22
Performance Chapter and Breach of
Sales and Lease Contracts
TRUE/FALSE QUESTIONS
A1.
Under the UCC, an innocent party to a breached sales or lease
contract is not limited to one exclusive remedy.
ANSWER: T
PAGE:
NAT: AACSB Analytic
B1.
437
AICPA Legal
TYPE:
N
438
AICPA Legal
TYPE:
N
Under the UCC, a sellers tender of goods that do not conform in
every way to a contract is not a valid tender.
ANSWER: T
PAGE:
NAT: AACSB Analytic
A3.
+
Tender must occur at a reasonable hour and in a reasonable
manner.
ANSWER: T
PAGE:
NAT: AACSB Analytic
B2.
TYPE:
Under the UCC, an innocent party under a breached sales or lease
contract is limited to one exclusive remedy.
ANSWER: F
PAGE:
NAT: AACSB Analytic
A2.
437
AICPA Legal
438
AICPA Legal
TYPE:
+
In contracts involving a carrier, a seller can complete performance
only through a shipment contract.
221
222
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
ANSWER: F
PAGE:
NAT: AACSB Analytic
B3.
438
AICPA Legal
TYPE:
N
439
AICPA Legal
TYPE:
N
Under a destination contract, a seller must deliver the goods to a
carrier, after which the risk of loss passes to the buyer.
ANSWER: F
PAGE:
NAT: AACSB Analytic
A5.
N
A buyer has no right to accept goods that fail in any respect to
conform to the terms of a contract in every detail.
ANSWER: F
PAGE:
NAT: AACSB Analytic
B4.
TYPE:
In contracts involving a carrier, a seller can complete performance
only through a destination contract.
ANSWER: F
PAGE:
NAT: AACSB Analytic
A4.
438
AICPA Legal
439
AICPA Legal
TYPE:
=
Until the time for performance under a contract expires, the seller
has a right to cure.
ANSWER: T
PAGE:
NAT: AACSB Analytic
439
AICPA Legal
TYPE:
N
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
B5.
The term cure refers to the right of the seller to reject, adjust, or
replace nonconforming goods.
ANSWER: T
PAGE:
NAT: AACSB Analytic
A6.
TYPE:
N
440
AICPA Legal
TYPE:
N
440
AICPA Legal
TYPE:
N
440
AICPA Legal
TYPE:
=
A seller can terminate a contract on the basis of commercial
impracticability if increases in the sellers costs threaten to undercut
its profits.
ANSWER: F
PAGE:
NAT: AACSB Analytic
B8.
440
AICPA Legal
If a nonconforming installment substantially impairs the value of a
whole contract, the buyer can treat the entire contract as having
been breached.
ANSWER: T
PAGE:
NAT: AACSB Analytic
A8.
N
If a contract specifies a certain carrier, a substitution of a different
carrier for any reason breaches the contract.
ANSWER: F
PAGE:
NAT: AACSB Analytic
B7.
TYPE:
An installment contract is breached if a buyer accepts any
nonconforming goods.
ANSWER: F
PAGE:
NAT: AACSB Analytic
A7.
439
AICPA Legal
An installment contract is breached if a seller tenders any
nonconforming goods.
ANSWER: F
PAGE:
NAT: AACSB Analytic
B6.
223
440
AICPA Legal
The doctrine of commercial impracticability
problems that could have been foreseen.
ANSWER: F
PAGE:
NAT: AACSB Analytic
440
AICPA Legal
TYPE:
only
=
extends
TYPE:
N
to
224
A9.
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
Unless the parties agree otherwise, a buyer or lessee must pay for
goods at the time and place of their receipt.
ANSWER: T
PAGE:
NAT: AACSB Analytic
B9.
443
AICPA Legal
TYPE:
=
If goods identified to a contract are destroyed through no fault of
either party, both parties are excused from performance.
ANSWER: T
PAGE:
NAT: AACSB Analytic
442
AICPA Legal
TYPE:
N
A10. In general, a buyers duty to pay for tendered goods becomes
absolute before the buyer has had an opportunity to inspect the
goods.
ANSWER: F
PAGE:
NAT: AACSB Analytic
443
AICPA Legal
TYPE:
=
B10. Unless the parties agree otherwise, the buyer must make payment
at the time and place that the goods are received.
ANSWER: T
PAGE:
NAT: AACSB Analytic
443
AICPA Legal
TYPE:
=
A11. If, before the time for performance, a buyer communicates an intent
not to perform, the seller can consider the buyer in breach and
pursue a remedy.
