CONTRACT FORMATION

Question 1

MBE CONTRACTS - Contract formation
What is a contract?

Answer 1

A contract is just a legal term with a legal requirement. It is a legally enforceable agreement.

Look for an agreement plus a special legal basis for enforcing the promise (e.g. bargained-for consideration)

Question 2

MBE CONTRACTS: Contract formation

What are the applicable law/rules that govern the law of contracts?

Answer 2

Common law: where the contract deals with real estate or services

UCC Art. 2: Whenever a contract deals with the sale of goods.

UCC governs all parties who enter into a goods contract, not just merchants.

Question 3

MBE CONTRACTS: Contract formation

What law applies if the contract in question has elements of both services and goods?

Answer 3

1. The “all or nothing” rule. This has to either be governed by the CL or UCC. Cannot be both.

Exception: Divisible contracts: The agreement can be divided into two mini-contracts.

2. Predominant purpose rule: Use the law that governs whichever plays the bigger role–goods or services.

Question 4

MBE CONTRACTS: Formation: Making an offer

What are the four big issues/topics when considering whether an enforceable contract has been formed?

Answer 4

1. Agreement (offer and acceptance)
2. Consideration (and related theories for when you have to keep your promise)
3. Defenses to formation
4. Statute of Frauds

Question 5

MBE CONTRACTS: Offers

What is an offer?

Answer 5

An offer is a manifestation of a willingness to enter into an agreement (by the offeror) that creates the power of acceptance (in the offeree).

Question 6

MBE CONTRACTS: How one creates a valid legal offer

What test governs the offer and acceptance?

Answer 6

The offer and acceptance are governed by the objective test.

The outward appearance of words and actions matter- not secret intention.

Key question: is whether the offeror displays an objectively serious intent to be bound.

**Watch out for situations involving humor or anger–the offeror may not be displaying a serious intent to be bound under the objective test.

Question 7

MBE CONTRACTS: Offer

Can anyone accept an offer made by the offeror?

Answer 7

No. An offer must usually be directed to a specific offeree. You cannot accept an offer unless it is directed to you.

Limited exception: contest offers or reward offers

Question 8

MBE CONTRACTS: Offer

How specific must the offer be?

Answer 8

Under the common law: All essential terms must be covered in the agreement.

UCC: The law is more willing to fill the gaps and find a contract, even if the agreement leaves out some key terms.

Under the UCC, the only essential term is the quantity of what you are selling.

Question 9

MBE CONTRACTS: Offer

What must the offer convey?

Answer 9

A valid offer must convey the power of acceptance to the other side . (The offeree can simply say “I accept” and know that he has concluded a deal.)

Question 10

MBE CONTRACTS: Offers

How can an offer be terminated?

Answer 10

1. The offeror revokes the offer by express communication to the offeree.
2. The offeree learns that the offeror has taken an action that is absolutely inconsistent with a continuing ability to contract. This is called a constructive revocation.
3. The offeree rejects the offer. Usually effective upon receipt. An offeree cannot accept an offer once it has been terminated.
4. The offeree makes a counter offer. Acts as a rejection of the original offer and creates a new offer. Exception: for an option holder, who has the right to make counteroffers during the option period without terminating the original offer.
5. The offeror dies.
6. A reasonable amount of time passes.

Question 11

MBE CONTRACT: Irrevocable Offers

The offeror is normally free to revoke at any time prior to acceptance.

How does an “irrevocable offer” arise?

Answer 11

An “irrevocable offer” can arise in four ways.

1. Option : Promise not to revoke
   It is an independent promise to keep an offer open for a specified period of time. Such a promise limits the offeror’s power to revoke the offer until after the period has expired.

If the option is a promise not to revoke an offer to enter a new contract, the offeree must generally give separate consideration for the option to be enforceable.

If the option is within an existing contract, no separate consideration is required.

2. UCC Firm Offer - applies only to merchants
   a. Must be written, signed by offeror and contain an explicit promise not to revoke.
   b. Time period: either (1) as long as stated in the offer; or (1) for a reasonable time period not to exceed 90 days
3. Unilateral contract - Offeree has started performance (partial performance)
   a. A unilateral offer to contract cannot be revoked by the offeror if the offeree has started to perform.b. Note: The offeree is not required to complete performance and can stop at any time.
4. Detrimental reliance: Arises when an offeree reasonably and detrimentally relies on the offer in some foreseeable manner.

Question 12

MBE CONTRACTS: Acceptance

What is an acceptance in contract law?

Answer 12

An acceptance is an objective manifestation by the offeree to be bound by the terms of the offeror.

An offeree must know of the offer upon acceptance for it to be valid.

Question 13

MBE CONTRACTS: Mailbox Rule

State the mailbox rule.

Answer 13

An acceptance that is mailed within the allotted response time is effective when sent, (not upon receipt), unless the offer provides otherwise.

Mailbox rule only applies to acceptance, therefore it almost exclusively applies to bilateral contracts because unilateral contracts require action as acceptance.

Question 14

MBE CONTRACTS: Mailbox rule - Rejection following acceptance

What happens if the offeree sends an acceptance and then later sends a communication rejecting the offer?

Answer 14

The acceptance will generally control even if the offeror receives the rejection first.

However, if the offeror receives the rejection first, and detrimentally relies on the rejection, then the offeree will be estopped from enforcing the contract.

Question 15

MBE CONTRACTS: Mailbox rule- Acceptance following rejection

What happens if a communication is sent rejecting the offer and then a later communication is sent accepting the contract?

Answer 15

Mailbox rule will not apply and the first one to be received by the offeror will prevail.

An acceptance or rejection is received when the writing comes into the possession of the offeror or his agent, or when it is deposited in his mailbox.

Question 16

MBE CONTRACTS: Effect of additional or different terms

Explain the mirror image rule.

Answer 16

This rule applies to common law transactions.

The acceptance must mirror the terms of the offer. Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer.

A conditional acceptance terminates the offer and acts as a new offer from the original offeree.

Question 17

MBE CONTRACTS: Effect of additional or different terms

What rule applies where the acceptance contains additional or different terms and there is a “sale of goods” transaction?

Answer 17

The UCC applies. The UCC does not follow the common law mirror image rule. Additional or different terms included in an acceptance of an offer do not automatically constitute a rejection of the original offer.

Generally, for a sale of goods, an acceptance that contains additional or different terms with respect to the terms in the offer is nevertheless treated as an acceptance rather than a rejection and a counteroffer.

Exception exists when the acceptance expressly conditions assent to the additional or different terms, in which case the acceptance would be a counteroffer.

