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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
26) The implied term regarding fitness for intended purpose
a. applies any time that the buyer relied upon the seller's skill or judgment.
b. applies only if the buyer relied upon the seller's skill or judgment and the seller knew of
that reliance.
c. applies only if the buyer purchased the goods for a business purpose.
d. never applies if the buyer mentions the trade name for a particular type of goods.
e. cannot be reduced or eliminated by a limitation clause or an exclusion clause.
27) Naima ordered 100 rolls of film from Coltrane Photographic Supplies. The total
contract price was $200 ($20 per roll). Which of the following statements is TRUE?
a. If Coltrane delivers 110 rolls of film, Naima must accept at least 100 rolls.
b. If Coltrane delivers 90 rolls, Naima must accept them, but she only has to pay $180.
c. If Coltrane delivers 110 rolls, Naima can keep them all and is only required to pay the
contract price of $200.
d. If Coltrane delivers 90 rolls, Naima can reject them all, even if Coltrane is willing to
reduce the contract price to $180.
e. If Coltrane delivers 110 rolls of film, but charges for only 100 rolls, then Naima must
accept delivery and pay the price.
28) Noriko saw a painting in Kurosawa's Fine Art shop. The total price was $7000. Noriko
explained to the salesperson that she loved the painting, but she also said that she was not
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
sure if she could afford it. The salesperson said that he could not simply set it aside for her
because several other customers had shown an interest in the painting. Noriko therefore
agreed to provide a $500 deposit and promised that she would return within a week to pay
the remainder and take possession of the painting. Two weeks later, she telephoned the
salesperson and said that she simply could not afford to buy the painting. Which of the
following statements is TRUE?
a. Noriko can recover her $500 payment because the Sale of Goods Act does not apply to
the parties' contract.
b. Kurosawa is probably entitled to keep the $500 because Noriko's payment was probably
a penalty.
c. Noriko can exercise a lien in order to recover $500 from Kurosawa.
d. The facts demonstrate the use of a contractual clause for liquidated damages and why
parties should sometimes insert such clauses in their contracts.
e. Noriko would be entitled to recover her $500 payment if the contract was not governed
by the Sale of Goods Act.
29) Which of the following remedies can only ever be used if the buyer is insolvent?
a. stoppage in transit and repossession
b. an action for the price and a lien
c. an action for the price, stoppage in transit, and repossession
d. damages, a lien, and repossession
e. a lien, stoppage in transit, and repossession
30) Honoria agreed to sell a shipment of widgets to Klaus on credit. Following the terms of
the contract, Honoria delivered the widgets to an independent carrier and instructed the
carrier to deliver the shipment to Klaus's warehouse. Which of the following statements is
TRUE?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
a. Honoria still has the authority and the ability to exercise a lien in order to retain
possession of the shipment until Klaus pays the full purchase price.
b. Honoria can exercise the right of repossession against the independent carrier if she hears
a rumor that the carrier may be insolvent.
c. If Klaus becomes bankrupt, Honoria should rely entirely on an action for the price.
d. If Honoria becomes insolvent while the goods are being shipped by the carrier, Klaus
should exercise a lien over the widgets.
e. If Klaus becomes insolvent while the carrier still has possession of the shipment, Honoria
should exercise the right of stoppage in transit.
31) The phrase nemo dat quod non habet means
a. things that are attached to land are part of the home.
b. sales of things at sea are different than sales of things on land.
c. no one can give what they do not have.
d. risk of loss follows property.
e. a person cannot own what they do not possess.
32) Which of the following are special remedies available under the Sale of Goods Act as
discussed in Chapter 13?
a. stoppage in transit
b. liquidation
c. insolvency
d. mortgage
e. injunction to perform personal services
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
33) The Sale of Goods Act implies a
a. warranty that the seller has title to sell.
b. warranty that delivery will occur on time.
c. warranty that goods will be of merchantable quality.
d. warranty that payment will occur on time.
e. condition that the buyer will receive clear title.
