CONTRACTS AND SALES MBE

Question 1

Contracts: Formation of a Contract; Defenses to Formation
Define a fraudulent misrepresentation as it pertains to a contract.
Explain the consequence of nondisclosure of a known fact that is known only by one party to the alleged contract.

Answer 1

A fraudulent misrepresentation gives the defrauded the chance to avoid a contract with the person who made the fradulent misrepresentation.

Nondisclosure of a known fact is tantamount to an assertion that the fact does not exist, IF:
the party not disclosing the fact knows that the failure to disclose would constitute lack of good faith and fair dealing.

Question 2

Contracts: Defenses to Enforcement

When a party enters into a contract with a minor, when can the adult cancel the contract?

Answer 2

Contracts with minors are voidable, but only by the minor.

Part performance does not prevent a contract from being voidable.

Question 3

Contracts: Conditions to Performance

When there is a contract for the sale of goods, what is the rule that applies to both the goods themselves and other provisions of the contract?

Answer 3

With a contract for the sale of goods, it is subject to the “perfect tender” rule of the UCC.

This rule requires not only that the goods themselves conform to the requirements of the contract, but also that their delivery does so as well.

Unlike the common law, which generally treats a party’s minor delay in performance as not giving the other party grounds for rejecting that performance unless the contract contains a “time is of the essence” clause–the UCC requires that the seller of goods make a “perfect tender” of the goods to the buyer . This includes, among other requirements, strict adherence to the time for delivery of the goods specified in the contract.

Question 4

Contracts: Restitution and Reliance Recoveries

When can an “injured” party to a contract get restitution damages?

Answer 4

An action in restitution is based on the restoration to the PL of the benefit conferred on the D. If the D received no benefit yet, then the PL could not recover (not even costs).

With reliance damages , the injured party could recover the amounts expended -which were made in reliance on the contract.

Question 5

Contracts: Breach of Contract and Remedies

How does a contract work when only one party’s performance of its contractual obligations is to take place over a period of time?

Answer 5

When only one party’s performance of its contractual obligation is to take place over a period of time, that party must complete its performance before the other party is required to perform, UNLESS the contractual language or circumstances indicate otherwise.

Question 6

Contracts: Formation; Issue-Mutual Assent

In contract law, how is intent generally determined in order to decide whether a valid contract was formed?

What standard is used?

Answer 6

Although in contract law, intent is generally determined by an objective standard and not by the subjective intent or belief of a party, when an offeree is aware of the other party’s subjective intent not to enter into a contract, the offeree’s agreement to enter into a contract does not constitute a valid acceptance.

If the offeree knows that the other party is not really serious, even a reasonable offer as to price will not override the putative offeree’s knowledge that the owner lacks the subjective intent to sell the good.

Question 7

Contracts: Formation of Contracts - Mutual Assent; Offers and Counteroffers

When there is a modification of the terms of an offer, how is that modification characterized?

Answer 7

A modification of the terms of the offer acts as a rejection of the original offer and as a new counteroffer.

The original offer is terminated.

Question 8

Contracts: Formation and Mutual Assent

Under the UCC, what are the essential terms of a contract?

Answer 8

The only essential term is quantity.

If the agreement involves a sale of goods, the UCC governs. Under the UCC, a contract is formed if both parties intend to contract and there is a reasonably certain basis for give a remedy.

Only essential term is quantity, and as long as the parties intend to create a contract, the UCC “fills the gap” if other terms are missing such as the time or place for delivery, or even the price for the goods.

Under the Statute of Frauds, a sale of goods contract must be evidenced in writing in order to be enforceable, the writing need only (1) indicate that a contract has been made; (2) identify the parties; (3) contain a quantity term; and (4) signed by the party to be charged.

Question 9

Contracts: Substantial performance on UCC Contracts-Installment Contracts

If the UCC is applicable, what happens when one party to the contract, makes a delivery that is not complete, but there is substantial performance?

Answer 9

UCC requires the “perfect tender” of goods. Substantial performance will not suffice.

However, the UCC does permit substantial performance with regard to an installment contract. In addition, when there is a nonconforming tender or an tending of nonconforming goods under one segment of an installment contract, the buyer may cancel the contract only if the nonconformity substantially impairs the value of the entire contract to the buyer.