Question 18

MBE CONTRACTS: Effect if additional or different terms and the UCC

UCC generally treats these additional or difference terms for the sale of goods as an acceptance rather than a rejection of the initial offer and a counteroffer by the offeree.

Whether the additional or different terms are treated as part of the contract depends on what?

Answer 18

Whether the additional or different terms are treated as part of the contract depends on whether the parties are merchants.

a. One or both parties are merchants: When the contract is for the sale of goods between nonmerchants or between a merchant and a non-merchant, a definite and seasonable expression of acceptance or written confirmation that is sent within a reasonable time operates as an acceptance of the original offer.

This is true even if it states terms that are additional to or different from the original offer, unless the acceptance is made expressly conditional on the offeror’s consent to the additional or different terms.

The additional terms are treated as a proposal for addition to the contract that must be separately accepted by the offeror to become a part of the contract.

b. Both parties are merchants–battle of the forms

i. When the acceptance includes additional terms: Is automatically included in the contract when both parties are merchants, unless:
(Term will not become part of the contract–if the below exceptions apply.)
(a) The term materially alters the original contract;
(b) The offer expressly limits acceptance to the additional terms of the offer; or
(c) The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received.

2. Acceptance includes different terms. - Most courts apply the knock-out rule under which different terms in the offer and acceptance nullify each other and are knocked out of the contract. When gaps are created after applying this rule, the court uses Art 2’s gap filling provisions to patch the holes.

Question 19

MBE CONTRACTS: Consideration

When can an agreement between the parties be legally enforceable?

Answer 19

If there is a valid offer and acceptance that creates an agreement, the agreement can be legally enforceable if there is consideration.

Question 20

MBE CONTRACTS: Consideration

What is consideration?

Answer 20

Valuable consideration is evidenced by a bargained for change in the legal position between the parties.

Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.

Look for a bargained-for exchange.

1. A return promise to do something;
2. A return promise to refrain from doing something legally permitted;
3. The actual performance of some act; or
4. Refraining from doing some act

Question 21

MBE CONTRACTS: Gifts

A promise to make a gift does not involve bargained-for consideration and is therefore unenforceable.

How do you distinguish a gift from valid consideration?

Answer 21

The test to distinguish a gift from valid consideration is whether the offeree could have reasonably believed that the intent of the offeror was to induce the action.
If yes, there is consideration, and the promise is enforceable.

Question 22

MBE CONTRACTS: Gifts and promissory estoppel

When can a person enforce a gift promise and under what doctrine?

Answer 22

A party’s promise to make a gift is enforceable under the doctrine of promissory estoppel if:

The promisor/donor knows that the promise will induce substantial reliance by the promisee, and the failure to enforce the promise will cause substantial injustice.

Question 23

MBE CONTRACTS - TERMINATION OF OFFER BEFORE ACCEPTANCE

Answer 23

**Termination of offer before acceptance
**
**Offeror’s revocation
**
Offeror communicates revocation directly to offeree
Offeree learns information from reliable source that reasonably indicates offer was revoked (eg, house sold to another buyer)

**Offeree’s rejection
**
Offeree communicates rejection directly to offeror
Offeree’s counteroffer serves as rejection & new offer

Lapse

Time period specified in offer expires
After reasonable time if no time period specified in offer
By law

**Either party dies or is adjudicated insane
**
Subject matter of offer is destroyed or becomes illegal
Once an offer has been made, a binding contract will be formed if the offer is accepted before it terminates. Offers can be terminated by revocation, rejection, lapse, or operation of law (see table above). An offer terminates by operation of law when, for example, the subject matter of the offer is destroyed.

Question 24

MBE CONTRACTS - DELEGATIONS

Answer 24

Obligations and duties under a contract can generally be delegated to another. Acceptance of the delegation by the delegatee constitutes a promise to perform those duties. That promise is enforceable against the delegatee if:

the delegatee has received consideration or
there is a consideration substitute that makes the promise enforceable.
However, the delegator is not released from liability unless the other party to the contract expressly or impliedly agrees to a novation—i.e., to release the delegator from his/her promises under the original contract and substitute a new party.

Question 25

MBE CONTRACTS - NONDELEGABLE CONTRACTUAL DUTIES

Answer 25

Nondelegable contractual duties

Delegation not permitted when:

other contracting party has substantial interest in having delegating party perform (eg, in personal-services contract involving taste or special skill) or
delegation is prohibited by contract
Duties and obligations under a contract can generally be delegated. However, delegation is not permitted when:

a contracting party has a substantial interest in having the delegating party perform (e.g., in a personal-services contract involving taste or a special skill) or

delegation is prohibited by the contract.

Question 26

MBE CONTRACTS - PAROL EVIDENCE RULE AND UCC PARTIAL INTEGRATION PRESUMPTION

Answer 26

The parol evidence rule generally bars the admission of extrinsic evidence of prior or contemporaneous agreements that modify or contradict the terms of an integrated writing. However, the scope of this bar depends on whether the writing is:

totally integrated – sets forth the parties’ agreement about all terms, so such evidence is not admissible or

partially integrated – sets forth the parties’ agreement about some but not all terms, so such evidence is admissible if it is consistent with the written terms—but not if it contradicts them.

The UCC, which applies to contracts for the sale of goods (e.g., comic books), presumes that a contract is partially integrated. However, that presumption goes away when the writing contains a merger clause—i.e., a clause that declares the written contract to be the complete and final agreement between the parties. The written contract will instead be deemed completely integrated.

Question 27

MBE CONTRACTS - INSTALLMENT CONTRACTS

Answer 27

Installment contracts

Deliveries

Price for each installment generally due at time & place of each delivery

Seller’s damages for breach amount to missed payments

Buyer’s damages for breach amount to fair market value minus contract price for missed deliveries
Payments

Creditor’s damages for breach amount to missed payments
Special rules apply to installment contracts for the sale of goods (e.g., windows), which are governed by the UCC. Under the UCC, an installment contract is defined as a contract in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. Payment by the buyer is due upon each delivery unless the price cannot be apportioned.

Question 28

MBE CONTRACTS - INSTALLMENT CONTRACTS: DEFINE

Answer 28

Under the UCC, an installment contract is defined as a contract in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. Payment by the buyer is due upon each delivery unless the price cannot be apportioned.