ANSWER: T
PAGE:
NAT: AACSB Analytic
444
AICPA Legal
TYPE:
=
B11. If goods fail to conform to a contract in any way, the buyer or lessee
must reject them.
ANSWER: F
PAGE:
NAT: AACSB Analytic
443
AICPA Legal
TYPE:
+
A12. If a buyer breaches a contract and the seller resells the goods to
another party, the seller cannot recover any loss from the breaching
buyer.
ANSWER: F
PAGE:
NAT: AACSB Analytic
445
AICPA Legal
TYPE:
=
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
225
226
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
B12. If a buyer breaches a contract while the seller is still in possession of
the goods, the seller can resell the goods and hold the buyer liable
for any loss.
ANSWER: T
PAGE:
NAT: AACSB Analytic
445
AICPA Legal
TYPE:
=
A13. A lessees breach of a contract will usually give the lessor the right
to cancel the contract.
ANSWER: T
PAGE:
NAT: AACSB Analytic
445
AICPA Legal
TYPE:
=
B13. A buyers breach of a contract will not usually give the seller the
right to cancel the contract.
ANSWER: F
PAGE:
NAT: AACSB Analytic
445
AICPA Legal
TYPE:
=
A14. If a buyer repudiates a contract, the seller cannot recover damages.
ANSWER: F
PAGE:
NAT: AACSB Analytic
446
AICPA Legal
TYPE:
=
B14. If a lessee wrongfully refuses to accept goods that conform to a
contract, the lessor must tender substitute goods.
ANSWER: F
PAGE:
NAT: AACSB Analytic
446
AICPA Legal
TYPE:
=
A15. If a buyer wrongfully refuses to accept goods that conform to a
contract, the seller may recover damages.
ANSWER: T
PAGE:
NAT: AACSB Analytic
446
AICPA Legal
TYPE:
=
B15. If a buyer wrongfully refuses to accept goods that conform to a
contract, the seller can maintain an action to recover the damages
sustained.
ANSWER: T
PAGE:
NAT: AACSB Analytic
446
AICPA Legal
TYPE:
=
A16. On a lessees insolvency, the lessor can stop delivery of the goods.
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
ANSWER: T
PAGE:
NAT: AACSB Analytic
446
AICPA Legal
TYPE:
227
=
B16. An unpaid seller can bring an action to recover the purchase price,
on the buyers breach of a contract, only if the goods are first
disposed of.
ANSWER: F
PAGE:
NAT: AACSB Analytic
446
AICPA Legal
TYPE:
=
A17. A lessors failure to make proper delivery of unique goods under a
contract will not usually give the lessee the right to specific
performance.
ANSWER: F
PAGE:
NAT: AACSB Analytic
447
AICPA Legal
TYPE:
=
B17. A buyer who obtains substitute goods to replace goods that a seller
did not deliver can also recover damages from the seller.
ANSWER: T
PAGE:
NAT: AACSB Analytic
447
AICPA Legal
TYPE:
=
A18. A buyer may reject a sellers goods only if they fail to conform to a
material term of the contract.
ANSWER: F
PAGE:
NAT: AACSB Analytic
448
AICPA Legal
TYPE:
=
B18. If a lessors tender of delivery fails to conform to a contract in any
way, the lessee can reject the goods.
ANSWER: T
PAGE:
NAT: AACSB Analytic
A19. A buyer who
acceptance.
accepts
448
AICPA Legal
conforming
ANSWER: T
PAGE:
NAT: AACSB Analytic
goods
TYPE:
cannot
450
AICPA Legal
+
revoke
TYPE:
the
=
B19. A buyer who rightfully rejects nonconforming goods can resell the
goods and keep the proceeds.
228
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
ANSWER: F
PAGE:
NAT: AACSB Analytic
449
AICPA Legal
TYPE:
=
A20. If the parties to a sales contract state that a certain remedy is
exclusive, then it is the sole remedy.
ANSWER: T
PAGE:
NAT: AACSB Analytic
452
AICPA Legal
TYPE:
=
B20. A buyer who accepts nonconforming goods cannot revoke the
acceptance.
ANSWER: F
PAGE:
NAT: AACSB Analytic
450
AICPA Legal
TYPE:
=
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
229
MULTIPLE CHOICE QUESTIONS
A1.
