D216 Business Law for Accountants - Set 2 - Part 2

Correct Answer: Yes, because it names the word merchantability

To disclaim the implied warranty of merchantability, the UCC requires the disclaimer to mention the word merchantability, and if written it must be conspicuous. This clause is conspicuous and uses that exact word, so the disclaimer is effective. Option a is incorrect because the UCC expressly allows merchantability to be disclaimed when done properly. Sellers may exclude that warranty by naming merchantability in a conspicuous clause, so claiming it can never be disclaimed misstates the rule. Option b is incorrect because disclaiming merchantability requires naming merchantability, not fitness. The word fitness belongs to a different warranty with its own rule, so its absence here does nothing to undermine this valid disclaimer. Option d is incorrect because the merchantability disclaimer rule turns on conspicuousness and the magic word, not a buyer's initials. A conspicuous clause using merchantability suffices, so demanding initials adds a requirement the UCC never imposes.

Correct Answer: The rebuilt-transmission statement, a fact affirmation

An express warranty arises from an affirmation of fact about the goods, while opinion or puffery does not. Saying the transmission was professionally rebuilt is a concrete factual claim, so it created an express warranty that was breached. Option b is incorrect because calling something the best truck is classic puffery, an opinion no reasonable buyer treats as a guarantee. Superlatives of that kind create no warranty, so this statement does not bind the seller. Option c is incorrect because the two statements are legally different. The best-truck boast is nonactionable opinion, whereas the rebuilt-transmission claim is a fact; treating both as warranties ignores the line between puffery and factual affirmation. Option d is incorrect because the rebuilt-transmission statement is a specific factual assertion, not mere sales talk. While the best-truck remark is puffery, the concrete transmission claim qualifies as an express warranty, so dismissing both is wrong.

Correct Answer: Mutual mistake of fact lets either rescind

When both parties share a mistaken belief about the same material fact, it is a mutual mistake of fact, and either party may rescind. Because both wrongly assumed the cow was barren, either side may undo the deal. Option a is incorrect because the parties erred about the cow's reproductive condition, a concrete fact, not merely its market worth. A mistake of value leaves a contract standing, but this shared factual error instead supports rescission. Option b is incorrect because a unilateral mistake involves only one party being wrong, which usually leaves a contract enforceable. Here both parties shared the identical false assumption, making it a mutual mistake that permits rescission. Option c is incorrect because fraud requires an intent to deceive, or scienter, which is absent when both sides honestly held the same wrong belief. No one lied here; the parties simply shared a mistaken assumption about the cow.

Correct Answer: Scienter, the intent to deceive

Scienter, the intent to deceive, is the element separating fraudulent from innocent misrepresentation. Quill knew the accident claim was false and meant Acme to rely on it, so that knowing falsehood makes the misrepresentation fraudulent. Option b is incorrect because harm supports a damages recovery but does not by itself make a misrepresentation fraudulent. An innocent misstatement can also cause harm; what marks fraud specifically is the seller's knowing intent to deceive. Option c is incorrect because justifiable reliance appears in both fraudulent and innocent misrepresentation, so it does not distinguish them. The feature turning this into fraud is Quill's knowledge of the falsehood when he spoke. Option d is incorrect because fraud does not depend on whether the false statement was written or spoken. An oral lie can be fraud just as a written one can; the decisive element is the seller's knowledge of falsity.

Correct Answer: Duress, making the contract voidable

Duress is unlawful pressure such as threats, blackmail, or extortion that coerces consent. The supplier's wrongful threat to spread a fabricated scandal is classic duress, so the buyer's coerced consent makes the contract voidable at the buyer's option. Option a is incorrect because undue influence involves subtle pressure within a relationship of trust, not an outright wrongful threat. This is coercion by extortion, which is duress, and its effect is voidability rather than a void contract. Option b is incorrect because no party here held a mistaken belief about a material fact. The buyer understood the deal perfectly and signed only because of a wrongful threat, so the operative defense is duress, not any mistake. Option d is incorrect because puffery refers to a seller's exaggerated opinion about goods, unrelated to coerced consent. The buyer's signature was forced by a threat, so the relevant doctrine is duress, leaving the contract voidable.