34) Which of the following transactions falls OUTSIDE the scope of the Sale of Goods
Act?
a. the exchange of a painting for a cheque
b. a trade of a boat for a car
c. the exchange of a diamond ring for a series of monthly cash payments
d. the exchange of a new truck for $10 000 cash and an old car
e. a cash purchase of crops that will be harvested
35) Pepe wants to buy something from Lorna. Pepe also wants to make sure that the
contract is governed by the Sale of Goods Act. Which of the following statements is TRUE?
a. Even if the parties' transaction would not normally fall within the scope of the Sale of
Goods Act, the statute will apply if the parties intend for it to do so.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
b. Because the Sale of Goods Act defines a sale of goods as a transfer of goods in exchange
for "money consideration," the statute will apply only if Pepe pays with cash
c. The statute will apply if the parties create either a sale or an agreement to sell.
d. Although the parties' contract may be valid, it cannot possibly be governed by the Sale of
Goods Act unless it is evidenced in writing.
e. The statute may apply if the parties' contract deals with manufactured goods (like cars
and computers), but not if it deals with natural products (like milk and timber).
36) Myla became violently ill after eating a hamburger at a fast food restaurant. Assuming
that the fast food restaurant operated in the usual manner, the Sale of Goods Act will be
irrelevant to the legal relationship that exists between those two parties
a. because the restaurant did not provide Myla with a paper receipt for her purchase.
b. because the parties' contract was focused on the provision of services, rather than the
transfer of goods.
c. if the hamburger that Myla ate was purchased for her by a friend.
d. if Myla purchased the hamburger by using a debit card.
e. unless it was evidenced in writing.
37) Shasta contractually agreed to purchase a crystal vase from Status Home Furnishings.
However, before she was able to take possession of it, and while it was still in the store, the
crystal vase fell to the ground and shattered beyond repair as a result of a small earthquake.
Which of the following statements is TRUE?
a. Shasta bears the cost of the accident because risk always passes to the buyer as soon as a
valid sale contract is created.
b. Shasta cannot possibly bear the cost of the accident if property had not yet passed to her.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
c. Assuming that risk passed to Shasta before the accident occurred, it could not possibly be
relevant that the store had acted carelessly.
d. As a general rule, if risk passed to Shasta before the accident occurred, the store was
required to purchase insurance for her protection as long as the store retained possession.
e. If the store was contractually required to polish the vase, then it may still bear the loss
even if it had completed the task before the earthquake occurred.
38) Manuela purchased a network server from Compu-Sell. After installing the server and
trying to use it for several days, however, she discovered that it does not perform in the way
that she expected and requires. Which of the following statements is TRUE with respect to
terms under the Sale of Goods Act?
a. If the server is not of merchantable quality, Manuela will not be able to sue if she did not
inspect the server at the time of purchase, and if the defect would have been discovered on
the basis of a reasonable inspection.
b. Because of the maxim caveat emptor, the parties' contract will not contain an implied
term of merchantability unless the parties actually intended to include that term.
c. Manuela will not be able to sue for a lack of merchantability unless it was reasonably
clear to Compu-Sell that Manuela was relying on its expertise.
d. The server may be of merchantable quality if Manuela purchased it as used, even if it
would not be considered merchantable quality if Manuela purchased it new.
e. The implied term of merchantability applies to the server itself, but not to its labeling and
packaging.
39) Good-Nite Inns, a chain of mid-quality hotels, entered into a contract with Hospitality
Supply Company (HSC) for the purchase of soaps. Those soaps were intended to be
provided to customers of the hotel. Shortly after receiving the first delivery, however,
Good-Nite Inns discovered that the soaps caused a dry, itchy rash on even the most thick-
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
skinned customers. The hotel chain therefore wants to sue HSC under the Sale of Goods
Act. Which of the following statements is TRUE?
a. There is no implied term of fitness for purpose because, given the nature of its business,
Good-Nite Inns should know enough about its customers to select the correct soaps.
b. There is no implied term of fitness for purpose if Good-Nite Inns relied upon the soaps'
brand name when it placed its order.
c. Good-Nite Inns may be able to rely upon an implied term of merchantability even if it
placed its order after selecting the soaps from among a variety of samples.
d. If Good-Nite Inns selected the soaps from among a variety of samples, HSC may be held
liable even if the hotel chain would have discovered the defect in the soaps if it had
reasonably inspected the soaps before creating the contract.
e. The Sale of Goods Act does not apply because the contract was created between two
companies.