Food Packaging, Inc., agrees to sell 50,000 6-ounce yogurt
containers to Golden Dairy Company. Food can obtain only 20,000 of
the 6-ounce containers, but also ships 30,000 more expensive 8ounce containers for the same price. Under these circumstances,
Golden
a.
b.
c.
d.
cannot reject delivery, and Food cannot later replace the
containers.
cannot reject delivery, but Food can later replace the
containers.
may reject delivery, and notice to Golden of Foods intent to
cure will give Food a reasonable time to replace the
containers.
may reject delivery, but Food cannot later replace the
containers.
ANSWER: C
PAGE:
NAT: AACSB Reflective
B1.
TYPE:
=
AICPA Legal
Super Resources, Inc., sells unprocessed minerals to commercial
processors in Texas. With regard to the UCCs good faith
requirement, Super can
a.
b.
c.
d.
avoid it only by a conspicuous written disclaimer.
avoid it only by oral disclaimer.
avoid it with or without a disclaimer.
not disclaim it.
ANSWER: D
PAGE:
NAT: AACSB Reflective
A2.
435
437
TYPE:
=
AICPA Legal
Price-Cut Discount Stores are open to consumers.
requirement of good faith imposes
a.
b.
c.
d.
The UCC
a higher duty on consumers than Price-Cut.
a higher duty on Price-Cut than on consumers.
no duty on either Price-Cut or consumers.
the same duty on Price-Cut and consumers.
ANSWER: B
PAGE:
NAT: AACSB Reflective
437
TYPE:
=
AICPA Legal
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
230
B2.
International Gem Corporation agrees to sell Jewelry Outlets, Inc.
(JOI), fifty new diamonds, but the contract does not specify a place of
delivery. JOI is expected to pick up the goods. The place of delivery
is
a.
b.
c.
d.
Internationals place of business.
JOIs place of business.
the Annual Gems and Jewels Convention.
the U.S. Postal Service office nearest to JOIs place of business.
ANSWER: A
PAGE:
NAT: AACSB Reflective
A3.
438
TYPE:
=
AICPA Legal
Rocky and Slim enter into a contract for a sale of five rowboats.
Circumstance make it difficult for Rocky to perform, and the contract
is breached. Slim looks for remedies. Unlike the common law, under
the UCC, remedies are
a.
b.
c.
d.
cumulative.
exclusive.
limited.
unlimited.
ANSWER: A
PAGE:
NAT: AACSB Reflective
437
TYPE:
N
AICPA Legal
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
B3.
Genuine Seed Company and Hillside Farmers Cooperative enter into
a contract for a sale of hybrid seeds. Under the perfect tender rule,
Genuine Seed must ship or tender seeds to Hillside that
a.
b.
c.
d.
approximately conform to all of the details of the contract.
entirely conform to the contract except in one or two details.
exactly conform to the contract in every detail.
substantially conform to the contract in most details.
ANSWER: C
PAGE:
NAT: AACSB Reflective
A4.
TYPE:
N
AICPA Legal
California.
Delaware.
Florida.
Hawaii.
ANSWER: C
PAGE:
NAT: AACSB Reflective
438
TYPE:
=
AICPA Legal
Elegant Carpets, Inc., and Fantastic Floors Stores enter into a
contract for a sale of carpeting. Under a shipment contract, the
seller must
a.
b.
c.
d.
A5.
439
Clear Day Company, which is based in Delaware, agrees to sell fifty
windows, currently stored in Florida, to Great Vu, Inc., which is based
in Hawaii. Absent an agreement to the contrary, the place of deliv ery
is in
a.
b.
c.
d.
B4.
231
allow the buyer to reject the goods for any reason.
deliver the goods to a particular destination.
inspect the goods before shipping them.
place the goods into the hands of a carrier.
ANSWER: D
PAGE:
439
TYPE:
N
NAT: AACSB Reflective
AICPA Legal
Business Rental Corporation (BRC) and Cartage Trucking Company
enter into a contract for a lease of ten hydraulic lifts. Under the
perfect tender rule, BRC must ship or tender goods to the lessee that
a.
b.
c.
d.
approximately conform to all of the details of the contract.
entirely conform to the contract except in one or two details.
exactly conform to the contract in every detail.
substantially conform to the contract in most details.
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
232
ANSWER: C
PAGE:
NAT: AACSB Reflective
B5.
cannot reject the entire shipment.
can reject the entire shipment.
must accept the entire shipment.
must reject the entire shipment.
