Contracts and Sales Flashcards

A buyer under an installment contract receives one installment with a minor defect that can be cured and does not substantially impair the whole contract. May the buyer cancel the entire contract?

Answer: No, because cancellation of an installment contract requires a nonconformity that substantially impairs the value of the whole contract

Under UCC 2-612, the perfect tender rule does not apply to installment contracts; cancellation requires substantial impairment of the whole.

A seller ships goods under a shipment contract using terms F.O.B. seller's city. The goods are destroyed in transit without fault of either party. Who bears the risk of loss?

Answer: The buyer, because risk passed when the goods were duly delivered to the carrier

In a shipment contract, risk of loss passes to the buyer when the seller duly delivers conforming goods to the carrier.

A contract clause fixes damages at $500,000 for any delay in delivering standard office furniture worth $10,000, regardless of the delay's length. How will a court most likely treat the clause?

Answer: As an unenforceable penalty because it is not a reasonable forecast of anticipated or actual harm

Liquidated damages must be a reasonable estimate of harm from a hard-to-measure loss; grossly disproportionate sums are unenforceable penalties.

A minor purchases a car, uses it for six months, then disaffirms the contract and returns the damaged car. Under the majority rule, what may the minor recover?

Answer: The full purchase price, because a minor may disaffirm and need only return the consideration in its current condition

Under the majority rule, a disaffirming minor must only return what remains of the consideration and may recover the full price paid.

An obligor owes a duty to pay $20,000 under a contract. The obligee assigns the right to payment to an assignee for value, then later assigns the same right to a second assignee who knows nothing of the first assignment. Under the majority American rule, who prevails?

Answer: The first assignee, because the first assignment for value generally prevails absent estoppel or payment to the second

Under the majority (New York) rule, the first assignee for value prevails over later assignees unless a recognized exception applies.

A seller fraudulently misrepresents that a painting is an original when it is a copy, and the buyer purchases it in reliance. Beyond damages, what remedy may the buyer elect?

Answer: Rescission of the contract and restitution of the purchase price

Fraudulent misrepresentation renders the contract voidable, allowing the buyer to rescind and recover the price paid.

A buyer repudiates a contract for custom-manufactured goods after the seller has completed them. The goods cannot reasonably be resold to others. What is the seller's best measure of damages under the UCC?

Answer: The full contract price, because the goods cannot be resold at a reasonable price with reasonable effort

Under UCC 2-709, a seller may recover the price when the goods cannot reasonably be resold, effectively a specific-performance analog for sellers.