Question 10

Contracts: Formation Issue; Promises Binding Without Consideration; Unjust Enrichment

When may a promise be enforceable even if there has been no consideration given?

Answer 10

When a party performs an unrequested service for another party that constitutes a material benefit, the person may be entitled to recover to the extent that the other person has been unjustly enriched.

Question 11

Contracts: Formation; Defenses to Formation; Mutual Mistake

In a contract situation, when does mutual mistake occur and what effect does this mutual mistake have on this contract?

Answer 11

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: (1) mistake of fact existing at the time the contract was formed; (2) the mistake relates to a basic assumption of the contract; (3) the mistake has a material impact on the transaction; and (4) the adversely affected party did not assume the risk of the mistake.

A misunderstanding occurs when both parties believe that they are agreeing to the same material terms, but in fact they agree to different terms. If the misunderstanding involves a material term, and neither party knows or has reason to know that there is a misunderstanding, then there is no contract.

A misrepresentation is an untrue assertion of fact. Misrepresentation can be innocent, negligent or fraudulent. In addition, an unintentional misrepresentation must be material. In any event, a misrepresentation must be relied upon by the injured party in order to be recoverable.

Question 12

Contracts: Formation of Contracts; Defenses to Formation

When can a contract be rescinded on the grounds of duress?

Answer 12

A contract may be rescinded on the ground of duress when an improper threat deprives a party of any meaningful choice to refuse to enter the contract.

Unless the source of the duress is a threat to inflict physical violence, a contract entered into under duress is merely voidable, not automatically void.

Threatening a civil action is not improper and does not constitute duress, because the party being threatened does have the meaningful choice of defending against the suit.

Question 13

Contracts: Formation; Consideration

At common law, what are the rules where there is a promise to perform a preexisting legal duty?

Answer 13

At common law, a promise to perform a preexisting legal duty does not qualify as consideration because the promisee is already bound to perform.

However, even when there is a preexisting duty, there will be consideration IF the promisee gives something in addition to what is already owed or varies the preexisting duty.

Modification of a services contract (common law) must be supported by consideration.

Question 14

Contracts: Formation; Promises Binding without Consideration

Under what theory can a Pl recover when there has been no consideration given for the promise made by the other party?

Answer 14

Promissory estoppel is referred to as a “consideration substitute”. The doctrine of promissory estoppel (detrimental reliance) can be used under certain circumstances to enforce a promise that is not supported by consideration .

A promise is binding if the promisor should reasonably expect it to induce action or forbearance, it does induce such action or forbearance and injustice can be avoided only by enforcement of the promise.

Injured party may receive reliance damages rather than expectation damages.

Question 15

Contracts: Formation; Mutual Mistake; Termination of Offer

When does an offer to enter into a contract terminate?

Answer 15

An offer terminates upon the death or mental incapacity of the offeror, even if the offeree does not learn of the offeror’s death or mental incapacity until after the offeree has dispatched what he believes is acceptance.

Unique personal services offer–offer likely discharged upon the death of the provider of such services.

Question 16

CONTRACTS AND SALES - MBE: PAROL EVIDENCE RULE AND

Answer 16

Under the UCC parol evidence rule, express terms of a written contract can be explained or supplemented by the following evidence (in order of priority): course of performance, course of dealing, and trade usage.

Question 17

CONTRACTS AND SALES - MBE - ANTICIPATORY REPUDIATION

Answer 17

A contracting party must generally wait until performance is due before suing the other party for breach of contract. However, the doctrine of anticipatory repudiation provides an exception to this rule. A repudiation occurs when a party clearly and unequivocally indicates by words or conduct that it cannot or will not perform. If this occurs before performance is due, then the nonrepudiating party may:

treat the repudiation as a breach and sue immediately
ignore the repudiation and demand performance or
suspend its own performance if commercially reasonable.

Question 18

CONTRACTS AND SALES - MBE -

Answer 18

Modifying existing contracts

Governing law

Requirements

Common law:

Traditional view: Parties’ agreement
New consideration
Modern view: Parties’ agreement
New consideration unless modification is fair & equitable due to unanticipated circumstances
UCC: Parties’ agreement
Good faith (ie, honesty & observance of reasonable commercial standards of fair dealing)
New consideration not required
UCC = Uniform Commercial Code.

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.