ANSWER: B
PAGE:
NAT: AACSB Reflective
TYPE:
N
AICPA Legal
cannot reject the entire shipment.
can reject the entire shipment.
must accept the entire shipment.
must reject the entire shipment.
ANSWER: B
PAGE:
NAT: AACSB Reflective
439
TYPE:
N
AICPA Legal
Timber Mills Corporation and Ur-Choice Lumberyards enter into a
contract for a sale of plywood. Under a destination contract, the
seller must
a.
b.
c.
d.
allow the buyer to reject the goods for any reason.
deliver the goods to a particular destination.
inspect the goods before tendering their delivery.
place the goods into the hands of a carrier.
ANSWER: B
PAGE:
NAT: AACSB Reflective
A7.
439
Screen Perfect, Inc., and TV Stores enter into a contract for a sale of
high-definition television sets. Screen Perfect ships goods that do not
exactly conform to the contract in some details. TV Stores
a.
b.
c.
d.
B6.
TYPE:
N
AICPA Legal
Vehicle Leasing Agency (VLA) and Wander Trucking Company enter
into a contract for a lease of eight cargo vans. VLA delivers eight
vans, but they are not cargo-sized. Wander
a.
b.
c.
d.
A6.
439
439
TYPE:
N
AICPA Legal
Primo Pools Company and Aquatic Recreation, Inc., enter into a
contract for a sale of prefabricated swimming pools. Under either a
shipment contract or a destination contract, the seller must
a.
allow the buyer to reject the goods for any reason.
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
b.
c.
d.
deliver the goods to a particular destination.
place the goods into the hands of a carrier.
provide the buyer with any necessary documents of title.
ANSWER: D
PAGE:
NAT: AACSB Reflective
439
TYPE:
N
AICPA Legal
233
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
234
B7.
Pep Paints agrees to sell to Quality Painters Grade A-1 latex outdoor
paint to be delivered May 8. On May 7, Pep tenders Grade B-2 paint.
Quality rejects the Grade B-2 paint. Two days later, Pep tenders
Grade C-3 paint with an offer of a price allowance. Pep has
a.
b.
c.
d.
additional, unlimited time to cure.
a reasonable, additional time to cure.
one more day to cure.
no more time to cure.
ANSWER: D
PAGE:
NAT: AACSB Reflective
A8.
TYPE:
=
AICPA Legal
According the court in Case 22.1, Maple Farms, Inc. v. City School
District of Elmira, the defense of commercial impracticability will not
excuse the performance of a contractual obligation when there is an
increase in the sellers costs while the contract is in force
a.
b.
c.
d.
unless the increase in the sellers costs is substantial.
under any circumstances.
unless the increase in the sellers costs makes it impossible for
the seller to perform without losing money.
unless the increase in the sellers costs was not foreseeable at
the time the contract was formed.
ANSWER: D
PAGE:
NAT: AACSB Communication
B8.
439
441
AICPA Legal
TYPE:
=
Relax Chair Company contracts to deliver 100 chairs to Stuffy
Furnishings Store on May 1 for which Stuffy agrees to pay. Relax
tells Stuffy on April 15 that delivery will be delayed until June 1.
Stuffy may
a.
b.
c.
d.
await performance, sue Relax, or suspend its own
performance.
only await Relaxs performance for a commercially reasonable
time.
only sue Relax for breach of contract.
only suspend its own performance.
ANSWER: A
PAGE:
NAT: AACSB Reflective
444
TYPE:
=
AICPA Legal
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
A9.
Sid and Tony enter a contract for a sale of Sids collection of electric
guitars. Before the time for performance, Sid tells Tony that he does
not want to deliver the guitars. Anticipatory repudiation is
a.
b.
c.
d.
a
a
a
a
breach of contract.
compromise between two parties who are unable to perform.
remedy available only to a breaching party.
remedy available only to a nonbreaching party.
ANSWER: A
PAGE:
NAT: AACSB Reflective
B9.
235
443
TYPE:
N
AICPA Legal
On May 1, City Auto & Truck Sales agrees to sell a car to Dino. Five
days later, Dino refuses delivery and cancels the contract. City is
entitled to
a.
b.
c.
d.
force Dino to accept the car.
recover any damages from Dino but not resell the car.
resell the car and recover any damages from Dino.
resell the car but not recover any damages from Dino.
