triggers liquidated damages automatically
- Requires the non-breaching party to immediately sue for damages
- Has no effect if the contract contains a no-waiver clause
Correct answer: Gives the non-breaching party the right to suspend performance and ultimately treat the contract as discharged
A material breach discharges the non-breaching party's duty to perform and entitles that party to damages, while a minor breach still requires the non-breaching party to perform.
Question 4: The Statute of Frauds requires a writing for contracts:
- Valued at more than $500 for goods under the UCC and for contracts within the MYLEGS categories at common law (Correct answer)
- Involving any transfer of real property in any jurisdiction
- Between merchants for any amount
- For services lasting longer than 30 days
Correct answer: Valued at more than $500 for goods under the UCC and for contracts within the MYLEGS categories at common law
The Statute of Frauds applies to contracts for the sale of goods over $500 (UCC) and to the MYLEGS categories at common law: Marriage, Year (over one year), Land, Executor, Guaranty, Sale of goods over $500.
Question 5: Impossibility of performance as a defense to breach requires that the supervening event:
- Made performance more expensive or less profitable
- Made performance objectively impossible and the risk was not assumed by the party seeking discharge (Correct answer)
- Was foreseeable at the time of contracting
- Was caused by a third party
Correct answer: Made performance objectively impossible and the risk was not assumed by the party seeking discharge
Impossibility requires an objective inability to perform caused by an unforeseeable event, where the promisor did not assume the risk of that event.
Question 6: Under UCC Article 2, the implied warranty of merchantability is given by:
- All sellers of goods
- Merchants who regularly deal in goods of the kind sold (Correct answer)
- Only licensed retailers
- Sellers who expressly adopt it in the contract
Correct answer: Merchants who regularly deal in goods of the kind sold
The implied warranty of merchantability under UCC § 2-314 is automatically given only by merchants who deal in goods of the kind sold, warranting that goods are fit for their ordinary purpose.
AZ Bar Contracts and Commercial Law 2
The perfect tender rule under UCC Article 2 provides that a buyer may reject goods if: