Chapter 17
The Formation of
Sales and Lease Contracts
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. Real estate transactions are always governed by Article 2 of the UCC.
2. The UCC views the entire commercial transaction for the sale and payment for
goods as a single legal occurrence.
3. Article 2 of the UCC sets forth the requirements for sales contracts and Article
2A covers similar issues for lease contracts.
4. Under the UCC, a sale is the passing of title from a seller to a buyer for a price.
5. For an item to be characterized as a “good” under the UCC, it must be
intangible.
6. A contract for the sale of minerals is considered to be a contract for the sale of
goods if the severance is to be made by the seller.
7. Even if a contract in which goods and services are mixed is primarily a goods
contract, any dispute over the services portion will not be decided under the
UCC.
8. A merchant is a person who deals in goods of the kind involved in the sales
contract or who holds herself or himself out as having skill or knowledge
peculiar to the practices or goods being purchased or sold.
9. The UCC imposes some different rules on merchants.
10. Article 2 of the UCC covers any transaction that creates a lease of goods.
11. A lessor is a party who transfers the right to the possession and use of goods
under a lease.
CHAPTER 17: THE FORMATION OF SALES AND LEASE CONTRACTS 3
12. Certain provisions of UCC Article 2A apply only to consumer leases.
13. Under the UCC, a sales or lease contract will fail for indefiniteness if one or
more terms are left open.
14. If the parties to a contract for a sale of goods have not agreed on a price, a
court will determine a reasonable price at the time for delivery.
15. Under the UCC, parties to sales and lease contracts are not free to establish
whatever terms they wish.
16. Under the UCC, good faith means honesty in fact and the observance of
reasonable commercial standards of fair dealing in the trade.
17. When no delivery terms are specified in a contract for a sale of goods, there is
no basis for determining a remedy.
18. Under the UCC, a contract for a sale of goods that does not include the
quantity will not fail for indefiniteness.
19. Requirements contracts are common in the business world and normally are
enforceable.
20. A firm offer by a merchant may be oral.
21. If there is no definite period stated, a firm offer by a merchant is irrevocable
without the necessity of consideration for up to six months.
22. Under the UCC, a firm offer for a sale or lease of goods made by a merchant
without consideration can be revoked at any time before acceptance.
23. Generally, acceptance of an offer to lease goods may be made in any
reasonable manner and by any reasonable means.
24. Under the UCC, prompt shipment of goods is considered an acceptance of an
offer to buy the goods.
25. Under the UCC, if a contract is unilateral, the offeror must be notified of the of-
feree’s performance.
26. The UCC requires that the mirror image rule be followed for all acceptances.
27. If a nonmerchant–seller’s offer expressly conditions acceptance on a
nonmerchant–buyer’s agreement to the terms of the offer, the buyer’s positive
response is an acceptance even if it contains additional terms.
28. Under the UCC, an agreement modifying a contract needs no consideration to
be binding.
29. All oral contracts are enforceable under the UCC.
30. The terms of a fully integrated contract can be contradicted by evidence of any
prior agreements.
31. Under the UCC, the meaning of any agreement must be interpreted in light of
commercial practices.
32. A course of performance is the conduct that occurs under the terms of a
particular agreement.
33. In interpreting a commercial agreement, a court will assume that the usage of
trade was taken into account when the agreement was phrased.
34. A court can refuse to enforce a contract that the court deems to have been
unconscionable at the time it was made.
35. An unconscionable contract is one that is so unfair and one sided that it would
be unreasonable to enforce it.
MULTIPLE CHOICE QUESTIONS
1. Precise Engineering, P.C., is a California-based firm that does business with
clients throughout North America. Precise Engineering plans and executes
construction projects, and buys and sells developed and undeveloped land,
and related equipment and supplies. Precise Engineering has had to confront
work-site theft and vandalism. With respect to these circumstances, the
Uniform Commercial Code (UCC) provides a framework for
a. commercial transactions for the sale of and payment for goods.
b. international construction contracts.
c. domestic and foreign transactions in real estate.
d. prosecuting crimes against business interests.
2. Canyon Creek Corporation is a Delaware-based firm that does business
throughout the United States. With respect to this circumstance, the UCC has
been adopted by, and applies in,
a. a few of the states.
b. all of the states, in whole or in part.
c. half of the states.
d. none of the states, to date.
3. Over the course of a year, Discount Market Company sells goods from its
inventory and also sells one of its warehouses. In exchange, Discount receives
CHAPTER 17: THE FORMATION OF SALES AND LEASE CONTRACTS 7
checks, which Discount uses to repay a loan from Evermore Credit Inc. Article
2 of the UCC governs
a. the checks.
b. the payment of the loan.
c. the sale of the buildings.
d. the sale of the goods.