ANSWER: C
PAGE:
NAT: AACSB Reflective
446
TYPE:
=
AICPA Legal
Fact Pattern 22-A1 (Questions A10-A11 apply)
Internet Cafes, Inc., contracts to buy all of its requirements for coffee, at a
minimum of 1 million pounds per year, from Java Corporation for six years.
After three years, Internet tells Java that it plans to sell its company to
Kwik Eateries, Inc. Kwik refuses to assure Java that it will continue
Internets contract.
A10. Refer to Fact Pattern 22-A1. Kwiks refusal constitutes
a.
b.
c.
d.
a justified response based on Kwiks relation to the contract.
an assignment of Internets rights under the contract.
a reasonable suspension of performance under the contract.
a repudiation of the contract.
ANSWER: AACSB D
PAGE:
NAT: Reflective
443
TYPE:
=
AICPA Legal
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
236
B10. Design Architects, Inc., and Excel Supply Company contract for a
sale of office furniture. Design Architects, which is insolvent,
breaches the contract. Excel can stop delivery of the goods in transit
a.
b.
c.
d.
only if the quantity is at least a carload.
only if the quantity is at least a planeload.
only if the quantity is at least a truckload.
regardless of the quantity.
ANSWER: D
PAGE:
NAT: AACSB Reflective
446
TYPE:
=
AICPA Legal
Fact Pattern 22-A1 (Questions A10-A11 apply)
Internet Cafes, Inc., contracts to buy all of its requirements for coffee, at a
minimum of 1 million pounds per year, from Java Corporation for six years.
After three years, Internet tells Java that it plans to sell its company to
Kwik Eateries, Inc. Kwik refuses to assure Java that it will continue
Internets contract.
A11. Refer to Fact Pattern 22-A1. Java can
a.
b.
c.
d.
assign its rights under the contract but cannot terminate it.
do nothing.
suspend performance under the contract until Java is fully
paid.
terminate the contract and seek damages.
ANSWER: D
PAGE:
NAT: AACSB Reflective
444
TYPE:
=
AICPA Legal
B11. Text Publishers, Inc., contracts for a sale of textbooks to University
Bookstores, Inc. Vital Shipping Corporation, the carrier, transports
the books to Warehouse Storage Company. Texts right to stop
delivery is lost when Universitys rights to the goods are
acknowledged by
a.
b.
c.
d.
the appropriate government agency only.
Vital Shipping only.
Vital Shipping or Warehouse Storage.
Warehouse Storage only.
ANSWER: D
PAGE:
NAT: AACSB Reflective
446
TYPE:
=
AICPA Legal
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
237
A12. Regal Manufacturing Company contracts to sell sweaters to Superb
Styles Store. Before the sweaters are delivered, Superb indicates
that it will not be able to pay. Regal can resell the goods
a.
b.
c.
d.
either after finishing the job (and identifying the goods), or
after stopping the job.
only after finishing the job and identifying the goods.
only if Regal immediately stops the job.
under no circumstances.
ANSWER: A
PAGE:
NAT: AACSB Reflective
445
TYPE:
=
AICPA Legal
B12. Hi-Tech Company contracts to sell fiber optic cable to Internet
Services, Inc. Hi-Tech may bring an action to recover the purchase
price and incidental damages if Internet
a.
b.
c.
d.
accepts the cable and pays for it.
accepts the cable but does not pay for it.
rejects the cable.
revokes acceptance of the cable.
ANSWER: B
PAGE:
NAT: AACSB Reflective
447
TYPE:
=
AICPA Legal
A13. Loni and Myra enter into a contract for a sale of clarinets and other
wind instruments. Loni delivers, but Myra does not pay. Loni can
normally recover as damages the difference between
a.
b.
c.
d.
any loss avoided and any profit gained.
the actual price and the hoped-for price.
the contract price and the market price.
the current prices in the parties locations.
ANSWER: C
PAGE:
NAT: AACSB Reflective
446
TYPE:
N
AICPA Legal
B13. Delta Boats, Inc., and Eventide Fishing Tours enter into a contract for
a sale of seven custom-made swamp boats. Eventide pays for the
goods, but Delta does not deliver. Eventide can use replevy as a
remedy if
a.
b.
Delta is lawfully withholding the goods.
Eventide cannot effectively cure the defect.
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
238
c.
d.
Eventide is unable to cover for the goods.
the goods have not been identified to the contract.
