The LLS 2007 Fall Law of Sales Discussion

In the spirit of last year's evidence discussion, I am starting this discussion for Law of Sales, Fall 2007. Please feel free to post your questions here, and if you see one that nobody has answered, please feel free to jump in.

To kick things off, here are the notes from the last day of class:

The final exam

1. 70 questions, 3 hours, closed book
2. Select best answer, may explain answer in bluebook if you wish (you don’t have to). If you explain answers, please tell me the answer you chose and why it was the best, or explain the ambiguity or typographical error, if any.
3. No questions on amended Article 2. Applicable law is law we studied in class (i.e., Revised Article 1, CISG where applicable, consumer protection law where applicable)
4. Scoring – 3 points for right answer, minus 1 for answers incorrectly marked. Answers left blank are worth 0. It makes sense to guess if you can narrow to 3 or fewer choices.

Skeletal outline

1. Is the transaction one for the sale of goods?
2. Is the governing law the UCC, CISG, or some other body of law?
3. Has a contract been formed?
4. What are the terms of the contract?
5. Has the contract been performed? Excuse?
6. If not, and there is no excuse, what are the injured parties’ options?

Sample exam questions

1. There’s a sufficient agreement as to the quantity and price, a promise to ship, and so on. There’s no minimum requirement of $500; that’s for the statute of frauds. There’s also no requirement that the parties be merchants. The correct answer is D.
2. Under the CISG, nations may opt out of the CISG’s non-requirement of a written contract. The facts don’t specify that either nation has opted out; therefore we must assume that either has opted out. Further, enforceability is not the same thing as inapplicability; under the CISG, even if a contract is not covered, it can still be covered under domestic law, which the CISG allows. There is no statute of frauds under the CISG, and neither nation has opted out of that. The correct answer is D.

We now deal with the battle of the forms.

3. There is no mirror image rule in the UCC. UCC 2-207 really deals with dicker terms, not fundamental terms (esp. price, quantity). As between merchants, an arbitration provision is automatically included unless the offer was expressly limited to its terms. Some courts think that arbitration provisions are always material; others think that arbitration is a provision that needs to be analyzed on a case-by-case basis for materiality, using the test of surprise or hardship. The facts don’t tell us enough about whether or not the arbitration provision would be enforceable. The correct answer is B.
4. The CISG will allow for minor variations to be included. Unlike the UCC, the CISG defines more clearly what is defined by material terms that would make a proposed term a rejection/counteroffer, and among such material terms are included provisions about conflict resolution. Thus, there is no enforceable contract formed yet. The correct answer is A.
5. There is no "last shot approach" in the UCC, so acceptance of the goods does not imply acceptance of the last terms (here, the arbitration terms). Express agreement is not required unless the facts specify that the jurisdiction views arbitration provisions as per se material. Surprise and hardship are still part of the analysis. The correct answer is C.

Both the UCC and the CISG allow a fair bit of autonomy in dictating the terms of a contract.

8. The warranty of fitness applies in situations where the buyer relies on the seller to select goods appropriate for the buyer’s purpose. Professor has not relied on Marvelous, nor does Marvelous appear aware of Professor’s purpose. Normally, to have a right to reject goods, you have to be able to point to a breach of warranty. This is especially true where you’ve accepted the goods. Here, however, Marvelous has said that Professor can bring it back. Normally, acceptance can preclude rejection. The correct answer is B.
9. If anything, the CISG is more liberal than the UCC in allowing parties to contract around its provisions. Fundamental breach is sufficient for rejection; there is no perfect tender rule in the CISG. Whether there is a fundamental breach or a breach of contract is irrelevant here because of the promise to take the car back. The correct answer is B.

We now move on to the question of performance under the contract.

33. The UCC does not use the term “material breach” anywhere. In one-shot deals, the perfect tender rule applies, which allows the buyer to reject even for minor non-conformities. However, the seller does have a reasonable opportunity to cure. In long-term contracts, the substantial impairment rule applies; "substantial impairment" is like "material breach". So, avoid "material breach" answers when dealing with the UCC. Here, the buyer was within his rights to cancel the contract, and has not repudiated his obligations thereby. The correct answer is C.
34. "Time is of the essence" means "you have to deliver on that day", and this matters even more under the CISG than under the UCC. This obviates the usual allowance of nachfrist provisions. Article 8 deals with interpreting the contract, and talks about what each party reasonably understands as to the terms. There is no absolute right to cure. A 3-day delay may be fundamental; the facts don’t really tell us one way or the other. Good faith is something we can take into account in determining fundamental breach, but is not a prerequisite for finding fundamental breach. The correct answer is A.
35. The CISG rejects the doctrine of election of damages, so a buyer can still get damages despite avoidance, if he can show sufficient proof. The CISG indicates that even if the seller cures, the buyer can recover damages, because it’s possible that the delay while the seller cures may result in damages. The correct answer is C.

These questions deal with contract formation and filling in terms.

19. The UCC allows parties to contract with an open price term, if they so choose; in such a case, the price is what is reasonable at the time of signing. But the fact that the price on the written contract was left blank doesn’t mean it was an open price. In situations like this, courts will typically admit parol evidence to show what the price was that had been agreed to. The correct answer is C.
20. There is no requirement of a writing. The correct answer is D.

These questions deal with remedies.

21. The buyer can either cover, or sue for the contract/market difference. To cover, the buyer has to make a reasonable substitute purchase within a reasonable time. It’s not necessary that the substitute purchase be exactly the same; however, there should be some substantial similarity. Here, Carla bought a better boat the very next day, so it doesn’t look like there was a legitimate cover. Even if there was a legitimate cover, she would get both the difference and what she’s already paid, so it would be $13,000, an option not available. Here, she’s only entitled to what she’s already put down. The correct answer is C.
22. Here, Bill is a lost volume seller. Normally he can recover the difference between contract and market. As a volume seller, however, he can recover the lost profit. This is the difference between the contract price ($23,000) and the seller’s cost ($15,000), and any incidental damages (there are none here), less what the buyer already paid ($1000). The correct answer is B.

"Open price" contracts under the CISG
There is an inconsistency between Articles 14 and 55. For the purposes of the exam, we don’t have to know these particulars; we only have to know that the inconsistency exists.

• Such a contract is not enforceable if the relevant nation (under choice of law rules) has adopted Article 14, such as many Scandinavian countries, which have opted out of Part II of the CISG.
• Such a contract is not enforceable if the relevant nation does not enforce open price contracts (i.e., in the relevant nation such contracts are “invalid”).
• Such a contract is enforceable if the parties intend to be bound to the open price term contract (Article 14 does not express exclusive ways of making “offer”). (Hull prefers this interpretation.)
• Such a contract is enforceable if the parties contract other than by offer and acceptance (e.g., they sign one document).

Ask away, and good luck on Tuesday!