40) Sound Experience Inc sold a carton of personal CD players to Noriel. The contract
requires Noriel to pay the total price of $10 000 upon delivery. The contract required Sound
Experience to deliver no later than March 15. Sound Experience therefore gave the carton
to an independent carrier on March 7, along with instructions for delivery to Noriel. On
March 12, however, Sound Experience learned that Noriel had become insolvent and
almost certainly would not be able to pay for the CD units. Which remedy should Sound
Experience use?
a. sue for damages
b. stoppage in transit
c. repossession
d. lien
e. action for the price
Essay Questions
1) "The Sale of Goods Act was intended to make commerce easier by generally implying a
number of terms into contracts for the sale of goods. However, the implication of such
terms also creates the need for careful risk management." Explain the meaning of that
statement and describe how the relevant risks can be managed.
2) The Sale of Goods Act applies only to sales contracts. A sale includes both a sale in
which the buyer immediately acquires the property, and an agreement for sale in which
property passes some time after the contract is created. Identify and briefly explain three
types of transactions that are not governed by the statute.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
3) The Sale of Goods Act applies only to the sale of goods. Goods include things like cars,
cats, and cabbages. Identify and briefly explain three types of property to which the Act
does not apply.
4) Hamish entered into a contract with Shania. Under the terms of that agreement, she was
required to deliver a widget to his factory within one week. As payment for that widget,
Hamish immediately gave Shania a cheque for $5000 and a used widget that he no longer
required. Shania intended to re-calibrate that widget and sell it to another customer for
$1000. A dispute has arisen between the parties. Hamish argues that the agreement is
governed by the Sale of Goods Act. Shania disagrees and in support of her position, she
points to a section in the statute that says that the buyer must provide "a money
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
consideration, called the price." And, as she reminds Hamish, he did not give any cash to
her. Is the parties' contract governed by the Sale of Goods Act? Explain your answer.
5) The passing of property under the Sale of Goods Act is important for a variety of reasons.
Identify and explain the most important of those reasons.
6) Lalene agreed to purchase a specific vehicle from Ritooria Motors. Under the terms of
that contract, Lalene immediately provided a cheque for $10 000 and promised to pay
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
another $15 000 within one year. Ritooria promised to prepare the car for delivery within
one week (by installing a CD player and adding new tires) and to call Lalene when the
work was done. Ritooria cashed the cheque the next day and prepared the car as promised
within one week. Before it contacted Lalene, however, the car was struck by lightning and
completely destroyed. Unfortunately, neither party had insurance on the car. Ritooria insists
that it is still entitled to receive another $15 000 from Lalene. She, in contrast, insists that
she is entitled to a refund of the $10 000 that she previously paid. Which party is probably
correct? Explain your answer.
7) Crystal purchased a specific, fully functioning widget from Husker Du Inc. She
promised to pay the price of $10 000 within one month. As part of a promotional campaign,
Husker Du agreed to deliver the widget to her factory for free. Husker Du Inc. delays
shipping the widget to Crystal's place as it forgets about the order. During that delay
Husker Du's employee carelessly left its truck unlocked on the street during his lunch
break. The widget was stolen from the truck and has never been recovered. Husker Du
nevertheless insists that Crystal had already acquired property in the widget by the time of
the theft and that she therefore was required to honour her promise to pay $10 000. Is that
argument correct? Did property pass to Crystal? Is she required to pay the price? Explain
your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
8) Hiram is about to agree to sell a specific antique book to Natasha for $30 000. Hiram is
willing to let Natasha have possession of the goods immediately. Furthermore, he is willing
to sell the book on credit and to allow her to pay in ten monthly instalments. However, he is
also concerned that she might become insolvent before paying the full price. If that
occurred, he would want to be able to recover the book itself, rather than simply sue
Natasha. After all, if she becomes bankrupt, she will not have enough money to fully satisfy
all of the claims against her. Is Hiram's position truly at risk? If so, is there anything that he
can do when creating his contract with Natasha to protect himself? Explain your answer.