Question 29

MBE CONTRACTS - COMMON LAW RULES FOR OPTION CONTRACT

Answer 29

Termination of offer before acceptance

Offeror’s revocation

Offeror communicates revocation directly to offeree
Offeree learns information from reliable source that reasonably indicates offer was revoked (eg, house sold to another buyer)

Offeree’s rejection

Offeree communicates rejection directly to offeror
Offeree’s counteroffer serves as rejection & new offer
Lapse

Time period specified in offer expires
After reasonable time if no time period specified in offer
By law

Either party dies or is adjudicated insane
Subject matter of offer is destroyed or becomes illegal
To form a contract, an offer must be accepted before it terminates. If an offer specifies a date on which it will terminate, then the offer will automatically terminate on that date if it has not been accepted. However, the offer can be terminated at an earlier date—unless the offeree gave separate consideration for the independent promise to keep the offer open for a specified time, thereby forming an option contract.

Here, the bride offered to sell her wedding dress to the bridesmaid for $5,000 and stated that her offer would remain open for 30 days. But since the bridesmaid gave no consideration for the option, the bride’s offer could be terminated before the 30-day deadline (Choice C).

An early termination can occur if, for example, the offeree makes a counteroffer, which acts as a rejection of the original offer and creates a new offer.* However, mere indecision and inquiries (e.g., requests for clarification) do not constitute counteroffers. Therefore, the bridesmaid’s email inquiring as to whether the price included the bride’s custom-made veil did not constitute a counteroffer (Choice B). And since the bridesmaid accepted the $5,000 offer within the 30-day period, a valid contract was formed.

*An exception exists for an option holder, who has the right to make counteroffers during the option period without terminating the original offer.

Question 30

MBE CONTRACTS - OPTION (PROMISE NOT TO REVOKE) COMMON LAW

Answer 30

An offer that specifies a date on which it will terminate will automatically terminate on the specified date. But unless consideration was paid to keep this option open, the offer can be terminated at an earlier date—e.g., if the offeree makes a counteroffer.

Question 31

MBE CONTRACTRS - WHEN NONOCCURRENCE OF A CONDITION IS EXCUSED

Answer 31

When nonoccurrence of condition is excused

Waiver

Party waives condition by words or conduct
Wrongful interference

Party wrongfully prevents or interferes with condition’s occurrence
Estoppel

Party indicates condition will not be enforced
AND

Other party reasonably & detrimentally relies on belief that condition has been waived
Disproportionate forfeiture

Party substantially performed & will be significantly harmed if condition is enforced
A condition precedent is an explicit contract term requiring a future event to occur before a party becomes obligated to perform. However, under the doctrine of prevention, a condition’s nonoccurrence is excused when the party whose duty to perform is subject to the condition wrongfully prevents or interferes with the occurrence of that condition.

Here, pursuant to the March 15 offer, the company’s duty to pay the employee a bonus was subject to the employee’s completion of two conditions:

attaining the requisite sales figures, which was satisfied when the employee met his March sales goal and

reporting those figures in a specified manner, which the employee was unable to do because the company disconnected its phone lines.

Question 32

MBE CONTRACTS - OFFEREE’S POWER OF ACCEPTANCE

Answer 32

To form a contract, an offer must be accepted before it terminates. An offer will terminate if, for example, the offeree rejects it by clearly conveying that he/she does not intend to accept the offer OR by making a counteroffer. Once the offer has terminated, it cannot be accepted.
But the offer can be revived if the offeror conveys that it is still open. This creates a renewed opportunity for acceptance by the offeree. If the offeree accepts the revived offer, then a binding contract is formed.

Question 33

MBE CONTRACTS - EXCEPTIONS TO PAROL EVIDENCE RULE

Answer 33

Exceptions to parol evidence rule

Evidence of prior or contemporaneous oral or written agreement is admissible to establish:

whether writing is integrated and, if so, completely or partially

meaning of ambiguous term

defense to formation or enforcement (eg, fraud, duress, mistake)

ground for granting or denying remedy (eg, rescission, reformation)

subsequent contract modifications

condition precedent to effectiveness

The parol evidence rule generally bars evidence of prior or contemporaneous agreements that supplement or contradict the terms of a written contract that is completely integrated.*
The written contract between the owner and the company is completely integrated because it contains a merger clause—i.e., a clause that declares the contract to be the complete and final agreement between the parties.

However, the parol evidence rule does not apply to evidence offered to raise a defense to contract formation. Misrepresentation is one such defense, which arises when a contracting party made an untrue assertion of fact.

*In contrast, evidence of prior or contemporaneous communications is admissible to supplement (i.e., add to), but not to contradict, a partially integrated agreement.

Question 34

MBE CONTRACTS - ELEMENTS OF VALID CONSIDERATION

Answer 34

Elements of valuable consideration

Bargained-for exchange

Each party’s willingness to enter agreement must be induced by other party’s act/promise

Legal detriment

Each party must relinquish legal right by either:

performing (or promising to perform) act that is not legally required or
refraining (or promising to refrain) from performing legally permissible act
To be enforceable, a contract must generally be supported by valuable consideration, as evidenced by a bargained-for change in the legal position between the parties (i.e., “mutuality of consideration”). Consideration can take the form of a return promise to do (or not do) something or the actual performance (or nonperformance) of some act. Such performance can be made contingent upon a condition. There are two types of conditions:

Condition precedent – where a party’s duty to perform arises upon the occurrence or nonoccurrence of an uncertain future event (i.e., the event creates the duty)

Condition subsequent – where a party’s duty to perform is released upon the occurrence or nonoccurrence of an uncertain future event (i.e., the event extinguishes the duty)

However, a promise based upon a condition that is within the control of the promisor may be illusory if it essentially promises nothing because the promisor can choose whether to honor that promise.

Question 35

MBE CONTRACTS - RESTITUTIONARY DAMAGES

Answer 35

Restitutionary damages

Definition

Damages awarded to restore to claimant the value of whatever benefit was conferred upon recipient
Purpose

Prevent unjust enrichment
Measure

Reasonable value of work performed or services rendered (ie, cost of recipient obtaining comparable performance)
If applicable, extent to which recipient’s property has increased in value or recipient’s other interests have been advanced
Here, the artist breached the contract when he refused to paint the remaining two rooms and terminated the contract after the owner asked him to use a different color palette. As the breaching party, the artist is entitled to recover restitutionary damages for:

the reasonable value of the work performed before the breach
less any damages suffered by the nonbreaching party due to the breach.
This ensures that the nonbreaching party is not unjustly enriched by the work performed by the breaching party prior to the breach. As a result, the artist is entitled to recover the reasonable value of his services in painting the first three rooms, less any damages the owner may suffer from the artist’s failure to paint the last two rooms.

Question 36

MBE CONTRACTS - HOW DOES CONTRACT FORMATION UNDER THE COMMON LAW DIFFER FROM THE RULES FOLLOWED FOR UCC TRANSACTIONS?