Correct Answer: Undue influence in a relationship of trust

Undue influence is persuasion greater than advice but short of force that overcomes free will within a relationship of trust. The dependent patient and dominating caregiver form exactly such a relationship, so the pressured transfer is voidable. Option a is incorrect because duress requires unlawful pressure like threats, blackmail, or extortion, none of which occurred. The caregiver used gradual psychological pressure inside a trusting relationship, which is undue influence rather than wrongful coercion. Option b is incorrect because innocent misrepresentation involves an honestly mistaken false statement of fact. The caregiver made no false factual assertion; the wrong was exploiting a position of trust to overbear the patient's weakened will. Option c is incorrect because there is no shared false belief about a material fact here. The patient understood what she was signing but was overborne by trust-based pressure, so the doctrine is undue influence, not mutual mistake.

Correct Answer: Compensatory damages for the direct loss

Compensatory damages cover the direct loss of the bargain, and when a buyer wrongfully refuses nonperishable goods the measure is the contract price minus the market price. That gap between ten and seven dollars is Quill's direct recovery. Option a is incorrect because consequential damages cover indirect, foreseeable losses like lost resale profits, not the basic price difference. Quill's core recovery for the refused goods is the direct gap, which is compensatory rather than consequential. Option b is incorrect because punitive damages punish wrongdoing and are almost never available for an ordinary breach. Acme's refusal is a plain breach, not also a tort like fraud, so no punitive award measures the recovery. Option d is incorrect because nominal damages apply only when a breach is proven but no actual loss appears. Quill suffered a real, measurable loss equal to the price difference, so a token sum does not capture the recovery.

Correct Answer: Consequential damages, since the loss was foreseeable

Consequential damages cover indirect losses like lost profits, but only when reasonably foreseeable to the breaching party. Because Quill knew about Acme's downstream resale, the lost profit was foreseeable, making it recoverable as consequential damages from the breach. Option b is incorrect because compensatory damages address the direct loss of the bargain, such as the price difference on the goods themselves. Lost profits on a separate downstream resale are indirect, which places them in the consequential category. Option c is incorrect because nominal damages apply where a breach occurred but no actual loss is proven. Acme suffered a concrete, foreseeable loss of resale profit, so its recovery is substantial consequential damages, not a token sum. Option d is incorrect because liquidated damages are a sum the parties fixed in advance in the contract. Nothing indicates such a clause; Acme's recovery flows from actual foreseeable lost profits, which the law classifies as consequential.

Correct Answer: As a valid liquidated-damages clause

A liquidated-damages clause is enforceable when the actual damages were hard to estimate at contracting and the stipulated sum reasonably forecasts probable loss. Both conditions fit, so the daily amount is a valid liquidated-damages provision the court enforces. Option a is incorrect because a penalty is a sum designed to punish or frighten rather than estimate loss. This figure reasonably approximates hard-to-measure delay damages, so it functions as valid liquidated damages, not an unenforceable penalty. Option b is incorrect because the clause is definite and clearly states the daily amount owed. There is no uncertainty of terms; the only question is reasonableness, and because the sum is reasonable, the provision stands as written. Option c is incorrect because consequential damages are unplanned indirect losses judged by foreseeability after a breach. This clause instead fixes damages in advance, so it is analyzed under the liquidated-versus-penalty test, not the foreseeability rule.

Correct Answer: Specific performance to compel delivery

Specific performance orders the breaching party to actually perform, and it is available for unique goods where money damages are inadequate. Because the historic painting is one of a kind and irreplaceable, a court may order Acme to deliver it. Option a is incorrect because nominal damages are a token sum for a breach with no real loss. Rivera suffered a genuine loss of a unique item and wants the painting itself, so a symbolic dollar cannot make her whole. Option b is incorrect because cover means buying substitute goods, impossible when the item is truly unique. No other painting can replace this specific historic one, so cover is unavailable and specific performance fits instead. Option d is incorrect because punitive damages punish tortious conduct and almost never appear in ordinary contract cases. Acme's refusal is a simple breach, not fraud, so the proper response is an order to deliver the painting.