ANSWER: C
PAGE:
NAT: AACSB Reflective
448
TYPE:
N
AICPA Legal
A14. Amble Country Stables contracts to buy 1,000 horseshoes from
Blacksmith, Inc., for $1 per shoe. When the market price decreases
to 50 cents per shoe, Amble refuses to go through with the deal.
Blacksmith can recover
a.
b.
c.
d.
$1,500.
$1,000.
$500.
0.
ANSWER: C
PAGE:
NAT: AACSB Reflective
446
TYPE:
=
AICPA Legal
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
239
B14. Leather Products Stores, Inc., rejects a shipment of goods that does
not conform to its contract with Manufactured Cowhide Corporation,
but is unable to obtain instructions from the seller. Leather Products
may
a.
b.
c.
d.
resell or return the goods only.
resell or store the goods only.
return or store the goods only.
resell, return, or store the goods.
ANSWER: D
PAGE:
NAT: AACSB Reflective
449
TYPE:
=
AICPA Legal
A15. Double D Ranch and Esau enter into a contract on August 1 for the
sale of 200 cattle. Esau cancels the contract ten days later. Double D
is unable to sell the cattle to another buyer. Double D is entitled to
a.
b.
c.
d.
force Esau to accept the cattle and recover the contract price.
keep the cattle and recover the contract price from Esau.
keep the cattle only.
recover the contract price from Esau but must destroy the
cattle.
ANSWER: B
PAGE:
NAT: AACSB Reflective
446
TYPE:
=
AICPA Legal
B15. BBQ, Inc., makes and sells grills to Grill Mart, a retailer, which sells
one of the grills to Hope, a consumer. BBQ and Grill Mart include in
their contracts a limitation on consequential damages for personal
injuries arising from a breach of warranty. This is prima facie unconscionable with respect to
a.
b.
c.
d.
all of these parties.
BBQ and Grill Mart, but not Hope.
Hope only.
none of these parties.
ANSWER: C
PAGE:
NAT: AACSB Reflective
452
TYPE:
+
AICPA Legal
A16. Field Gardens and Gourmet Restaurant, Inc., enter into a contract for
a sale of lettuce before Gourmet declares bankruptcy. Field can stop
delivery of the goods in transit
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
240
a.
b.
c.
d.
only if the quantity is at least a carload.
only if the quantity is at least a planeload.
only if the quantity is at least a truckload.
regardless of the quantity.
ANSWER: D
PAGE:
NAT: AACSB Reflective
446
TYPE:
=
AICPA Legal
Fact Pattern 22-B1 (Questions B16B19 apply)
First State Bank issues a letter of credit in favor of Oboe Company, an
American firm, to facilitate an international sales contract to buy resources
from Lapland Mining, Ltd., a Finnish company.
B16. Refer to Fact Pattern 22-B1. First State Bank must pay Lapland when
Lapland
a.
b.
c.
d.
enters into the contract with Oboe.
verifies that Oboe has the money to pay for the purchase.
complies with the terms and conditions of the letter of credit.
none of the above.
ANSWER: C
PAGE:
NAT: AACSB Reflective
453
TYPE:
=
AICPA Legal
A17. Cheesy Pizza Company contracts to sell 1,000 cases of frozen pizzas
to Roller Rinks, Inc., but refuses to deliver. Due to a spice shortage,
Roller Rinks cannot obtain pizza elsewhere. Roller Rinkss right to
recover the goods from Cheesy is the right of
a.
b.
c.
d.
cover.
cure.
replevin.
specific performance.
ANSWER: C
PAGE:
NAT: AACSB Reflective
448
TYPE:
+
AICPA Legal
Fact Pattern 22-B1 (Questions B16B19 apply)
First State Bank issues a letter of credit in favor of Oboe Company, an
American firm, to facilitate an international sales contract to buy resources
from Lapland Mining, Ltd., a Finnish company.
B17. Refer to Fact Pattern 22-B1. First State Bank
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
a.
b.
c.
d.
241
is responsible for making sure that the parties perform the
contract.
will make payment once the transaction has been completed.
will make payment when Lapland presents the proper
documents.
none of the above.
ANSWER: C
PAGE:
NAT: AACSB Reflective
453
TYPE:
=
AICPA Legal
A18. Owen and Pablo enter into a contract for a sale of fifty Western
saddles. Pablo pays, but Owen does not deliver. Pablo can normally
recover as damages the difference between
a.
b.
c.
d.
any loss avoided and any profit gained.
the actual price and the hoped-for price.
the contract price and the market price.
the current prices in the parties locations.