Answer 36

Under the UCC, a contract is formed if the parties intended to contract and there is a reasonably certain basis for giving a remedy—even if the moment of formation is uncertain.

Contract formation under the common law requires an offer with definite terms and an acceptance with knowledge of that offer. But these requirements are relaxed by the UCC, which governs contracts for the sale of goods (e.g., a ring). Under the UCC, a contract is formed if the parties intended to contract and there is a reasonably certain basis for giving a remedy. The contract may be made in any manner sufficient to show agreement—even if the moment of its making is undetermined.

Question 37

MBE CONTRACTS - GIFT PROMISES

Answer 37

Under the doctrine of promissory estoppel, a party’s promise to make a gift is enforceable if (1) the promisor should reasonably expect the promisee to rely on the promise, (2) the promisee detrimentally relies on the promise, and (3) injustice can be avoided only by enforcement of the promise.
A contract must be supported b
y consideration—i.e., a benefit bargained for and received by the promisor from a promisee. Since a promise to make a gift does not involve a bargained-for exchange, it is generally unenforceable. But under the doctrine of promissory estoppel, a gift promise is enforceable if three requirements are met:

the promisor should reasonably expect the promisee to rely on the promise

the promisee detrimentally relies on the promise and
injustice can be avoided only by enforcement of the promise.

Question 38

MBE CONTRACTS - INTEGRATION

Answer 38

Under the UCC, a court should presume that a written contract for the sale of goods is only partially integrated. As a result, evidence of additional consistent terms is admissible unless the court concludes that the parties certainly would have included those terms in the writing.
Integration

Type

Definition

Effect

Complete integration

Writing that sets forth parties’ final agreement about all terms

Excludes parol evidence within scope of agreement
Parol evidence inadmissible to supplement (ie, add to) or contradict contract
Partial integration

Writing that sets forth parties’ final agreement about some terms

Excludes parol evidence inconsistent with agreement
Parol evidence admissible to supplement (not contradict) contract
The parol evidence rule generally prevents a party to a written contract from presenting extrinsic evidence of a prior or contemporaneous agreement that contradicts the terms of the final written agreement. In determining whether contracting parties intended for their written contract to be a final agreement, the court must first determine whether the writing is integrated. The writing can either be:

totally integrated – the writing completely expresses all of the terms of the parties’ agreement or
partially integrated – the writing sets forth the parties’ agreement about some, but not all, terms.
Under the UCC, which governs contracts for the sale of goods (e.g., furniture), it is presumed that a written contract is only partially integrated (Choice C). Since the contract here involves the sale of furniture, this is the rule of interpretation that the court should apply.

For a partially integrated agreement, parol evidence of additional consistent (not contradictory) terms is admissible unless the court concludes that the parties “certainly” would have included those terms in the writing. Here, the supplier’s prior statement that the furniture was of “solid-wood construction” does not contradict the final agreement calling for “cherry tables and desks.” Therefore, the court will likely admit this parol evidence.

Question 39

MBE CONTRACTS - DUTIES UNDER A REQUIREMENTS CONTRACT

Answer 39

A requirements contract is an exclusive agreement between a buyer and a seller for the sale of as many goods as the buyer requires during a specified period. The buyer’s purchase of the goods from another seller violates the implied duty of good faith and fair dealing and constitutes a breach of contract.

Buyer’s duty of good faith & fair dealing under requirements contract

Buyer must purchase goods in question from seller only
Requirements must approximate reasonably foreseeable figure
Reasonable elasticity in requirements permitted (so long as any variations are in good faith)
Article 2 of the Uniform Commercial Code (UCC) governs contracts for the sale of goods. Under the UCC, a requirements contract is a contract for the sale of as many goods as the buyer requires during a specified period. This creates an exclusive agreement between the buyer and the seller. As a result, the duty of good faith and fair dealing implied in every contract requires the buyer to purchase goods from the seller only. A failure to do so violates that duty and is a breach of contract.

Question 40

MBE CONTRACTS - UNILATERAL vs BILATERAL CONTRACTS

Answer 40

A unilateral contract arises when an offeror promises something in return for an offeree’s complete performance of a specified act. Therefore, a unilateral contract is not formed until the offeree’s performance is fully completed.
Bilateral v. Unilateral contracts

Offer

Effect of beginning performance

Unilateral

Invites acceptance by performance of act

Creates option contract that prevents offeror from revoking offer
Offeree is not bound to complete performance
Bilateral

Invites acceptance by return promise

Serves as acceptance of offer
Offeree is bound to complete performance
A unilateral contract arises when an offeror promises something in return for an offeree’s complete performance of a specified act. This means that an offeree’s mere promise to perform does not form a unilateral contract with the offeror. Instead, a unilateral contract is formed only when the offeree’s performance is fully completed.

Question 41

MBE - CONTRACT FORMATION AND MUTUAL ASSENT

Answer 41

Contract formation requires a manifestation of mutual assent, which occurs upon acceptance of a valid offer to contract. The validity of an offer and an acceptance is assessed under the objective theory of contracts. This means that a party’s intent to contract is judged by outward objective facts as interpreted by a reasonable person—not a party’s subjective intent or belief (Choice D). If there is no objective “meeting of the minds,” then no contract is formed.

Question 42

MBE CONTRACTS - INDIVISIBLE CONTRACTS

Answer 42

Although courts prefer to interpret contracts as divisible, they will not do so in contradiction of the contract’s express terms—e.g., when the contract expressly states that it is indivisible.

Order of performances*

Simultaneous performance possible

Condition concurrent implied (ie, performance due simultaneously)

One performance requires time

Condition precedent implied (ie, durational performance due before respective duty triggered)

*These rules apply unless express contractual language or circumstances indicate otherwise.

When a party performs one part of a divisible or installment contract, that party is generally entitled to the agreed equivalent for that part—even if the party fails to perform the other parts of the contract. In other words, that party’s performance of the entire contract is generally not a condition precedent to the other party’s duty to perform. A contract is divisible if:

the parties’ duties can be broken down into at least two corresponding pairs of performances and
those pairs of performances can fairly be regarded as agreed (i.e., bargained-for) equivalents.
Courts prefer to interpret contracts as divisible for reasons having to do with fairness. However, courts will not do so if the contract expressly states that it is indivisible or payment is due upon completion of the entire contract.