Question 19

CONTRACTS AND SALES - MBE - TERMINATION OF AN OFFER BEFORE ACCEPTANCE

Answer 19

**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

An offer is an objective manifestation by an offeror of a willingness to enter into an agreement that creates the power of acceptance in an offeree. The power to accept may be exercised until the offer is terminated. Termination can occur in many ways, including lapse and revocation. An offer will terminate by lapse if it is not accepted by the time stated in the offer or, if no time is stated, within a reasonable time. And a revocable offer will terminate by revocation if the offeror revokes the offer prior to acceptance.

Question 20

CONTRACTS AND SALES - MBE - EXCUSING A CONDITION PRESECENT

WHEN CAN A CONDITION PRECEDENT IN A CONTRACT BE EXCUSED?

Answer 20

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 a future event that must occur before a contracting party’s performance becomes due. However, the nonoccurrence of a condition is excused by waiver when the party who benefits from the condition waives it by words or conduct (e.g., by choosing to perform despite the nonoccurrence). Once the condition is waived, the waiving party cannot raise it as a defense.

Question 21

CONTRACTS AND SALES MBE - RESTITUTIONARY DAMAGES ON AN ILLEGAL CONTRACT

WHEN CAN A PARTY RECOVER RESTITUTIONARY DAMAGES ON AN ILLEGAL CONTRACT?

Answer 21

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).

H

Question 22

CONTRACTS AND SALES - MBE: AUCTION SALES

Answer 22

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 23

CONTRACTS AND SALES - MEASURE OF DAMAGES FOR BREACH OF PERFORMANCE IN A

WHAT CAN A PL RECOVER WHEN THERE IS A BREACH IN A CONTRACT FOR REAL ESTATE, SUCH AS LATE PERFORMANCE?

Answer 23

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 24

CONTRACTS AND SALES - MBE UCC BUYER’S REQUEST THAT GOODS FROM A SELLER B

HOW MAY A SELLER ACCEPT? DOES A NON-CONFORMING SHIPMENT STILL CREATE A CONTRACT? WHAT HAPPENS IF THE SELLER SENDS SOMETHING DIFFERENT THAN ORDERED?

Answer 24

Under the UCC, which governs contracts for the sale of goods (e.g., beef), a buyer’s request that goods from a seller be shipped is construed as inviting acceptance by the seller. The seller may then accept the offer by:

promising to ship the goods

shipping goods that conform to the order or

shipping nonconforming goods without notice that they are being offered only as an accommodation (i.e., notice of accommodation).

Any of these methods of acceptance creates a contract, but a shipment of nonconforming goods without a notice of accommodation also constitutes an immediate breach of the contract. The buyer therefore has the right to accept or reject the nonconforming goods and sue the seller for breach. In contrast, if a seller ships nonconforming goods with a notice of accommodation, then the shipment constitutes both a rejection of the offer and a counteroffer.

Question 25

CONTRACTS AND SALES - MBE = PROMISSORY ESTOPPEL AND CHARITABLE SUBSCRITI

Answer 25

Bargained-for exchange of consideration is typically required to create an enforceable agreement. As a result, a promise to make a gift (as seen here) is generally unenforceable because there is no benefit bargained for between the promisor and the promisee. However, a promise will be enforceable despite a lack of consideration in certain circumstances. For example, promissory estoppel is a consideration substitute. This doctrine renders a promise binding without consideration if:

the promisor reasonably expected to induce reliance on the promise
the promisee reasonably relied on the promise
such reliance caused the enforcing party to suffer a substantial detriment and
injustice can be avoided only be enforcing the promise.
But when it comes to charitable subscriptions—i.e., written promises to contribute money or property to a charitable institution—most courts find that proof of detrimental reliance is not required.* Therefore, a charitable institution need only demonstrate that the promisor reasonably expected to induce reliance on the promise.

Question 26

CONTRACTS AND SALES - MBE - REVOCABLE ASSIGNMENTS

WHEN CAN AN ASSIGNOR REVOKE AN ASSIGNMENT OF RIGHTS GIVEN TO A THIRD PARTY?

WHAT ARE THE RULES TO MAKE THE ASSIGNMENT IRREVOCABLE?

