[startupcfo]

Page 82 of REG textbook:

Seller agrees on February 15th to sell wheat at $6 to buyer on June 23rd. On June 1st, buyer backs out. Seller sells the wheat for $5 instead to a third party.

The textbook claims that the buyer wrongfully revoked acceptance of goods, and is thus liable for a lawsuit.

I could see why that would be the case if this was custom-designed machinery, but this is a commodity. Aren’t both buyers and sellers allowed to back out of a contract anytime before payments are made and goods are delivered?

AUD - 93
BEC - 87
FAR - 77
REG - 77

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Corporate finance leader

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[FIFOisbetterthanLIFO]

Not at all…what would be the point of having a contract if it could be broken at anytime? If a contract is in place, the seller should be able to recoup the difference between the original agreed-on price and the third party price. In this case, its $1.

FAR - Passed (82)
BEC - Passed (76)
AUD - Passed (89)
REG - Passed! (81)
AICPA Ethics

Licensed CPA

[Anonymous]

You have to think that the farmer might have planted that field in wheat instead of corn based on this contract, cause he knew he could get $5.50 for the same amount of field used for corn, but $6 was a better deal, so he planted in wheat. Or any number of other options. However, he had a contract, that he would provide a specific good (wheat) or provide a specific service (growing wheat, if the contract specified he would sell wheat that he himself grew), in exchange for the buyer providing a specific amount of currency in return. The contract was broken, and the farmer suffered damages in the amount of the difference between the agreed-upon price and the final price.

Contracts can be written in such a way that the buyer has the option to leave at any time, but without verbiage releasing the buyer, the contract is binding to both. The farmer can't decide that with wheat prices at $8 each to sell to a third party in June at $8 each; the buyer can't decide with wheat prices at $5 in June to buy from a third party at $8 each; otherwise they'd both just make their deal in June when they see what prices are like. The futures market in oil is a more commonly-referenced example of agreements like the one in this problem

[Andyred04]

Correct ^

FAR 80
REG 87
BEC 87
AUD 96

Primarily Gleim, supplemented with Ninja Notes & Ninja MCQs

Missouri CPA as of January, 2017

FAR: 80 (Gleim, Ninja Notes, Ninja MCQs)
REG: 87 (Gleim, Ninja Notes, Ninja MCQs)
BEC: 87 (Gleim, Ninja Notes, Ninja MCQs)
AUD: 8/27/16

PA Candidate

[Author]

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