The Legal Environment of Business Text and Cases 9th Edition by Frank B. Cross Roger LeRoy Miller Test Bank

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The Legal Environment of Business Text and Cases 9th Edition by Frank B. Cross Roger LeRoy Miller Test Bank

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Chapter 11

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. A contract for a sale of real property or services is a contract for a sale of goods.

ANSWER: F PAGES: Section 1 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

2. Goods associated with real estate often fall within the scope of Article 2.

ANSWER: T PAGES: Section 1 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

3. Under the UCC, good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

ANSWER: T PAGES: Section 2 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal


4. Title and risk of loss can pass to the buyer from the seller before the goods are identified to the contract.

ANSWER: F PAGES: Section 3 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

5. Identification takes place when specific goods are designated as the subject mater of a sales or lease contract.

ANSWER: T PAGES: Section 3 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

6. Any explicit understanding between the buyer and the seller determines when title passes.

ANSWER: T PAGES: Section 3 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

7. A bill of lading is a receipt signed by a warehouse for goods stored in a warehouse.

ANSWER: F PAGES: Section 3 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

8. Under a destination contract, the risk of loss passes to the buyer when the goods are duly delivered to the carrier.

ANSWER: F PAGES: Section 3 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

9. The contract term free on board indicates that the selling price of goods includes transportation costs to the specific F.O.B. place named in the contract.

ANSWER: T PAGES: Section 3 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

10. Merchants are held to a higher standard of performance or duty than are nonmerchants.

ANSWER: T PAGES: Section 4 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

11. Under a shipment contract, if the seller does not make a reasonable contract for transportation or notify the buyer of the shipment, the buyer can reject the goods if a material loss results.

ANSWER: T PAGES: Section 4 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

12. A buyers failure to cover will bar him or her from using any other remedies available under the UCC.

ANSWER: F PAGES: Section 5 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

13. A buyer who rightfully rejects nonconforming goods may obtain cover or cancel the contact, but may not seek damages.

ANSWER: F PAGES: Section 5 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

14. The parties to a sales or lease contract can expressly provide for remedies in addition to those provided in the UCC.

ANSWER: T PAGES: Section 5 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

15. A warranty of good title means that a seller warrants that he or she has valid title to the goods and that transfer of the title is rightful.

ANSWER: T PAGES: Section 6 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

16. Statements of fact made during the bargaining process are express warranties.

ANSWER: T PAGES: Section 6 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

17. An expression of opinion will usually create a warranty.

ANSWER: F PAGES: Section 6 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

18. Goods must be of the highest quality possible to be merchantable.

ANSWER: F PAGES: Section 6 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

19. Merchants are not required to warrant that the goods they sell are fit for their ordinary purpose.

ANSWER: F PAGES: Section 6 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

20. The United Nations Convention on Contracts for the International Sale of Goods (CISG) is the uniform international sales law of countries that account for more than two-thirds of all global trade.

ANSWER: T PAGES: Section 7 TYPE: N
BUSPROG: Analytic AICPA: BB-Legal

MULTIPLE CHOICE QUESTIONS

1. Ferris is refinishing his kitchen floor and needs a floor sander to complete the job. Ferriss neighbor Gerda suggests that he call Home Repair Rentals, Inc. Home Repair leases Ferris a floor sander. In this transaction, the lessor is

a. Ferris.
b. Gerda.
c. Home Repair.
d. none of the parties.

ANSWER: C PAGES: Section 1 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal


2. Fresh Dairy, Inc., is the offeror and Gelato Ice Cream Company is the offeree under a unilateral sales contract in which Hectors Helado Corporation is also interested. Gelato is not notified of Fresh Dairys performance within a reason-able time. Gelato

a. may treat the offer as having lapsed.
b. must assume that Fresh Dairy has started to perform.
c. must contact Fresh Dairy.
d. must notify Hectors.

ANSWER: A PAGES: Section 2 TYPE: +
BUSPROG: Reflective AICPA: BB-Legal

3. Natures Products, Inc., sends its standard order form to Omni Distribution Corporation to evidence a sale of packing materials. Omni 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.

ANSWER: D PAGES: Section 2 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

4. iSharp, Inc., and Jenene, the owner of a Kitchen Time shop, orally agree to a sale of knives and other utensils for $12,000. Jenene gives iSharp a check for $4,000 as a partial payment. This contract is

a. enforceable to the extent of $4,000.
b. fully enforceable because it is for specially selected goods.
c. fully enforceable because it is oral.
d. not enforceable.

