D216 Business Law for Accountants - Set 2 - Part 3

Correct Answer: The contract remains enforceable against the buyer

This is a unilateral mistake of fact, where only one party is mistaken, and such contracts are generally enforceable. The seller neither knew of nor caused the buyer's private assumption, and no math error occurred, so the buyer remains bound. Option b is incorrect because fraud requires a knowing misrepresentation with intent to deceive, and the seller made none. The buyer simply held a private mistaken assumption, so there is no fraud and no ground to void the contract. Option c is incorrect because mutual mistake requires both parties to share the same wrong belief about a material fact. Only the buyer was mistaken, making this a unilateral mistake that leaves the contract enforceable, not rescindable. Option d is incorrect because nothing about the deal is illegal or against public policy. A purchase of used equipment is lawful, so the void-for-illegality category does not apply; the real issue is a one-sided mistake.

Correct Answer: An implied-in-fact contract

An implied-in-fact contract forms from conduct rather than words. Dana furnished the work expecting payment, Rivera knew a plumber expects to be paid, and Rivera could have refused but did not, so an implied contract arose for the reasonable value. Option a is incorrect because no terms were spoken or written for the water-heater work. The agreement arose entirely from the parties' conduct, which makes it implied in fact rather than an express contract stated in words. Option c is incorrect because a formal contract under seal requires a special method of creation not present in a casual home repair. This obligation arose from conduct, so it is an ordinary implied-in-fact contract, not a sealed instrument. Option d is incorrect because the absence of a stated price does not defeat an implied-in-fact contract. The law implies a duty to pay the reasonable value of the work, so Rivera owes despite no price being spoken.

Correct Answer: Stoppage of delivery in transit

Stoppage of delivery in transit lets a seller halt goods already handed to a carrier upon learning of the buyer's insolvency before delivery. Because the goods are still on the truck, the seller may stop them. Option a is incorrect because cover is a buyer's remedy for purchasing substitute goods after a seller fails to deliver. This seller wants to halt goods it already shipped to an insolvent buyer, which is stoppage in transit instead. Option b is incorrect because replevin is a buyer's action to recover identified goods wrongfully withheld by a seller. Here the seller, not the buyer, seeks to stop goods in transit, so replevin does not apply. Option d is incorrect because reformation is an equitable remedy that rewrites a contract to reflect the true agreement after a drafting error. It has nothing to do with halting a shipment, so it cannot address this need.

Correct Answer: Reformation to correct the writing

Reformation is the equitable remedy in which a court rewrites a contract to reflect the parties' true agreement when a clerical error makes the writing inaccurate. Since both sides agree on the real terms, the court may reform it. Option b is incorrect because rescission cancels the contract and unwinds the deal, which neither party wants. They intend to keep their bargain and merely fix a clerical error, so reformation fits far better than undoing the agreement. Option c is incorrect because specific performance would enforce the erroneous written terms exactly as drafted, defeating the parties' real intent. The proper step is to correct the document first through reformation, not to compel a wrong quantity. Option d is incorrect because nominal damages are a token award for a proven breach with no real loss. No breach is even at issue; the parties simply need the document corrected, which reformation accomplishes without any damages.

Correct Answer: It disclaims the implied warranties generally

Selling goods as is or with all faults generally disclaims the implied warranties, including merchantability and fitness, because such language calls attention to the exclusion. The conspicuous as-is marking disclaims those warranties, so the buyer cannot recover here. Option a is incorrect because as-is language does the opposite of creating a warranty; it excludes them. An express warranty requires an affirmative factual assurance, whereas selling as is signals the buyer takes the item without quality guarantees. Option b is incorrect because as-is language is precisely the phrasing the UCC recognizes as disclaiming implied warranties. Far from having no effect, a conspicuous as-is sale removes those warranties, so the buyer loses the merchantability claim. Option c is incorrect because as-is language reaches the implied warranties of quality like merchantability and fitness, not merely title. The title warranty is disclaimed through different language, so limiting the effect to title understates it.