Question 43

MBE CONTRACTS - COMPENSATORY DAMAGES AND THEIR PURPOSE

Answer 43

Purpose of compensatory damages

Primary

(expectation measure)

Place nonbreaching party in same position as if contract had been performed
Expectation measure includes:
Expectation damages
Incidental damages
Consequential damages
Fallback

(reliance measure)

When expectation measure too speculative, place nonbreaching party in same position as if no contract had been formed
Reliance measure includes:
Reliance damages
Liquidated damages
Restitution
Nonbreaching parties to a contract may choose between several types of damages, including:

expectation damages – damages that arise naturally and obviously from the breach

reliance damages – foreseeable expenses that the nonbreaching party incurred in reasonable reliance on the promise that the other party would perform

Although the nonbreaching party can pursue reliance damages in lieu of expectation damages, the nonbreaching party cannot recover both for the same breach.

Question 44

MBE CONTRACTS - AUCTION CONTRACTS

Answer 44

During a reserve auction, the auctioneer may withdraw goods from auction prior to completion of the sale (e.g., before the auctioneer’s hammer falls). At a no-reserve auction, goods generally cannot be withdrawn after the auctioneer calls for bids.

Question 45

MBE CONTRACTS - OPERATION OF MAILBOX RULE

Answer 45

An offeror can dictate the manner and means by which the offer may be accepted. But if the offeror does not do so, then the offeree can accept the offer in any reasonable manner and by any reasonable means—e.g., delivering the acceptance by mail, which is effective upon dispatch.

Question 46

MBE CONTRACTS - INTENDED vs INCIDENTAL BENEFICIARIES TO A CONTRACT

Answer 46

Intended beneficiaries receive a direct benefit from a contract because the contracting parties so intended, while incidental beneficiaries receive an indirect benefit from a contract even though there was no contractual intent to benefit them. Only intended (not incidental) beneficiaries can sue to enforce the contract.

Question 47

MBE CONTRACTS - ACCORD AND SATISFACTION

Answer 47

An accord requires consideration to be valid. That consideration can be worth less than what was agreed to in the original contract only if (1) there is a good-faith dispute as to the amount owed or (2) the new consideration is of a different type than what was owed under the original contract.

Question 48

MBE CONTRACTS: PROMISE TO PAY A NEW DEBT BARRED BY THE STATUTE OF LIMITATIONS

Answer 48

A contract must generally be supported by consideration to be enforceable. However, there are circumstances in which a promise is enforceable without consideration. For example, a new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration. When the new promise is an express promise, most jurisdictions require that the new promise be in writing and signed by the debtor to be enforceable.

Question 49

MBE CONTRACTS - CALCULATION OF EXPECTATION DAMAGES

Answer 49

Expectation damages are computed as loss in value + other loss − costs avoided − loss avoided. For late delivery in real estate contracts, loss in value is measured by the fair market rental value of the property for the time that the buyer was denied possession.

Question 50

MBE CONTRACTS - EFFECT OF ACCEPTANCE THAT ADDS ON NEW TERMS

Answer 50

Under the UCC, an acceptance that contains new or revised terms is still an acceptance so long as assent to the new or revised terms is not required. And if at least one of the contracting parties is a nonmerchant, then the new or revised terms are merely treated as proposed additions to the contract.

Question 51

MBE CONTRACTS - WHAT IS A COUNTEROFFER?

Answer 51

A counteroffer is a return offer made by the offeree to the offeror that relates to the same matter as the original offer but materially changes its terms. A counteroffer operates as both a rejection of the original offer and a new offer.

Question 52

MBE CONTRACTS AND SALES - EXCUSE OF PERFORMANCE - IMPRACTICABILITY

EXPLAIN WHEN IMPRACTICABILITY WOULD APPLY? WHAT WOULD THE ALLEGED NON PERFORMING PARTY NEED TO PROVE?

Answer 52

Impracticability defense

Unanticipated or extraordinary event* made performance impracticable

Contract was formed under basic assumption event would not occur
Nonperforming party was not at fault in causing event to occur
*Nonperforming party must not have assumed risk that event would occur (eg, by contractual language).

Parties to a contract have an absolute duty to perform unless that duty is discharged. Performance can be discharged due to impracticability if:

1)an unforeseeable event has occurred
2) the contract was formed under the basic assumption that the event would not occur and
3) the party seeking discharge of performance is not at fault.

But if a party assumed the risk of an event happening that made performance impracticable, then the party’s performance will not be discharged by impracticability.

Question 53

MBE CONTRACTS AND SALES - STATUTE OF FRAUDS FOR UCC CONTRACTS

**What are the rules for a contract for a sale of goods between merchants where the Statute of Frauds may be applicable?

Answer 53

**The UCC statute of frauds applies to contracts for the sale of goods valued at $500 or more. Here, the total price of the shoes exceeds the $500 threshold ($100 × 50 pairs of shoes = $5,000), so the contract must comply with this statute, or meet an exception (Choice D).

To be enforceable, these agreements must be evidenced by a writing that:

1. provides a reasonable basis to believe a contract was formed (the written acknowledgment)
2. identifies the parties (the manufacturer as seller and the owner as buyer)
3. lists the quantity of goods sold (50 pairs of shoes) and
   is signed by the party against whom enforcement is sought (the owner).

However, the UCC relaxes the signature requirement in agreements between merchants—i.e., regular dealers of the goods involved in the transaction. Under the merchant exception, a written confirmation need only be signed by one merchant and sent to the other merchant. If the recipient has reason to know the confirmation’s contents and does not object within 10 days, then it is enforceable against both merchants.

Question 54

CONTRACTS AND SALES - MINOR vs MATERIAL BREACH

EXPLAIN THE DIFFERENCE BETWEEN SUBSTANTIAL PERFORMANCE AND MATERIAL BREACH.

Answer 54

A party who substantially performs contractual obligations (i.e., commits a minor breach) can recover on the contract even though that party has not rendered full performance. The substantially performing party can generally recover the contract price minus any cost that the nonbreaching party incurred to receive full performance.

In contrast, a party who commits a material breach by failing to substantially perform cannot recover under the contract. The breaching party can only recover in restitution for any benefit conferred on the nonbreaching party minus damages for the breach.

Question 55

SALES AND CONTRACTS- ASSIGNMENT OF RIGHTS

When a party assigns certain rights to payment or other contractual rights, when do they expire, if at all?

Answer 55

**Revocable unless:

obligor already performed
document symbolizing assigned right (eg, stock certificate) delivered
written & signed assignment delivered
promissory estoppel applies
None

For value

Irrevocable when:

Assignor warrants that he/she:

has right to assign
is not subject to limitations/defenses unknown to assignee
will not defeat/impair assigned rights

An assignment is the transfer of contractual rights to a third party. If an assignment is not supported by consideration,** then it is a gratuitous assignment and is generally revocable** (exceptions listed in the table above).