ANSWER: A PAGES: Section 2 TYPE: +
BUSPROG: Reflective AICPA: BB-Legal


5. Big Beef, Inc. raises calves to sell. Big Beef breeds its cows in April, and the cows calve in February of the following year. In January Andrea contracts with Big Beef to buy fifty calves. Identification takes place in

a. January, when the contract is signed.
b. April, when the calves are conceived.
c. February, when the calves are born.
d. a reasonable period of time.

ANSWER: B PAGES: Section 3 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

6. Megan, an agent for a department store, orders one hundred dresses from Sals Clothing Shop for the Spring Blossom Sale. There is no specific agreement in the sale contract indicating when title will pass to the department store. The title will pass to the department store when

a. Megan signs the contract.
b. Megan and the Sals Clothing Shop agent sign the contract.
c. Sals Clothing Shop physically delivers the dresses to the department store.
d. Megan pays Sals Clothing Shop for the dresses.

ANSWER: C PAGES: Section 3 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

7. Foster contracts with Golf Carts Unlimited, Inc. to buy five golf carts. The contract lists the five carts as GC001, GC002, GC003, GC004, GC005. Identification

a. requires that Foster verify his identity to take possession of the carts.
b. has taken place.
c. cannot take place until the contract is reviewed by a court.
d. will take place only when Foster pays for the golf carts.

ANSWER: B PAGES: Section 3 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal


8. Outdoor Outfitters Store contracts to buy fifty tents from Pitched Camp, Inc. Unless the contract states otherwise, it is assumed to be

a. none of the choices.
b. a destination contract.
c. a shipment contract.
d. a delivery ex-ship.

ANSWER: C PAGES: Section 3 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

9. Quaff n Quench Caf buys twenty-five bags of Columbia coffee beans from Roasted Bean Brokers, Inc. The parties agree to ship the oranges F.O.B. Quaff n Quench via Swiftline Trucking Company. The oranges rot in transit. The loss is suffered by

a. Quaff n Quench.
b. Swiftline.
c. Columbia.
d. Roasted Bean.

ANSWER: A PAGES: Section 3 TYPE: +
BUSPROG: Reflective AICPA: BB-Legal

10. Fuel Connector Products, Inc., agrees to sell Go-Flo, Inc., a certain quantity of hose couplings and fittings, but the contract does not specify a place of delivery. Go-Flo is expected to pick up the goods. The place of delivery is

a. Fuel Connectors place of business.
b. Go-Flos place of business.
c. the current location of the hose couplings and fittings.
d. the U.S. Postal Service office nearest to Go-Flos place of business.

ANSWER: A PAGES: Section 4 TYPE: +
BUSPROG: Reflective AICPA: BB-Legal


11. On July 10, Pet Supply Store orders fifty small dog collars from Quality Collars, Inc. to be delivered by July 15. On July 13, Quality Collars tenders fifty large dog collars. Pet Supply rejects the shipment. Quality Collars has

a. no right to cure.
b. until July 15 to cure.
c. until the end of the business day on July 13 to cure.
d. unlimited time to cure.

ANSWER: B PAGES: Section 4 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

12. Sweet Fruits contracts with Fruits to You, Inc. for a delivery of two hundred pounds of strawberries to be delivered by Keep Kool Trucking, a trucking company with refrigerated trucks. On the day of delivery, the refrigeration units on Keep Kools trucks are not working. Fruits to You

a. may ship the goods to Sweet Fruits using another trucking company with refrigerated trucks.
b. must refund Sweet Fruits money and cancel the contract.
c. must wait to ship the strawberries until Keep Kool has fixed its trucks.
d. must ship the goods through a different carrier and pay Sweet Fruits incidental damages.

ANSWER: A PAGES: Section 4 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

13. Beef Burgers, Inc. contracts to buy five hundred steers from Fattening Feedlots. Before Fattening Feedlots can deliver the steers, there is an outbreak of disease in the feedlot, and all the cattle are quarantined. In this case the perfect tender rule

a. applies to both parties.
b. does not apply.
c. applies only to Beef Burgers.
d. applies only to Fattening Feedlots.

ANSWER: B PAGES: Section 4 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

14. Shanes Auto Parts orders twenty tires from Tough Tires, Inc. The truck delivering the tires to Shanes is in an accident and ten of the tires are damaged. Shanes Auto Parts

a. cannot reject the entire shipment.
b. must still pay for all twenty tires at the original contract price.
c. may inspect the tires and accept the shipment with a reduction in price.
d. must reject the entire shipment.

