PSI Contracts and Business Law 5 — Questions and Answers
Question 1: Under the UCC, what is the 'perfect tender rule' for the sale of goods?
- The buyer must accept goods that substantially conform to the contract
- The seller must tender goods that exactly conform to the contract or the buyer may reject (Correct answer)
- Minor defects in goods can never be grounds for rejection
- The buyer must notify the seller of defects within 30 days
Correct answer: The seller must tender goods that exactly conform to the contract or the buyer may reject
The UCC's perfect tender rule gives the buyer the right to reject goods if they fail to conform to the contract in any respect, though the seller may have a right to cure.
Question 2: A corporation's shareholders are generally not personally liable for corporate debts. Under what circumstances might a court 'pierce the corporate veil' and hold shareholders liable?
- Whenever the corporation fails to earn a profit
- When shareholders comingle personal and corporate funds and use the corporation as an alter ego (Correct answer)
- When a shareholder owns more than 50% of the stock
- When the corporation has fewer than five employees
Correct answer: When shareholders comingle personal and corporate funds and use the corporation as an alter ego
Courts pierce the corporate veil when shareholders ignore corporate formalities, commingle funds, or use the corporation as a personal alter ego to perpetrate fraud or injustice.
Question 3: What is the 'mailbox rule' in contract law?
- Acceptance is effective when the offeror receives it
- Acceptance is effective when the offeree deposits it in the mail (Correct answer)
- An offer expires when delivered by mail
- Written contracts are only enforceable if delivered by certified mail
Correct answer: Acceptance is effective when the offeree deposits it in the mail
Under the mailbox rule, acceptance of an offer is effective the moment it is properly dispatched (placed in the mail), not when the offeror receives it.
Question 4: A retailer advertises a TV for $50 (clearly a printing error; the actual price is $500). A customer demands the TV at $50. Under contract law, which of the following is most accurate?
- The advertisement is an offer and the customer's demand constitutes acceptance, forming a binding contract
- The advertisement is merely an invitation to deal, not an offer, and no contract is formed (Correct answer)
- The retailer must sell at the advertised price under consumer protection law
- The customer can sue for specific performance to obtain the TV at $50
Correct answer: The advertisement is merely an invitation to deal, not an offer, and no contract is formed
Advertisements are generally treated as invitations to deal, not offers, so no contract is formed until the seller accepts the customer's offer to purchase.
Question 5: Which of the following best describes 'consequential damages' in a breach of contract case?
- Damages equal to the contract price regardless of actual loss
- Damages for losses that result as a natural consequence of the breach and were foreseeable at the time of contracting (Correct answer)
- Nominal damages awarded when no actual loss is proven
- Damages intended to punish the breaching party
Correct answer: Damages for losses that result as a natural consequence of the breach and were foreseeable at the time of contracting
Consequential damages compensate for foreseeable losses flowing indirectly from the breach, such as lost profits, provided the breaching party had reason to know of them at contracting.
Question 6: What is a 'material breach' of contract?
- Any deviation from the contract terms, no matter how minor
- A breach so significant that it defeats the purpose of the contract and excuses the non-breaching party's performance (Correct answer)
- A breach that results in damages exceeding $10,000
- A breach that occurs after partial performance
Correct answer: A breach so significant that it defeats the purpose of the contract and excuses the non-breaching party's performance
A material breach is one that goes to the essence of the contract, allowing the non-breaching party to treat the contract as terminated and sue for total breach.
Question 7: Under what circumstances is specific performance available as a remedy for breach of contract?
- Whenever the non-breaching party requests it
- When money damages are inadequate, typically because the subject matter is unique (Correct answer)
- Only in real estate contracts
- When both parties agree to it in the contract
Correct answer: When money damages are inadequate, typically because the subject matter is unique
Specific performance is an equitable remedy granted when monetary damages are inadequate to compensate the non-breaching party, as is typically the case with unique goods or real estate.
PSI Contracts and Business Law 5
Under the UCC, what is the 'perfect tender rule' for the sale of goods?