Correct Answer: No, personal services are never specifically enforced

Courts never order specific performance of a personal-service contract because forcing labor resembles involuntary servitude and is impractical to supervise. Since Dana's cooking is a personal service, Acme cannot compel her return and is limited to damages. Option a is incorrect because a clear breach does not by itself justify specific performance. Even with an obvious breach, courts refuse to compel personal services, so Acme's remedy is money damages and hiring a replacement instead. Option c is incorrect because uniqueness supports specific performance for goods or property, not for a person's services. However talented Dana is, the flat bar on compelling personal labor controls and overrides any argument about her skill. Option d is incorrect because the reason specific performance fails is the personal-service bar, not the availability of rescission. While Acme may pursue other remedies, the precise ground for denial is that courts never force personal services.

Correct Answer: Resell the goods and recover the difference

Reselling the goods and recovering the difference between the contract price and the resale price is a distinctly seller's remedy under the UCC. Quill may resell the units to another buyer and sue Acme for the shortfall. Option a is incorrect because cover is a buyer's remedy, used when a seller fails to deliver and the buyer must purchase substitutes. Quill is the seller holding the goods, so cover simply does not belong to it. Option b is incorrect because replevin is a buyer's action to recover identified goods a seller wrongfully withholds. Quill already possesses the goods and is the seller, so replevin is misplaced on these facts. Option c is incorrect because specific performance compelling a buyer to purchase ordinary goods is not the seller's route here. Quill instead resells the units and recovers the price difference, the standard seller's remedy for a buyer's repudiation.

Correct Answer: Cover by buying substitute goods

Cover is the buyer's self-help remedy of purchasing substitute goods and recovering the difference between the cover price and the contract price. Because the units are ordinary and replaceable, Acme should cover and sue for the added cost. Option b is incorrect because resale is a seller's remedy for disposing of goods after a buyer's breach. Acme is the buyer that never received goods, so it has nothing to resell; the fitting remedy is covering elsewhere. Option c is incorrect because stoppage in transit is a seller's remedy to halt goods already shipped to a breaching buyer. Acme is the buyer seeking replacements, so stoppage does not apply; its proper move is to cover. Option d is incorrect because reclamation lets a seller recover goods from an insolvent buyer, the reverse of this situation. Here the seller breached by not delivering, so Acme turns to cover rather than any seller's reclamation right.

Correct Answer: Yes, that price needs a writing

The UCC requires a signed writing for a contract to sell goods priced at five hundred dollars or more. This furniture sale at eight hundred dollars crosses that threshold, so without a signed writing the agreement is unenforceable. Option a is incorrect because not all oral sales are enforceable; the UCC writing requirement applies once goods reach five hundred dollars. This eight-hundred-dollar deal exceeds that figure, so its oral form leaves it unenforceable. Option b is incorrect because furniture is tangible, movable goods, not a service. The sale is governed by the UCC, and the writing requirement flows from the goods threshold, so misclassifying it as a service is wrong. Option d is incorrect because furniture is not exempt from the writing requirement. Once a goods sale reaches five hundred dollars, a signed writing is needed, so the reason lies in the price, not any exemption.

Correct Answer: The seller's right to cure applies

When a seller makes a nonconforming tender but time remains, it may cure by giving notice and delivering conforming goods before the deadline. Quill gave notice with ten days left, so its right to cure applies. Option a is incorrect because a buyer facing nonconforming goods is never forced to accept them. Acme could accept all, reject all, or accept part; the governing point here is that Quill may cure before the deadline. Option b is incorrect because a nonconforming delivery does not automatically end the contract. The deal remains alive, and because time is left, Quill's right to cure operates rather than treating the contract as discharged. Option c is incorrect because nominal damages address a proven breach with no real loss, which does not describe this curable early tender. With time remaining and prompt notice, the controlling rule is the seller's right to cure.