ANSWER: C PAGES: Section 4 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

15. Arnold buys a backhoe from Big Dig Equipment Inc. Arnold is unaware that Credit Collection Company holds a lien against the backhoe when he buys it. If Credit Collection repossesses the backhoe, Arnold can

a. recover from Big Dig for breach of warranty.
b. do nothing.
c. file criminal charges against Big Dig and Credit Collection.
d. recover damages from Credit Collection for breach of warranty.

ANSWER: A PAGES: Section 6 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

16. Riverside Ranch is a horse breeding facility. Steed Stables is a customer looking for a new stallion for its breeding program. Riversides representative Tomas shows Steed a stallion that he says is very fertile and can easily breed twenty mares per year. This statement is

a. an express warranty.
b. an implied warranty.
c. a warranty of title.
d. puffery.

ANSWER: A PAGES: Section 6 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal


17. Livestock Feedlot orders one hundred sacks of cattle feed from MegaNutrient Feed, Inc. Each sack is stamped with the phrase Twenty percent protein. This is

a. an express warranty.
b. an implied warranty.
c. a warranty of title.
d. puffery.

ANSWER: A PAGES: Section 6 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

18. Chord Guitars Inc. sells guitars and other stringed instruments to consumers. A Chord salesperson says to a potential customer, This Chord is the best guitar youll find anywhere, even online. This statement is

a. an implied warranty of fitness for a particular purpose.
b. an implied warranty of merchantability.
c. an express warranty.
d. none of the choices.

ANSWER: D PAGES: Section 6 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal

19. Trucks & Trailers, Inc. (T&T), and United Delivery Service enter into a contract for a lease of trucks. T&T is a merchant who deals in goods of the kind leased. Under the UCC, an implied warranty of merchantability arises

a. automatically.
b. only if the lessee asks for such a warranty.
c. only if the lessor expresses such a warranty.
d. only in conjunction with sales contracts, not lease contracts.

ANSWER: A PAGES: Section 6 TYPE: N
BUSPROG: Reflective AICPA: BB-Legal


20. 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

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.

ANSWER: D PAGES: Section 7 TYPE: =
BUSPROG: Reflective AICPA: BB-Legal

ESSAY QUESTIONS

1. Erin contracts in writing to sell her Ford-brand pick-up truck to Garth for $10,500. Erin agrees to deliver the truck on Friday, and Garth promises to pay the $10,500 on the following Monday. On Thursday, Garth tells Erin that he changed his mind and will not buy the truck. Over the weekend, Garth changes his mind again and tenders $10,500 to Erin on Monday. Erin has not sold the truck to another party but refuses the tender and refuses to deliver. Garth claims that Erin has breached their contract. Erin contends that Garths repudiation released her from her duty to perform under the contract. Who is correct, and why?

ANSWER: Garth is correct. Erins refusal to deliver the truck to Garth on Monday, when Garth tenders the $10,500 to Erin, constitutes a breach of their contract. Erin could have canceled the contract on Garths anticipatory breach [UCC 2610] but did not do so and did not change her position in any way as a result of Garths anticipatory breach. Garth could retract his repudiation of the contract at any time before the time performance was due [UCC 2611]. Because Garth did retract his repudiation and decided to buy the truck at the time performance was due (and not later), Erin was obligated to abide by the terms of the contract.

PAGES: Section 4 TYPE: N
BUSPROG: Reflective AICPA: BB-Decision Modeling

2. Motor Vehicle Body Shops contracts to buy from Paint Supply & Equipment HQ, Inc., twenty-four spray paint guns at $30 each to be delivered by October 1. Paint Supply knows that Motor Vehicle Body Shops will use the guns to complete a special job by October 31 for a certain auto dealer. Motor Vehicle Body Shops expects to make $17,000 profit from the job. Paint Supply fails to deliver on October 1. Motor Vehicle Body Shops attempts to buy substitute spray guns, but must pay $40 for each and take delivery on October 15, cutting Motor Vehicle Body Shops profits when the dealer arranges for some of the job to be done elsewhere. Motor Vehicle Body Shops sues Paint Supply. What is the measure of recovery?

ANSWER: The buyer exercised the buyers right to cover and should get the difference between the substitute goods price and the contract price ($10 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: Section 5 TYPE: N
BUSPROG: Reflective AICPA: BB-Decision Modeling

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