ANSWER: C
PAGE:
NAT: AACSB Reflective
448
TYPE:
N
AICPA Legal
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
242
Fact Pattern 22-B1 (Questions B16B19 apply)
First State Bank issues a letter of credit in favor of Oboe Company, an
American firm, to facilitate an international sales contract to buy resources
from Lapland Mining, Ltd., a Finnish company.
B18. Refer to Fact Pattern 22-B1. In a letter of credit, the beneficiary is
a.
b.
c.
d.
Lapland.
Oboe.
First State Bank.
none of the above.
ANSWER: A
PAGE:
NAT: AACSB Reflective
453
TYPE:
=
AICPA Legal
A19. Natural Foods, Inc., orders Grade A oil from Olive Grove Farms to
process and sell to Pic N Pay Grocers. Olive Grove ships Grade B
oil, which Natural Foods accepts. To recover damages for the
nonconformity, Natural Foods must give notice of the breach within
a reasonable time to
a.
b.
c.
d.
Olive Grove only.
Olive Grove, Pic N Pay, and the appropriate government
agency.
Pic N Pay only.
the appropriate government agency only.
ANSWER: A
PAGE:
NAT: AACSB Reflective
450
TYPE:
=
AICPA Legal
Fact Pattern 22-B1 (Questions B16B19 apply)
First State Bank issues a letter of credit in favor of Oboe Company, an
American firm, to facilitate an international sales contract to buy resources
from Lapland Mining, Ltd., a Finnish company.
B19. Refer to Fact Pattern 22-B1. To obtain payment, Lapland must
comply with all of the requirements of the letter of credit
a.
b.
c.
d.
strictly.
substantially.
reasonably.
materially.
ANSWER:
A
PAGE:
453
TYPE:
=
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
NAT: AACSB Reflective
243
AICPA Legal
A20. Quincy buys a car under a warranty from Ride Motors. Quincy soon
discovers that the car has a defect that significantly affects its value
and use. In all states and the District of Columbia, Quincy may have
remedies under
a.
b.
c.
d.
a lemon law.
Article 74 of the CISG.
a transit law.
the Automobile Dealers Day in Court Act.
ANSWER: A
PAGE:
NAT: AACSB Reflective
452
TYPE:
N
AICPA Legal
B20. Ghangzhou, Ltd., in China and Hot Togs, Inc., in the United States
enter into a contract for a sale of casual clothing. Under the United
Nations Convention on Contracts for the International Sale of Goods
(CISG), on a breach of the contract, the nonbreaching party can
normally recover as damages the difference between
a.
b.
c.
d.
any loss avoided and any profit gained.
the actual price and the hoped-for price.
the contract price and the market price.
the current prices in the parties two countries.
ANSWER: C
PAGE:
NAT: AACSB Reflective
454
TYPE:
N
AICPA Legal
ESSAY QUESTIONS
A1.
Midstates Utility Corporation contracts with North American Energy
Company to buy 50,000 gallons of heating oil. North American
agrees to deliver the oil in five equal installments between October 1
and the following March 15. The winter is the warmest on record,
however, and after the last agreed delivery, Midstates has accepted
only 30,000 gallons of the oil. When North American tenders the rest
of the oil, Midstates refuses to take it, citing the weather and
claiming to be acting in good faith. Will North American succeed in a
suit against Midstates for breach of contract?
ANSWER: Yes, North American will succeed in a suit against
Midstates, based on breach of contract, because the change in the
244
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
weather that caused a change in Midstates needs could reasonably
have been taken into consideration when the parties entered the
contract for the oil. An occurrence unforeseen by either party when a
contract is made can make performance commercially impracticable.
A possibility that a buyer might require less than a contracted-for
amount, however, can be a risk that is foreseeable at the time of
contracting. An unusually warm winter and other weather changes
are generally not impossible to contemplate in a business situation.
This is the kind of risk normally assumed by parties when they do
business. In other words, Midstates performance in this problem was
not made commercially impracticable by the occurrence of a
contingency (unusually warm weather) the nonoccurrence of which
was a basic assumption on which the contract was made. Midstates
breach is not excusable on that basis. Whether Midstates acted in
good faith is not an excuse for its failure to perform.
PAGES:
440442
TYPE: =
NAT: AACSB Reflective
Modeling
B1.