Correct Answer: Yes, through the merchants' written-confirmation rule

Between merchants, a signed written confirmation of an oral deal satisfies the Statute of Frauds against a receiving merchant who does not object in writing within a reasonable time. Acme received the confirmation and stayed silent, so it is bound. Option a is incorrect because the merchants' confirmation rule deliberately binds a silent receiving merchant even without its signature. Acme's failure to sign is exactly what the rule overcomes, so the missing signature does not defeat enforcement. Option b is incorrect because oral sales are not always unenforceable; several exceptions apply, including this one. Quill's signed confirmation, unobjected to by Acme, satisfies the writing requirement, so the oral agreement becomes enforceable. Option d is incorrect because the confirmation rule is not limited to specially manufactured goods. It applies broadly between merchants whenever one sends a signed confirmation and the other fails to object, reaching ordinary goods too.

Correct Answer: Yes, under the specially manufactured goods exception

The specially manufactured goods exception enforces a goods contract without a writing when the items are custom-made, unsuitable for sale to others, and the seller has substantially begun production. The logo packaging fits all three, so the deal is enforceable. Option a is incorrect because the absence of a signed writing is exactly what the specially manufactured goods exception excuses. Since the packaging is custom, unsaleable to others, and already in production, the contract is enforceable without any signature. Option c is incorrect because a price above the threshold normally triggers the writing requirement but does not bar enforcement when an exception applies. The specially manufactured goods exception overrides that threshold on these facts entirely. Option d is incorrect because packaging is not categorically exempt from the Statute of Frauds. Enforcement depends specifically on the specially manufactured goods exception being met, not on any blanket rule that packaging escapes writing.

Correct Answer: Yes, because it violates the one-year rule

The Statute of Frauds requires a signed writing for any contract that by its terms cannot be performed within one year. A fixed two-year term cannot finish within a year, so the one-year rule makes this oral agreement unenforceable. Option b is incorrect because two years is not short for these purposes; it exceeds one year, which is what matters. Because the fixed term cannot be completed within a single year, the one-year rule brings it within the Statute. Option c is incorrect because employment contracts are not categorically outside the Statute of Frauds. When an employment term cannot be performed within a year, the one-year rule applies, so this two-year agreement is covered, not exempt. Option d is incorrect because a contract can be valid yet unenforceable. This agreement is real in substance but unenforceable for lack of a writing, which differs sharply from being void with no legal effect at all.

Correct Answer: Specific performance to obtain the machine

When goods are unique and money damages are inadequate, a buyer may obtain specific performance compelling delivery. Because the custom-built machine is one of a kind and cannot be replaced by cover, Acme may compel delivery. Option a is incorrect because cover requires buying substitute goods, impossible when the machine is genuinely unique. Since no equivalent exists on the market, Acme cannot cover, so specific performance becomes the fitting remedy for these goods. Option b is incorrect because nominal damages are a token sum for a breach with no real loss. Acme suffered a real loss of a unique machine and wants the item itself, so a symbolic award cannot substitute for delivery. Option c is incorrect because stoppage in transit is a seller's remedy for halting goods it already shipped to a breaching buyer. Acme is the buyer seeking a unique item, so specific performance, not stoppage, is available.

Correct Answer: The implied warranty of merchantability

The implied warranty of merchantability arises automatically when a merchant sells goods of that kind and assures fitness for ordinary purposes. A blender that catches fire in normal use is unfit for ordinary use, so the merchant breached it. Option a is incorrect because fitness for a particular purpose requires the seller to know a special use and that the buyer relies on the seller's judgment. The customer used the blender ordinarily, so merchantability supports the claim instead. Option c is incorrect because the no-infringement warranty protects buyers against third-party intellectual-property claims on the goods. A blender that catches fire presents a quality defect, not a patent dispute, so this warranty has no bearing. Option d is incorrect because an express warranty depends on a specific factual promise by the seller. Nothing indicates Northwind expressly affirmed the blender's safety, so recovery rests on the implied warranty of merchantability.