Correct Answer: Both parties are discharged by objective impossibility

Destruction of the specific subject matter through no one's fault, when unforeseen, is objective impossibility that discharges both parties. Because the unique antique machine was destroyed before delivery, neither Rivera nor Acme remains bound and the duties are excused. Option b is incorrect because the contract was for one specific antique machine, not any similar unit. Once that unique item is destroyed, Rivera cannot be required to substitute another; the destruction discharges the duty instead. Option c is incorrect because objective impossibility excuses Rivera rather than leaving her liable. The unique machine was destroyed without fault, so the destruction discharges her delivery duty and Acme cannot collect damages for it. Option d is incorrect because specific performance is impossible when the unique item no longer exists. A court cannot order Rivera to deliver a machine destroyed by fire, so both parties are discharged rather than compelled.

Correct Answer: The innocent party, Dana, is discharged

When one party materially alters a written contract without the other's consent, the innocent party is discharged by operation of law. Because Acme secretly changed a key term behind Dana's back, Dana is released and need not perform. Option a is incorrect because the law will not hold Dana to terms secretly changed without consent. A material alteration discharges the innocent party, so Dana is released rather than bound to the altered version Acme created. Option c is incorrect because the alteration discharges Dana, the innocent party, rather than giving Acme a power to void. It would be perverse to let the party who secretly changed the document choose whether to enforce it. Option d is incorrect because the remedy for a material alteration is discharge of the innocent party, not a limited award of consequential damages. Dana is freed from the contract entirely, which is broader relief than recovering indirect losses.

Correct Answer: UCC Article 2A on leases of goods

A lease of goods transfers the right to possess and use movable property for a period while ownership stays with the lessor, and it is governed by UCC Article 2A. Because the copiers are goods being leased, Article 2A applies. Option b is incorrect because real estate law covers land and permanently attached structures, not movable copiers. The copiers are tangible, movable goods, so a lease of them falls under Article 2A rather than real property law. Option c is incorrect because Article 2 governs sales that transfer ownership of goods, whereas this deal transfers only possession and use. Since title stays with Dana, the governing provisions are Article 2A on leases, not Article 2. Option d is incorrect because negotiable-instruments law governs checks, notes, and similar formal financial instruments. A copier lease involves goods, not a negotiable instrument, so that body of law has no application here.

Correct Answer: Accord and satisfaction

Accord and satisfaction discharges a duty when the parties agree to a substitute performance, the accord, and then actually carry it out, the satisfaction. Brightway agreed to take forklift instead of cash and Marlo delivered it, discharging the debt. Option a is incorrect because novation requires substituting a new party into the contract, which did not happen. The same two parties simply agreed to a different performance that Marlo then rendered, which is accord and satisfaction. Option b is incorrect because mutual rescission cancels the deal and restores both sides to their pre-contract positions. Here the parties did not unwind the obligation; they replaced cash with delivered forklift, discharging it by accord and satisfaction. Option c is incorrect because material alteration involves secretly changing a written contract without consent. Nothing was altered behind anyone's back; both parties openly agreed to accept forklift for cash, which discharges the debt differently.

Correct Answer: When the document of title is delivered

When goods are represented by a document of title such as a warehouse receipt, title passes when and where that document is delivered to the buyer. The seller may keep physical possession, yet ownership follows the receipt to the buyer. Option a is incorrect because a later resale by the buyer has nothing to do with when title first passed from the seller. Ownership transferred earlier, when the warehouse receipt was handed over, not when the buyer resells. Option c is incorrect because physical movement is unnecessary when a document of title governs the sale. The whole point of a warehouse receipt is that title follows the document while the goods sit still in storage. Option d is incorrect because signing the contract does not itself transfer title when a document of title exists. Title passes specifically when the warehouse receipt is delivered, which may occur after signing, so contracting is not the trigger.