Answer 26

An assignment is the transfer of rights under a contract. An assignment is valid so long as there is a present intent to transfer contractual rights. It need not be accompanied by consideration. But when an assignment is made without consideration (i.e., a gratuitous assignment), it is revocable by the assignor (i.e., the party assigning rights to another) unless:

the obligor (i.e., the party obligated to perform) has already performed
a document symbolizing the assigned right has been delivered to the assignee
a written assignment signed by the assignor has been delivered to the assignee or
the assignee (i.e., the party receiving assigned rights) has detrimentally relied on the assignment.
Here, the enthusiast (assignor) validly assigned his right to the motorcycle to the friend (assignee) without consideration, so the assignment was gratuitous. But the assignment was also revocable because none of the above-listed exceptions apply (Choice C).

A revocable assignment can be revoked by (1) the death, incapacity, or bankruptcy of the assignor, (2) a subsequent assignment of the same right, or (3) notifying the assignee or the obligor. Here, the enthusiast revoked the assignment when he notified the friend that he had decided to keep the motorcycle. Therefore, the friend will likely not succeed in his suit against the shop.

Question 27

CONTRACTS AND SALES - MBE - UCC FIRM OFFER

WHAT IS THE RULE TO ENFORCE A FIRM OFFER UNDER THE UCC ?

Answer 27

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 28

CONTRACTS AND SALES - OPTION TO KEEP AN OFFER OPEN

EVEN WITH AN OPTION TO KEEP THE OFFER OPEN THAT IS SUPPORTED BY CONSIDERATION, WHEN COULD THE DUTY TO PERFORM ON THE PART OF THE SELLER BY DISCHARGED?

Answer 28

An option is a promise to keep an offer open for a specific time that must generally be supported by consideration to be enforceable (as seen here). An option creates a duty for the offeror to hold the offer open for a period of time. As a result, the offer can be terminated only if this duty is discharged. A duty is discharged by impracticability when:

an unanticipated event occurs
the parties assumed that the event would not occur and
the offeror was not at fault in causing the event.

Question 29

CONTRACTS AND SALES - MBE MIRROR IMAGE RULE

WHAT LAW APPLIES TO CONTRACTS FOR SERVICES? WHAT HAPPENS WHEN ONE OF THE PARTIES BRINGS UP AN ADDITIONAL TERM?

Answer 29

Contracts for services (e.g., employment contracts) are governed by the common law, which follows the mirror-image rule for contract formation. Under this rule, an acceptance must match the terms of an offer exactly to be effective. A purported acceptance that is conditioned upon the offeror’s assent to different or additional terms acts as a counteroffer (i.e., a rejection of the original offer and a new offer). However, mere suggestions or inquiries that the offeror is free to accept or reject do not constitute a counteroffer.

Question 30

CONTRACTS AND SALES - MBE : STATUTE OF FRAUDS

As to a surety arrangement where a third party promises to pay the debt of another, does it require a writing to be valid?

Answer 30

Generally, a promise made to a person (i.e., the obligee) that the promisor (i.e., a surety) will be responsible for any debt or other obligation of a third party (i.e., the principal) resulting from the principal’s failure to pay as agreed is subject to the Statute of Frauds, and the surety’s promise must be in writing. **However, if the main purpose of a surety in agreeing to pay the debt of the principal is the surety’s own economic advantage, rather than the principal’s benefit, then the contract does not fall within the Statute of Frauds, and an oral promise by the surety is enforceable. **

Question 31

CONTRACTS AND SALES MBE - ACCEPTANCES AND REVOCATION

WHAT HAPPENS WHEN ONE PARTY REVOKES AFTER ANOTHER PARTY HAS ACCEPTED, AND THE SELLER ACCEPTS THE REVOCATION ORALLY OVER THE PHONE AND DOES NOT SHIP THE GOODS?

Answer 31

An acceptance that is mailed within the allotted response time is effective when sent rather than upon receipt, unless the offer provides otherwise. The mailing must be properly addressed and include correct postage. Here, those requirements are met. Revocations, on the other hand, are effective upon receipt. Therefore, the retailer effectively accepted the offer on March 3, before receiving the individual’s revocation of the offer, and a contract was formed upon acceptance. (Note that, although an enforceable contract was formed the moment the retailer properly mailed the letter on March 3, a court in equity will not enforce the contract against the retailer if the retailer does not perform in reliance on the individual’s telephone call.)

