Business Law and Ethics Test 3

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What is the difference between an assignment and delegation?

An assignment is the transfer of rights under a contract to a third party.

A delegation is the transfer of duties under a contract to a third party.

Under what circumstances is the remedy of rescission and restitution available?

Remedy of rescission is available when fraud, mistake, duress, undue influence, lack of capacity, or failure of consideration is present. Rescission may also be available by statute.

Restitution may be required when a contract is rescinded, both parties must make restitution to each other by returning the goods, property, or funds previously conveyed. A party can seek restitution in actions for breach of contract, tort actions, and other types of actions.

How do Article 2 and Article 2A of the UCC differ?

Article 2 of the UCC governs sales contracts, or contracts for the sale of goods.
Article 2A covers any transaction that creates a lease of goods, as well as subleases of goods.

What types of transactions does each article cover?

Article 2 of the U.C.C. governs contracts for the sale of goods, pursuant to which title of goods is transferred from seller to buyer for consideration. Governs only contracts for the sale of tangible and movable property that has a physical existence and that can be moved from place to place.

Article 2A of the U.C.C. governs contracts for the lease of goods, the sale of which would be governed by Article 2. Article 2A is an agreement where one person (the lessor) transfers the rights of possession and use of tangible, movable property to another person (the lessee) in exchange for rental payments.

Risk of loss does not necessarily pass with title. If the parties to a contract do not expressly agree when risk passes and the goods are to be delivered with movement by the seller, when does risk pass?

The risk of loss in a shipment contract passes to the buyer of lessee when the goods are delivered to the carrier. In a destination contract, the risk of loss passes to the buyer or lessee when the goods are tendered to the buyer or lessee at the specified destination.

What exceptions to the writing requirements of the Statute of Frauds are provided in Article 2 and Article 2A of the UCC?

An oral contract for the sale of goods priced at $500 or more or the lease of goods involving total payments of $1,000 or more will be enforceable despite the absence of writing.

An oral contract is enforceable if (1) it is for goods that are specially manufactured for the buyer, (2) these goods are not suitable for resale or lease to others in the seller's or ordinary course of business, and (3) the seller or lessor has substantially started to manufacture the or has made commitments for their manufacture or procurement.

What law governs contracts for the international sale of goods?

The 1980 United Nations Convention on Contracts governs international sale contracts between firms or individuals located in different countries for the International Sale of Goods.

What are the respective obligations of the parties under a contract for the sale or lease of goods?

In the performance of a sales or lease contract, the basic obligation of the seller or lessor is to transfer and deliver conforming goods. The basic obligation of the buyer or lessee is to accept and pay for conforming goods in accordance with the contract.

What is the perfect tender rule?

If the goods delivered or the tender of delivery fail in any respect to conform with the terms of the contract, the buyer has the right to accept the goods, reject the entire shipment, or accept part and reject part.

What are some important exceptions to this rule that apply to sales and lease contracts?

By Agreement of the parties: Exceptions can be established by the sales contract itself.

Right to cure: Seller can "cure" within the contract time performance. Seller has a right to repair, adjust, or replace nonconforming goods.

Substitution of carriers: If agreed upon manner of delivery is impracticable, and reasonable substitute is available, the seller must use this substitute performance, which is sufficient tender to the buyer.

Installment contract: A single contract that requires or authorizes delivery in two or more separate lots to be accepted and paid for separately.

Commercial impracticability: Occurrences unforeseen by either party when a contract was made may make performance commercially impracticable. When this occurs, the rule of perfect tender no longer holds.

Partial Performance: If unforeseen event affects partial performance, seller is obligated to secure remaining performance via third parties.

Destruction of identified goods: Parties are excused only if goods were identified at the time the contract was formed.

The Right of Assurance: If one party to a contract has "reasonable grounds" to believe that the other party will not perform as contracted, he or she may in writing "demand adequate assurance of due performance" from the other party.

The Duty of Cooperation: When such cooperation is not cooperative, the other party can suspend his or her performance without liability and hold uncooperative party in breach or proceed to perform the contract in any reasonable manner.

What options are available to the nonbreaching party when the other party to a sales or lease contract repudiates the contract prior to the time for performance?

When anticipatory repudiation occurs, the nonbreaching party has a choice of two responses; treat the repudiation as a final breach by pursuing a remedy or wait to see if the repudiating party will decide to honor the contract despite the avowed intention to renege.

What remedies are available to a seller or lessor when the buyer or lessee breaches the contract?

1. Cancel the contract.
2. Resell the goods and sue to recover damages.
3. Sue to recover the purchase price or lease payments due.
4. Sue to recover damages for the buyer's nonacceptance.

What remedies are available to a buyer or lessee if the seller or lessor breaches the contract?

1. Cancel the contract.
2. Obtain goods that have been paid for if the seller or lessor is insolvent.
3. Sue to obtain specific performance if the goods are unique or damages are an inadequate remedy.
4. Buy other goods and obtain damages from the seller.
5. Sue to obtain identified goods held by a third party.
6. Sue to obtain damages.

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