A revocable assignment is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.

Question 56

CONDITION PRECEDENTS: In a contract action, how does a condition affect the other party’s duty to perform?

Answer 56

A breach of contract occurs when a party fails to perform a contractual duty that has become due.

Performance may be predicated upon a condition precedent, under which a contracting party’s obligation to** perform arises only upon the occurrence of an uncertain future event**.

If the parties expressly agree to a condition precedent, then the condition precedent will be strictly enforced. This means that a contracting party must fully comply with the condition before the other party’s performance is due.

Question 57

SALES AND CONTRACTS - ENTRUSTMENT OF GOODS BY OWNER TO SOMEONE WHO SELLS

The UCC gives what kind of power to a merchant to convey goods to a buyer in the ordinary course of business?

Answer 57

Under the UCC, which applies to contracts for the sale of goods, the entrustment of goods by the owner to someone who sells goods of that kind (i.e., a merchant) gives the merchant the power to convey good title. Good title can be conveyed to a buyer in the ordinary course of business—i.e., someone who buys goods:

in good faith;

without knowledge that the sale violates the owner’s rights to the goods and

from a merchant in the business of selling goods of that kind.

Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the parties.

Question 58

CONTRACTS AND SALES - UNILATERAL AND MUTUAL MISTAKE

What are the grounds for rescission based on mistake?

Answer 58

Mistake as grounds for rescission

Mutual mistake

Adversely affected party can rescind contract if:

mistake relates to basic assumption of contract

mistake materially affects agreed-upon exchange of performances
AND

adversely affected party did not assume risk of mistake

Unilateral mistake

In addition to above elements for mutual mistake, either:

mistake makes enforcement of contract unconscionable
OR

nonmistaken party caused, or knew or should have known of, mistake

When both parties are mistaken as to an essential element of a contract (i.e., mutual mistake) at the time the contract is formed, the contract is voidable by the adversely affected party if:

the mistake relates to a basic assumption of the contract
the mistake materially affects the agreed-upon exchange of performances and

the adversely affected party did not assume the risk of mistake.

A party assumes the risk of mistake if, at the time the contract is formed, the party is aware that he/she has limited knowledge of the facts and accepts this knowledge as sufficient.

Question 59

What is the purpose of consequential damages in a contract action?

Answer 59

Consequential damages

Damages for losses stemming from nonbreaching party’s special circumstances if breaching party:

knew of those special circumstances
OR
could have reasonably foreseen harm caused by breach
The primary goal of contract damages is to put the nonbreaching party in the same position as if the contract had been performed.

This is typically done by compensating the nonbreaching party for actual economic losses. Such losses include consequential damages, which arise from special circumstances unique to the contracting parties rather than directly from the transaction itself.

To be recoverable, consequential damages must have been reasonably foreseeable to the breaching party when the contract was entered.

Question 60

CONTRACTS AND SALES - DELEGATION OF DUTIES

WHEN IS A DELEGATION OF DUTIES NOT PERMITTED?

Answer 60

Nondelegable contractual duties

Delegation **not permitted when:
**
other contracting party has substantial interest in having delegating party perform (eg, in personal-services contract involving taste or special skill) or
delegation is prohibited by contract
An assignment of a contract that is not limited to contractual rights is typically treated as both an assignment of rights and a delegation of duties.

Contractual duties can generally be delegated to another (the delegatee), and the other party to the contract must accept performance by the delegatee or be in breach. However, delegation is not permitted when:

delegation is prohibited by the contract (e.g., contract says “this contract may not be assigned”) or

the other contracting party has a substantial interest in having the delegating party perform (e.g., in a personal-services contract involving taste or a special skill)

Question 61

WHEN IS THE NONOCCURRENCE OF A CONDITION EXCUSED IN THE PERFORMANCE OF A CONTRACT?

Answer 61

When nonoccurrence of condition is excused

Waiver
Party waives condition by words or conduct

Wrongful interference
Party wrongfully prevents or interferes with condition’s occurrence

Estoppel
Party indicates condition will not be enforced

AND

Other party reasonably & detrimentally relies on belief that condition has been waived

Disproportionate forfeiture
Party substantially performed & will be significantly harmed if condition is enforced

A contracting party may generally avoid performance if a condition precedent—i.e., an uncertain future event that must occur before performance becomes due—has not occurred. The nonoccurrence of a condition may be excused, however, if the party who would benefit from the condition waives it by words or conduct.

And the waiving party cannot retract the waiver once the other party has detrimentally relied on it.

Question 62

REVOCATION OF AN OFFER

When can the offeror revoke his offer? When is it too late/

Answer 62

Termination of offer before acceptance

Offeror’s revocation

Offeror communicates revocation directly to offeree

Offeree learns information from reliable source that reasonably indicates offer was revoked (eg, house sold to another buyer)
Offeree’s rejection

Offeree communicates rejection directly to offeror
Offeree’s counteroffer serves as rejection & new offer*
Lapse

Time period specified in offer expires
After reasonable time if no time period specified in offer
By law

Either party dies or is adjudicated insane
Subject matter of offer is destroyed or becomes illegal
*Counteroffer does not terminate offer if offeree manifests intent to take offer under advisement.

To form a contract, an offer must be accepted before it terminates. If an offer specifies a date on which it will terminate, then the offer will automatically terminate on that date if it has not been accepted. However, the offer can be terminated at an earlier date—unless the offeree gave separate consideration for the independent promise to keep the offer open for a specified time, thereby forming an option contract.

Here, the bride offered to sell her wedding dress to the bridesmaid for $5,000 and stated that her offer would remain open for 30 days. But since the bridesmaid gave no consideration for the option, the bride’s offer could be terminated before the 30-day deadline (Choice C).

An early termination can occur if, for example, the offeree makes a counteroffer, which acts as a rejection of the original offer and creates a new offer.* However, mere indecision and inquiries (e.g., requests for clarification) do not constitute counteroffers. Therefore, the bridesmaid’s email inquiring as to whether the price included the bride’s custom-made veil did not constitute a counteroffer (Choice B). And since the bridesmaid accepted the $5,000 offer within the 30-day period, a valid contract was formed.

*An exception exists for an option holder, who has the right to make counteroffers during the option period without terminating the original offer.

Question 63

CONTRACTS AND SALES - DEFENSE OF IMPRACTICABILITY

WHEN DOES THE DEFENSE OF IMPRACTICABILITY EXCUSE PERFORMANCE?