Question 32

CONTRACTS AND SALES - MBE

WHAT CAN A PARTY RECOVER WHEN THE CONTRACT HAS ONLY BEEN PARTIALLY COMPLETED-WITHOUT JUSTIFICATION?

Answer 32

. Although expectancy damages normally are awarded in a breach-of-contract action, restitutionary damages are permitted in cases where the nonbreaching party has partially performed a below-market-price contract. Otherwise, the breaching party would profit from its breach. Consequently, the paving company may recover the benefit conferred upon the developer as measured by the amount the developer would have had to pay to secure the same performance as that rendered by the paving company.

Question 33

SALES AND CONTRACTS MBE - CAPACITY TO CONTRACT

WHAT HAPPENS WHEN A PARTY HAS ENTERED INTO A CONTRACT, BUT HAS BEEN ADJUDICATED INCOMPETENT?

Answer 33

An individual who is the subject of a court-ordered guardianship over that individual’s property lacks the capacity to enter into a contract. Consequently, any contract purportedly entered into by such an individual is void. Since the mother was under a court-ordered guardianship, her contract to purchase the refrigerator was void.

Where a guardianship over an individual’s property has been recognized by a court, the seller’s lack of actual knowledge of the guardianship or the individual’s inability to contract is irrelevant.

Question 34

CONTRACTS AND SALES MBE - CONSIDERATION

IS CONSIDERATION REQUIRED WITH A GIFT PROMISE TO BE ENFORCEABLE?

Answer 34

**A promise to make a gift does not involve bargained-for consideration and is therefore unenforceable. **Here, there was no bargained-for consideration, because the woman promised to pay for the guest’s medical bills without any bargained-for legal exchange from the guest. Not only was there no explicit promise by the guest not to sue, there was nothing of value because the guest did not have the right to sue the woman as she was not liable for the guest’s injury.

Question 35

CONTRACTS AND SALES - REPUDIATION

Can a party to a contract retract a repudiation?

Answer 35

Repudiation may be retracted so long as the other party has not canceled the contract or materially changed position.

Question 36

CONTRACTS AND SALES MBE - WHAT IS AN OFFER

WHAT WILL QUALIFY AS A VALID OFFER?

Answer 36

A statement is an offer only if the person to whom it is communicated could reasonably interpret it as an offer. It must express the present intent of a person to be legally bound to a contract. The primary test of whether a communication is an offer is whether an individual receiving the communication would believe that he could enter into an enforceable deal by satisfying the condition. In his letter to the collector offering to purchase the car, the car enthusiast reserved the right to cancel the contract before January 10. Accordingly, it would not be reasonable for the collector to believe that he could form an enforceable deal with the car enthusiast by accepting the offer prior to January 10.

Question 37

CONTRACTS AND SALES MBE:

CAN A PARTY TO A CONTRACT SHOW EVIDENCE OF A PRIOR ORAL AGREEMENT THAT WAS NOT COMPLIED WITH?

Answer 37

The parol evidence rule generally prevents a party to a written contract from presenting prior extrinsic evidence that contradicts or is inconsistent with the terms of the contract as written. However, parol evidence may be admitted to prove a condition precedent to the existence of the contract.

Question 38

CONTRACTS AND SALES MBE - CONDITION PRECEDENT AND CONDITION SUBSEQUENT

EXPLAIN A CONDITION PRECEDENT AND A CONDITION SUBSEQUENT?

Answer 38

**Performance by one or both of the parties may be made expressly conditional in the contract, and the conditions may precede the obligation to perform (condition precedent), or may discharge the duty to perform after a particular event occurs (condition subsequent). **Here, the condition that the woman must receive an offer for a second date at the speed-dating event preceded her obligation to pay the life coach. If she received no offer, no duty to pay attaches. Therefore, it is a condition precedent. If a defendant’s duty is subject to a condition precedent, then the plaintiff (here, the life coach) has the burden of proving that the condition occurred in order to recover.

Question 39

CONTRACTS AND SALES - MBE QUASI CONTRACT RECOVERY

WHEN CAN A PARTY TO A CONTRACT RECOVER UNDER QUASI CONTRACT?

Answer 39

The defense of impracticability (impossibility) is available if the specific subject matter of the contract is destroyed. In this case, the exotic convertible was destroyed through no fault of either party. As a result, the parties were no longer required to perform under the contract. The car restorer **can still recover in quasi-contract for any benefit that was conferred prior to impracticability, but the court would only award restitutionary recovery in order to prevent the unjust enrichment. **When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant, rather than on the harm suffered by the plaintiff.