9) Discuss the significance of a buyer's reasonable opportunity to inspect goods before
accepting them. Can a buyer ever be held responsible for failing to use a reasonable
opportunity to inspect goods? Can a buyer ever be held responsible for failing to detect a
defect while inspecting goods? Explain your answers.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
10) Humbert visited Dolores's premises and saw a sample of widgets that she was offering
for sale. On the basis of that sample, he agreed to buy her entire stock of ten widgets.
Dolores was delighted with that sale because she had not previously dealt in widgets and
she did not intend to do so again in the future. Humbert paid the price in full and Dolores
delivered the widgets to his workshop the next day. Because he was busy, Humbert did not
inspect the widgets when they arrived. He simply signed a receipt and placed the widgets in
a storeroom. Some time later, however, he discovered that the widgets were defective. He
therefore demanded a partial refund. Dolores refused that request on the basis that the
defect was fairly obvious. Is Humbert entitled to complain about the defect? Explain your
answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
11) Sareena has owned and operated her own interior decorating business for several years.
She was recently hired to redecorate the ballroom of the Palliser Hotel. The ballroom was
located across from the hotel's swimming pool and sauna area. Sareena visited Fridman's
Home Supply, explained the situation to the sales person, and said that she needed a large
amount of wallpaper. The sales person took Sareena to the appropriate section of the store
and asked if she required any further assistance. Sareena said, "Not really. I'm an old pro at
this sort of thing. I just need something that will remain stuck to the walls even if there is
high humidity." She then pointed to a particular brand of wallpaper and said, "Please just
load fifty rolls of this stuff into my truck that is sitting out front." She then paid for the
purchase and, over the next few days, hung the wallpaper in the hotel's ballroom. Almost
immediately, however, it became apparent that the humidity from the pool and sauna was
causing the wallpaper to peel. Is Sareena entitled to bring an action against Fridman's Home
Supply on the basis that the wallpaper is not fit for its intended purpose? Explain your
answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
12) Beverley purchased a widget from Laskin Manufacturing Inc. She wanted the widget
for personal use in her home. Like most large businesses, Laskin Manufacturing uses
standard form documents for all of its transactions. The document that it used for the sale to
Beverley said "The seller shall not be held liable on the basis of any implied warranties."
Shortly after she brought the widget home, Beverley discovered that it was fundamentally
defective. She has complained to Laskin Manufacturing, but the company says that it
cannot be held liable because of the exclusion clause in the sales contract. Is the company's
argument correct? Explain your answer.
13) Zounds Sounds, a music store, ordered 20 cases of blank cassette tapes from Polymuse
Inc. Each case costs $100, so that the total contract price was $2000. In fact, Polymuse
delivered 23 cases of tapes to Zounds. Is Zounds required to accept some or all of those
cases? If so, what price will it be required to pay?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
14) On May 1, Suneel entered into a contract with Mathilde. She promised to deliver a
widget to him on June 1 and he promised to pay the total purchase price of $10 000 on July
1. As June 1 approached, however, Suneel began to worry about giving possession of the
widget to Mathilde without getting paid at the same time. He therefore wants to exercise a
lien. Is he entitled to do so? Would your answer be different if Mathilde became insolvent
before June 1? Explain your answers.
15) Explain the basic differences between: (i) a claim for damages following the buyer's
breach of contract, and (ii) an action for the price by the seller.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 13: Special Contracts: Sale of Goods