4. Orange Manufacturing Corporation (OMC) orders twelve job-training and on–
the-job safety DVDs from Plum Productions, Inc., which delivers the disks to
OMC’s plant. This is most likely
a. a gift.
b. a lease of goods.
c. a sale of goods.
d. a service contract.
5. Dan, a computer programmer, holds a garage sale to sell a lawnmower, some
clothes, some CDs and some old clothes. Will, a lawyer, sells Thelma his
collection of seashells. Philip, a CEO of a successful company, sells George
his pet parakeet. Judy, an expert horse trainer, sells Bob a horse. Which
person would be considered a merchant under the UCC?
a. Dan
b. Will
c. Judy
d. Philip
6. In a dispute over a sale involving a restored 1937 Ford Roadster, Garth argues
that for the purpose of the sale, Hoyt’s Pawn Shop, where Garth bought the
auto, is a merchant. A court may determine whether Hoyt’s is a merchant by
assessing whether
a. it has sold any restored autos within the last year.
b. it holds itself out by occupation as having knowledge or skill unique to
the auto in the transaction.
c. its owner enjoys motoring.
d. it subscribes to Restoration, a biweekly trade magazine.
7. Danko sells new and used sports equipment to persons who come into his
store, Eyes on the Prize. One afternoon, Danko sells a used display shelf to
Felipe. At a garage sale at his home, Danko sells a used flat-screen TV to
Faye. Under the UCC, Danko is a merchant of
a. sports equipment only.
b. sports equipment and display shelves only.
c. sports equipment, display shelves, and flat-screen TVs.
d. anything that he chooses to sell.
8. Medico Inc. enters into a contract to sell medical supplies to New Hospital
Corporation, which sells some of the items to Physicians Clinic, which later
CHAPTER 17: THE FORMATION OF SALES AND LEASE CONTRACTS 9
sells them to Oscar, a patient and consumer. Article 2 of the UCC applies to
the sales transactions between
a. all buyers and sellers.
b. Medico and New Hospital only.
c. New Hospital and Physicians Clinic only.
d. Physicians Clinic and Oscar only.
9. Cam enters into a contract with Tractors & Lifts Lease Company for a two-year
lease of a backhoe. This contract is subject to
a. Article 2 of UCC.
b. Article 2A of the UCC.
c. Article 11 of the CISG.
d. the common law only.
10. Jamie is redoing his kitchen and decides he needs a floor sander to complete
the job. Jamie tells Rachel, his neighbor, that he needs a floor sander. Rachel
tells Jamie to call Home Repair Rentals, Inc. Home Repair Rentals leases
Jamie a floor sander. In this transaction the lessor is
a. Jamie.
b. Rachel.
c. Home Repair Rentals.
d. both Jamie and Rachel.
11. Marine Expeditions, Inc., pays Nate’s Boats $4,000 to use an oceangoing
vessel for a month. For the purposes of the UCC, this is
a. a service contract.
b. a gift.
c. a lease.
d. a sale.
12. Roy’s Chick’n Shack orders chicken from Standard Food Supplier, but
Standard does not deliver. Roy’s will probably be unable to enforce the
agreement if the parties
a. did not limit the duration of the deal.
b. did not specify a payment term.
c. did not specify a quantity term.
d. have not begun to perform.
13. Quality Metals Company and Superior Fabrication, Inc., enter into a contract
under which Quality Metals agrees to deliver a certain quantity of sheet metal
to Superior Fabrication each month. The contract does not include a price term.
In a suit between the parties over the price, a court will
a. determine a reasonable price.
b. impose the lowest market price.
c. impose the highest market price.
d. return the parties to the positions they held before the contract.
14. Car n’ Truck Body & Paint Company orders custom paint from Diverse Hues
Inc., but Diverse does not deliver. Car n’ Truck will probably be unable to
enforce the agreement if the parties omitted
a. a price term.
b. a payment term.
c. a quantity term.
d. shipping arrangements.
15. Refined Grains, Inc., agrees to sell to Sunny Breakfast Cereal Company a
certain quantity of refined oats each week but no mention is made of where the
goods are to be delivered. In general, the UCC requires that the delivery take
place at
a. a neutral place of business halfway between the parties’ locations.
b. a “reasonable” place of delivery.
c. Refined’s place of business.
d. Sunny’s place of business.
16. FlavorBean Coffee Company agrees to buy an unspecified quantity of coffee
beans from Global AgriCorp. Global breaches the contract. In FlavorBean’s suit
to obtain relief, the court will most likely
a. award a reasonable quantity of beans to FlavorBean.
b. award FlavorBean all the beans that it requires.
c. award Global’s output of coffee beans to FlavorBean.
d. have no basis for determining a remedy.