Answer 63

A contracting party’s duty to perform can be discharged by impracticability. This defense is available when:

1. an unexpected or extraordinary event makes it impracticable for the party to perform
2. the contract was formed under a basic assumption that the event would not occur and
3. the party seeking discharge was not at fault in causing the event to occur.
4. In a personal-services contract (e.g., contract to paint a portrait), impracticability can arise when the party who is to perform the contract—or a person whose existence is required for that performance—dies or becomes incapacitated.*

Question 64

CONTRACTS AND SALES

Under the UCC, what are the rules that a party can use to enforce a modification of an existing contract?

Answer 64

Article 2 of the UCC governs contracts for the sale of goods (e.g., designer jeans). Unlike the common law, the UCC requires no consideration to modify a contract. All that is required is good faith. Good faith requires honesty in fact and fair dealing between the parties according to reasonable commercial standards. Consequently, if a party extorts or otherwise forces the other party to agree to a modification, then the modification is unenforceable.

The doctrine of promissory estoppel lets a party enforce a promise on which it reasonably and detrimentally relied when no valid contract was formed. But here, the parties properly modified a valid contract, so the manufacturer can enforce the promise without showing reliance.

Question 65

SALES AND CONTRACTS: EFFECTS OF AN ILLEGAL CONTRACT

Can a party recover damages if the claimant paid money for the performance of an illegal contract?

Answer 65

A contract to perform an illegal act (e.g., fraud) is void and unenforceable. However, restitution damages may be recoverable if the claimant conferred a benefit on the other party and:

was justifiably ignorant of the facts that made the contract illegal*

was less culpable than the other party (i.e., was not in pari delicto) or

withdrew before the contract’s illegal purpose was achieved and did not engage in serious misconduct (e.g., shockingly immoral, unethical, or unjust behavior).

Question 66

CONTRACTS AND SALES - RIGHTS OF THIRD PARTIES

EXPLAIN THE RIGHTS OF THIRD PARTY BENEFICIARIES.

Answer 66

A third-party beneficiary is a nonparty to a contract who receives some advantage or benefit from the performance of that contract. There are two types of third-party beneficiaries:

intended – those who receive a direct benefit from the contract because the contracting parties so intended and therefore can enforce the contract

incidental – those who receive some indirect benefit from the contract even though there was no contractual intent to benefit them and therefore cannot enforce the contract

Question 67

CONTRACTS AND SALES - AUCTION CONTRACTS

WHAT ARE THE RULES FOR AUCTION CONTRACTS WHEN THE SELLER BIDS?

Answer 67

The UCC, which governs contracts for the sale of goods, provides special rules for auction sales. One such rule limits the seller’s ability to bid at an auction sale. It allows a winning bidder to avoid the sale or pay the price of the last good-faith bid if the auctioneer (1) knowingly accepted a bid by the seller or on the seller’s behalf or (2) procured the seller’s bid to drive up the price of the goods. However, the winning bidder may not do so if:

the seller bid at a forced sale* (e.g., a foreclosure sale initiated by a secured creditor) or
the seller gave notice reserving the right to bid.

Question 68

CONTRACT AND SALES - REAL ESTATE CONTRACT BREACH

In real-estate contracts requiring delivery of possession, is late delivery considered a breach? If so, what is the nonbreaching party entitled to recover?

Answer 68

Compensatory damages

(expectation measure)

Expectation damages

Value of performance without breach (what was promised) minus value of performance with breach (what was received)

Consequential damages

Compensation for losses that do not flow directly & immediately from other party’s breach, including lost profits, so long as losses are not too speculative

Incidential damages

Compensation for commercially reasonable expenses incurred due to other party’s breach

In a real-estate contract that requires delivery of possession, late delivery is a breach that entitles the nonbreaching party to compensatory damages for actual economic losses. Compensatory damages consist of the following:

expectation damages – the difference between the value of performance without the breach (i.e., what was promised) and with the breach (i.e., what was received)

consequential damages – damages that do not flow directly and immediately from the other party’s breach but are the foreseeable consequence of the breach (i.e., not too speculative) and

incidental damages – commercially reasonable expenses incurred due to the other party’s breach.

Question 69

CONTRACTS AND SALES - PAROL EVIDENCE RULE

WHEN IS EXTRINSIC EVIDENCE ALLOWED UNDER THE PAROL EVIDENCE RULE?

Answer 69

The UCC parol evidence rule prohibits the admission of evidence of prior or contemporaneous agreements that would contradict the express terms of a written contract for the sale of goods (e.g., produce). However, the UCC permits express terms to be explained or supplemented by the following extrinsic evidence (listed in order of priority):

Course of performance – ( look for more than one transaction. The merchants should have a history.) equence of conduct relevant to understanding the current transaction between the parties if (1) the agreement involves repeated occasions for performance by a party and (2) the other party accepts performance without objection

Course of dealing – sequence of conduct concerning previous transactions between the parties that establishes a common basis of understanding for interpreting their conduct

Trade usage – any practice or method of dealing in the parties’ business or industry that is practiced with enough regularity to justify an expectation that it will be practiced in the instant case

Question 70

CONTRACTS AND SALES - UCC FIRM OFFER RULE

WHEN CAN A MERCHANT USE THE DEFENSE OF IMPRACTICABILITY TO DISCHARGE HIS/HER DUTIES TO BEFORE UNDER A CONTRACDT?

Answer 70

A party’s duty to perform under a contract can be discharged for impracticability due to an unforeseeable event that occurred after the formation of the contract. But here, the destruction of the tomatoes occurred before contract formation.

Under the UCC firm-offer rule, an offer to buy or sell goods (e.g., tomatoes) will remain open and cannot be modified if:

the offeror is a merchant* (here, the supplier regularly deals in produce)

there is an assurance that the offer is to remain open (here, the supplier’s letter states that the prices will remain firm until August) and

the assurance is contained in a signed writing from the offeror (here, the supplier’s letter was signed).

A firm offer is irrevocable for the time stated in the offer or, if no time is stated, for a reasonable time. However, the period of irrevocability cannot exceed three months—even if a longer time period is stated or implied—unless the offeree gives consideration to validate it beyond the three-month period.

Question 71

CONTRACTS AND SALES - MUTUAL MISTAKE

eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeWhat are the requirements to show there was a mutual mistake of the parties that would be sufficient to void a contract between the parties

Answer 71

A mutual mistake occurs when both parties are mistaken as to an essential element of the contract. In such a situation, the contract may be voidable by the adversely affected party upon proof of the following: (i) mistake of fact existing at the time the contract was formed; (ii) the mistake relates to a basic assumption of the contract; (iii) the mistake has a material impact on the transaction; and (iv) the adversely affected party did not assume the risk of the mistake

Question 72

CONTRACTS AND SALES - REVOCATION OF OFFERS

When and how can an offer be revoked ?