You can’t recover under quasi contract if you haven’t conferred any benefit to the other party.

Question 40

CONTRACTS AND SALES MBES: CONSIDERATION

WHAT IS THE TEST TO DISTINGUISH A GIFT FROM VALID CONSIDERATION?

Answer 40

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 41

CONTRACTS AND SALES MBES: MUTUAL MISTAKE

What requirements must be met to allow an adversely affected party to void a contract based on mutual mistake?

Answer 41

(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 42

CONTRACTS AND SALES MBES - ACCORD AND SATISFACTION

WHAT IS REQUIRED TO EXECUTE A VALID ACCORD AND SATISFACTION?

Answer 42

An accord agreement must be supported by new consideration. If the new consideration is worth less than what was originally promised, then it is sufficient only if (1) there is a good-faith dispute as to the amount owed or (2) it is of a different type than what was originally owed.

Question 43

SALES AND CONTRACTS MBES: LIQUIDATED DAMAGES PROVISION IN A CONTRACT

WHAT CONSTITUTES A VALID LIQUIDATED DAMAGES PROVISION?

Answer 43

A liquidated damages clause, which allows the seller to retain the buyer’s deposit if the buyer breaches the contract and refuses to purchase the property, is enforceable so long as the deposit bears a reasonable relation to anticipated damages. A deposit of no more than 10% of the purchase price is typically deemed reasonable.

Land-sale contracts often require the buyer to make a deposit of a portion of the purchase price (sometimes referred to as “earnest money”). These contracts also typically contain a liquidated damages clause, which allows the seller to retain the buyer’s deposit if the buyer breaches the contract and refuses to purchase the property. Liquidated damages are recoverable so long as the liquidated amount bears a reasonable relation to anticipated damages. Many courts have held that a deposit of no more than 10% of the purchase price is reasonable.

Answer 44

At common law, all essential terms must be covered in a contract and be sufficiently certain and definite. In a land-sales contract, a price is sufficiently certain if there is a practicable method to determine the price, and the subject matter is sufficiently certain if the property description allows the court to determine the exact property being sold.

Question 45

SALES AND CONTRACTS - MISREPRESENTATION

EXPLAIN WHAT HAPPENS WHEN ONE PARTY TO A CONTRACT IS LIABLE FOR MISREPRESENTATION.

Answer 45

A misrepresentation renders a contract voidable by the adversely affected party if (1) the misrepresentation was fraudulent or material, (2) it induced assent to the contract, and (3) the adversely affected party justifiably relied on it.

Question 46

SALES AND CONTRACTS MBES: WAIVER OF A CONDITION PRECEDENT BY A PARTY

WHAT HAPPENS IF THE PARTY WHO WOULD BENEFIT FROM THE CONDITIONS WAIVES IT BY WORDS OR CONDUCT? CAN SHE RETRACT THE WAIVER AND REINSTATE?

Answer 46

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. However, the nonoccurrence of a condition may be excused if the party who would benefit from the condition waives it by words or conduct. When a condition is waived before it is due to occur, the waiving party cannot retract the waiver and reinstate the condition if the other party has detrimentally relied on the waiver.

Question 47

SALES AND CONTRACTS MBES: ASSIGNMENTS AND DELEGATIONS

WHEN AN ASSIGNMENT IS NOT LIMITED TO CONTRACTUAL RIGHT, DOES IT ALSO WORK AS A DELEGATION OF DUTIES UNDER THE CONTRACT?

Answer 47

If an assignment is not limited to contractual rights—as seen with the corporation’s assignment to the developer—it acts as both an assignment of rights and a delegation of duties (Choice C). This means that:

the developer (assignee) is entitled to the corporation’s (assignor’s) right to receive the land and
the developer (delegatee) is responsible for performing the corporation’s (delegator’s) duty to pay $500,000, but the corporation remains liable under the contract unless the owner agrees to release it from liability and substitute the developer (i.e., novation).
And though the assignment did not affect the owner’s right to receive $500,000, it did change the owner’s duty—she must now convey the land to the developer instead of the corporation. The owner must perform this duty unless the assignment of rights to the developer is disallowed (see table above).