17. TalkTalk, Inc., offers to buy from Voice Media Corporation (VMC) 100,000
smartphones. Without notifying TalkTalk, VMC timely ships phones of a
different quality. With respect to the offer and a possible contract, this shipment
is
a. an acceptance and a breach.
b. an acceptance and an accommodation.
c. an acceptance and complete performance.
d. a rejection and a counteroffer.
18. Rice River Farms offers to sell Sensei Sushi Restaurants, Inc., five hundred
bushels of rice. Sensei responds, “We agree to buy five hundred bushels only if
the rice is Grade A quality.” This statement is
a. a breach.
b. a counteroffer.
c. a confirmation.
d. an acceptance.
19. Peter, an agent for Zippy Cars, Inc., writes a letter to Cassandra on March 1
stating that he will sell her a 2011 Suburu Outback for $20,000 between March
1 and April 30. Peter’s letter to Cassandra is
a. a firm offer.
b. an acceptance.
c. a bilateral contract.
d. a breach.
20. Community Construction Corporation offers to buy from Solid Cement
Company a certain quantity of cement for a certain price. Solid can accept the
offer by
a. doing nothing.
b. promising to ship or promptly shipping the cement.
c. promising to ship the cement only.
d. promptly shipping the cement only.
21. Perfect Potato Chip Company makes an offer that Snack Foods Corporation
would like to accept. Under the “mirror image rule” relating to offer and
acceptance, an acceptance
a. may include additional terms not contained in the offer so long as they
do not materially alter the agreement.
b. may include additional terms not contained in the offer that will become
part of the agreement if the offeror does not object within a reasonable
period of time.
c. must include only those terms and conditions contained in the offer.
d. may contain additional terms as long as all parties agree to the
additional terms.
22. Mountaineer Sales, Inc., is the offeror and Camping Goods Corporation is the
offeree under a unilateral sales contract in which Forest Recreation Products
Company is also interested. Mountaineer is not notified of Camping’s
performance within a reasonable time. Mountaineer
a. may treat the offer as having lapsed.
b. must assume that Camping has started to perform.
c. must contact Camping.
d. must contract with Forest.
23. Nature’s Products, Inc., sends its standard order form to Interbusiness
Distribution Corporation (IDC) to evidence a sale of packing materials. IDC
14 UNIT THREE: COMMERCIAL TRANSACTIONS
responds with its own standard purchase order form. Additional terms in the
purchase order automatically become part of the contract unless
a. the terms materially alter the original contract.
b. the original offer expressly required acceptance of its terms.
c. the offeror objects to the new terms within a reasonable time.
d. any of the choices.
24. Trend-Rite Clothiers, Inc., sells t-shirts to Brand Name Stores, Inc., under an
existing contract. When textile costs increase, Brand agrees to a price
increase, but later wants to cancel the contract. Brand may
a. cancel the contract immediately.
b. cancel the contract only after accepting a final shipment.
c. cancel the contract only on reasonable notice.
d. not cancel the contract.
25. Quinn enters into a series of agreements with Reba involving a sale of a Suite
Dreams Motel, including the land, building, furnishings, shares of stock in Suite
Dreams Company, and a contract with Trudy to create an ad campaign. Reba
suspects that Quinn may be misrepresenting the facts. The UCC Statute of
Frauds governs
a. the sale of any of the property evidenced by a writing.
b. the entire deal, including the marketer’s services.
c. the sale of the furnishings priced at $500 or more.
d. the sale of the land and the building.
26. Jackson owns an antiques store. He sells a grand piano to Fred for $5,000, a
old jukebox to Sam for $499, an antebellum chest of drawers to Josephine for
$659 and a gold ring to Wendy for $999. Which of Jackson’s sales must be in
writing to be enforceable?
a. The grand piano only
b. The grand piano and the gold ring only
CHAPTER 17: THE FORMATION OF SALES AND LEASE CONTRACTS 15
c. The grand piano, the chest of drawers and the gold ring only
d. The grand piano, the chest of drawers, the jukebox and the gold ring
27. Equipment Rental Corporation and Floodlights, Inc., are parties to an oral
agreement for a lease of goods with payments in excess of $10,000. They may
satisfy the Statute of Frauds by
a. mutually agreeing not to commit fraud.
b. restating the terms in a phone call.
c. setting out the terms in an e-mail.
d. shaking hands on the deal.