Answer 72

In general, an offer can be revoked by the offeror at any time prior to acceptance. If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked (i.e., a constructive revocation occurs)

Question 73

CONTRACTS AND SALES - DEFENSE OF IMPRACTICABILITY

When will a defense of impracticability apply sufficient to discharge a party from performing?

Answer 73

A mere objective impossibility is not enough to provide a defense against a breach of contract action.

For the defense of impracticability to be available, an unforeseeable event must occur, nonoccurrence of the event must be a basic assumption of the contract, and the party seeking discharge of a breached duty must not be at fault.

Here, the failure of the manufacturer to perfect the new glass-cooling method was foreseeable, and the manufacturer therefore assumed the risk that it may fail to develop the promised glass.

Question 74

CONTRACTS AND SALES - UCC PERFECT TENDER

UNDER THE UCC, HOW DOES A BUYER ACCEPT GOODS DELIVERED BY THE SELLER?

WHEN AND HOW DOES THE BUYER REJECT GOODS DELIVERED?

WHEN IS THE BUYER PERMITTED TO REVOKE HIS ACCEPTANCE?

Answer 74

The UCC requires “perfect tender,” and substantial performance will not suffice except for installment contracts or when the parties agree that it applies.

Here, the masonry company failed to make a perfect tender of the bricks, supplying only 12,000 out of the 20,000 bricks called for under the contract on the March 15 delivery date.

When a seller makes a nonconforming tender of the goods, a buyer may accept or reject all or part of the goods. A buyer in a contract for the sale of goods is required to pay the contract price for goods that he has accepted, unless he has properly revoked his acceptance of those goods.**

Under the UCC, a buyer accepts goods by (i) expressly stating acceptance, (ii) using the goods, or (iii) failing to reject the goods.

Here, the bricklayer accepted the delivery of 12,000 bricks with the company’s assurance that it would deliver the remaining bricks within a week.

A buyer may revoke an acceptance of goods if the nonconformity substantially impairs their value to the buyer and the buyer accepted the goods on the reasonable belief that the seller would cure the nonconformity, but the seller has failed to do so.

Question 75

CONTRACTS AND SALES - NONCONFORMING TENDERS ON AN INSTALLMENT CONTRACT

WHAT ARE THE RULES IF A SELLER MAKES A NONCONFORMING TENDER UNDER ONE SEGMENT OF AN INSTALLMENT CONTRACT? CAN THE BUYER REJECT THE DELIVERY BECAUSE OF THIS NONCONFORMITY?

Answer 75

If the seller makes a nonconforming tender or tenders nonconforming goods under one segment of an installment contract, the buyer can reject only if the nonconformity substantially impairs the value of that shipment to the buyer and cannot be cured. If the seller makes adequate assurances that he can cure the nonconformity, then the buyer must accept the shipment.

Question 76

CONTRACTS AND SALES - STATUTE OF FRAUDS

WHEN AN EMPLOYMENT CONTRACT CANNOT BE PERFORMED WITHIN ONE YEAR FROM ITS MAKING, MUST THE AGREEMENT BE IN WRITING TO BE ENFORCEABLE?

Answer 76

A contract that cannot be performed within one year from its making because of the constraints of the terms of the agreement falls within the Statute of Frauds and is unenforceable unless made in writing.

Question 77

CONTRACTS AND SALES - ACCORD AGREEMENTS

EXPLAIN AN ACCORD AGREEMENT AND HOW IT WORKS.

Answer 77

Under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty. When a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount. Consideration can exist if the other party honestly disputes the claim or agrees to forego an asserted defense.

Question 78

CONTRACTS AND SALES - REMEDY OF SPECIFIC PERFORMANCE UNDER UCC

CAN A SELLER GET THE REMEDY OF SPECIFIC PERFORMANCE UNDER THE UCC?

Answer 78

Although the Uniform Commercial Code (UCC) lists specific performance as a remedy for the buyer of goods, the UCC does not list specific performance as a corresponding remedy for the seller of goods

Question 79

CONTRACTS AND SALES - DISCHARGE OF DUTIES BY FRUSTRATION OF PURPOSE

HOW CAN A PARTY BE DISCHARGED FROM HIS CONTRACTUAL OBLIGATIONS BY FRUSTRATION OF PURPOSE?

Answer 79

In order for a contractual obligation to be discharged by frustration of purpose, there must be an unexpected event that occurs, even though the nonoccurrence of the event was a basic assumption of the contract, without the fault of the frustrated party and the event destroys that party’s purpose in entering into the contract.

Question 80

CONTRACTS AND SALES - CONDITION AND WAIVER

WHEN A PARTY WHOSE DUTY IS SUBJECT TO A CONDTION CAN WAIVE THE CONDITION, WHAT ARE THE RULES IF THAT PARTY WAIVES THE CONDITION?

Answer 80

A party whose duty is subject to a condition can waive the condition, either by words or conduct. In general, a waiver operates to preclude a subsequent assertion of the right waived or any claim based on such right, and will be irrevocable once made, even in the absence of consideration, or of any change in position of the party in whose favor the waiver operates.

Question 81

CONTRACTS AND SALES - STATUTE OF FRAUDS

WHEN THERE ARE TWO SEPARATE WRITINGS, WHAT IS REQUIRED TO SATISFY THE STATUTE OF FRAUDS WHEN THE CONTRACT IS REQUIRED TO BE IN WRITING?

Answer 81

Since the contract cannot be performed within one year from the time of the contract’s making, it is subject to the Statute of Frauds. The writings are not sufficient under the Statute of Frauds because, although together they state the essential terms of the bargain and each is signed by the promisor, neither writing references the other. In order to satisfy the Statute of Frauds, at least one of the writings must reference the other. Because the farmer’s letter does not indicate the subject matter of the contract (i.e., why the farmer is paying the nurse $10,000 a month), the nurse will be unable to enforce the agreement against the farmer.

Question 82

CONTRACTS AND SALES - MODIFICATION OF CONTRACTS UNDER UCC

WHAT IS REQUIRED TO MODIFY A CONTRACT UNDER THE UCC ?

Answer 82

Under the Uniform Commercial Code (UCC), which governs a contract for the sale of goods (e.g., the sale of air filters), a contract may be modified even though there is no consideration for the modification. However, the UCC does require that the modification be requested in good faith. Here, the air-filter company’s request for a price increase was not made in good faith.