AICPA Decision
Colby contracts in writing to sell his 2005 Dodge-brand pick-up truck
to Efrem for $10,500. Colby agrees to deliver the truck on Friday,
and Efrem promises to pay the $10,500 on the following Monday. On
Thursday, Efrem tells Colby that he changed his mind and will not
buy the truck. Over the weekend, Efrem changes his mind again and
tenders $10,500 to Colby on Monday. Colby has not sold the truck to
another party but refuses the tender and refuses to deliver. Efrem
claims that Colby has breached their contract. Colby contends that
Efrems repudiation released him from his duty to perform under the
contract. Who is correct, and why?
ANSWER: Efrem is correct. Colbys refusal to deliver the truck to
Efrem on Monday, when Efrem tenders the $10,500 to Colby,
constitutes a breach of their contract. Colby could have canceled
the contract on Efrems anticipatory breach [UCC 2610] but did not
do so and did not change his position in any way as a result of
Efrems anticipatory breach. Efrem could retract his repudiation of
the contract at any time before the time performance was due [UCC
2611]. Because Efrem did retract his repudiation and decided to
buy the truck at the time performance was due (and not later), Colby
was obligated to abide by the terms of the contract.
PAGES:
443445
TYPE: N
NAT: AACSB Reflective
AICPA Decision
CHAPTER 22: PERFORMANCE & BREACH OF SALES & LEASE CONTRACTS
245
Modeling
A2.
Signal Sets Company contracts to deliver one hundred 52-inch
plasma high-definition television sets to a new retail customer, Tuner
TV Store, on May 1, with payment to be made on delivery. Signal
tenders delivery in its own truck. Tuners manager notices that some
of the cartons have scrape marks. Tuners owner phones Signals
office and asks whether the sets might have been damaged as they
were being loaded. Signal assures Tuner that the sets are in perfect
condition. Tuner tenders Signal a check, which Signal refuses,
claiming that the first delivery to new customers is always for cash.
Tuner promises to pay the cash within two days. Signal leaves the
sets with Tuner, which stores them in its warehouse pending its
"Grand Opening Sale" on May 15. Two days later, Tuners stocker
opens some of the cartons and discovers that a number of the sets
are damaged beyond ordinary repair. Signal claims Tuner has
accepted the sets and is in breach by not paying on delivery. Will
Signal succeed on these claims? Explain.
ANSWER: Signal will lose on both claims. Acceptance of the goods
by a buyer takes place when the buyer either signifies that the
goods are conforming after inspection or fails to reject after a
reasonable time for inspection or acts inconsistently with the sellers
ownership. Once the goods are accepted, the buyer loses the right
to revoke acceptance of nonconforming goods unless acceptance
was based on a reasonable assurance that the goods were
conforming.
In this case, although Tuner accepted the goods, it did so on
Signals assurance that the sets were in perfect condition. Thus, on
discovery of the damaged sets, Tuner can revoke acceptance on the
basis of substantial impairment of value.
In addition, although the contract called for payment on
delivery, no method of payment was specified. Therefore, tender of
payment is sufficient if it is by any means currently used in the
ordinary course of businessa check is such a means. Signal does
have a right to demand cash but must give Tuner a reasonable
extension of time in which to procure the cash. Thus, Signals claim
of Tuners breach for nonpayment on delivery is not valid.
PAGES:
443 & 450
TYPE: N
NAT: AACSB Reflective
Modeling
AICPA Decision
246
B2.
TEST BANK AUNIT 4: DOMESTIC AND INTL SALES & LEASE CONTRACTS
Theatrical Supplies Company contracts to sell to Unique Costumes,
Inc., seven hundred plastic masks at $1 each to be delivered by
October 1. Theatrical knows that Unique will use the masks to make
Halloween costumes. Unique usually makes $7,000 profit from the
costumes sale. Theatrical fails to deliver on October 1. Unique
attempts to buy substitute masks, but must pay $1.20 for each and
take delivery on October 15, cutting Uniques sales in half. Unique
sues Theatrical. What is the measure of recovery?
ANSWER: The buyer should get the differ ence between the
substitute goods price and the contract price ($.20 per item). The
buyer should also get any incidental damages, and, because the
seller knew the purpose of the purchase, the buyer should get
consequential damages, which could include the profits lost on the
unmade sales.
PAGES:
447448
TYPE: =
NAT: AACSB Reflective
Modeling
AICPA Decision