28. Raul agrees to ship to Ben one hundred ceiling fans for $5,000. Raul initials his
notes of the deal, which include the terms, and files the notes in his office. Ben
initials his own notes of the deal, which include the terms, and files the notes in
his office. Raul fails to ship the fans. Against Raul, as a contract, the deal is
a. enforceable, because under the UCC a contract need not written.
b. enforceable, because Raul’s initialed notes are a sufficient writing.
c. enforceable, because Ben’s initialed notes are a sufficient writing.
d. not enforceable.
29. Rita, the manager of the State University (SU) soccer team, orally agrees to
lease a certain number of specially made SU banners from Top Banners, Inc.
This lease is enforceable only if Top has made a substantial start on making
the banners and
a. Rita agreed to the lease on behalf of the SU soccer team.
b. SU does not have other, similar banners available.
c. the banners are not suitable for others in the course of Top’s business.
d. the soccer season has not ended and SU goes to the finals.
30. Fresh Produce, Inc., and Great Grocery Stores dispute the interpretation of an
ambiguous phrase in their contract. In a suit between the parties to construe
the contract, a court may accept evidence of
a. consistent additional terms only.
b. consistent additional terms and contradictory terms only.
c. contradictory terms only.
d. anything extrinsic to the contract.
31. Bert’s Bagels & Nosh, Inc., and other bakeries refer to a “baker’s dozen” as
consisting of a collection of thirteen baked goods. This is an example of
a. course of dealing.
b. course of performance.
c. none of the choices.
d. usage of trade.
32. Gail enters into a contract with Hi-Price Appliances, Inc. In a suit between the
parties over payment under the contract, Gail claims that a certain clause is
unconscionable. If the court agrees, it may
a. enforce, limit, or refuse to enforce the contract or the disputed clause.
b. enforce the contract without the disputed clause only.
c. limit the application of the disputed clause only.
d. refuse to enforce the entire contract only.
Fact Pattern 17-1 (Questions 33–34 apply)
Olga enters into a contract to buy a refrigerator from a Prairie States Appliance store
with the price to be paid in monthly installments. After thirty-six months of payments,
Olga has paid more than twice the price of a similar stove. Eighteen payments remain
due under the contract.
33. Refer to Fact Pattern 17-1. Olga files a suit against Prairie States, claiming that
their contract is so unfair and one sided that it would be unreasonable to
enforce it. Olga is asserting
a. the concept of good faith.
b. the principle of fair trade.
c. the predominant-factor test.
d. the doctrine of unconscionability.
34. Refer to Fact Pattern 17-1. Under the UCC, the court can evaluate the contract
to determine whether it was unreasonably unfair and one sided
a. at the time it was made.
b. at the end of its term.
c. in the middle of its performance.
d. at the time of Olga’s suit.
35. Toro, S.A., which is based in Mexico, enters into a contract for the purchase of
portable livestock fencing from United Fencing Company, which is based in the
United States. This contract is governed by
18 UNIT THREE: COMMERCIAL TRANSACTIONS
a. Mexican law.
b. the provisions in the laws of both countries that are similar.
c. the Uniform Commercial Code.
d. the United Nations Convention on Contracts for the International Sale of
Goods.
ESSAY QUESTIONS
1. Secure Courier, Inc., has a requirements contract with Petro Distribution Corporation
that obligates Petro to supply Secure with all the gasoline it needs for its delivery
vehicles for one year at $2.30 per gallon. A clause inserted in small print in the
contract by Secure, and not noticed by Petro, states, “The buyer reserves the right
to reject any shipment for any reason without liability.” For six months, Secure
orders and Petro delivers under the contract without any controversy. Then,
because of a war in the Middle East, the price of gasoline to Petro increases
substantially. Petro tells Secure it cannot possibly fulfill their contract unless Secure
agrees to pay $2.50 per gallon. Secure, in need of the gasoline, agrees in writing to
modify the contract. Later that month, Secure learns it can buy gasoline at $2.40 per
gallon from Refined Oil Company. Secure refuses delivery of its most recent order
from Petro, claiming, first that the contract allows it to do so without liability, and
second, that it is required to pay only $2.30 per gallon if it accepts the delivery.
Discuss Secure’s contentions.
2. Key of G Products, Inc., offers to sell to Harmony Company one hundred MP3
players at $50 a piece, subject to certain specific delivery dates. Harmony
replies with a signed purchase order that reads, “Accept your offer for 100 I-
appliances at $50 each. Must be delivered to our warehouse.” Key of G does
not respond or deliver the goods. Harmony files a suit for breach of contract, to
which Key of G answers that there is no contract because Harmony’s purchase
order contained additional terms and is not signed by Key of G. Can Harmony
recover? Explain.