Contracts - Missed MBE Questions

Question 1

A vague term in a contract can be cured by:

Answer 1

Where part performance supplies the needed clarification of the terms, it can be used to cure vagueness. Gap fillers and the presumption that the parties’ intent was to include a reasonable term go to supplying missing, rather than vague, terms. When the parties have included a term that makes the contract too vague to be enforced, the court will not apply a gap-filling term or a presumption to cure the problem.

Quantum meruit is another term for quasi-contractual recovery to remedy unjust enrichment. Although it does not cure a vague term, it is available as a remedy for a party who performs despite a vague term that causes a contract to fail.

Question 2

Which of the following is a key distinction between an anticipatory repudiation and a prospective failure to perform?

Answer 2

Prospective inability or unwillingness to perform differs from anticipatory repudiation because repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. Repudiation must be unequivocal. However, a prospective failure to perform is not based on the subjective beliefs of the other party, but rather is judged on a reasonable person standard. Both repudiation and prospective failure to perform may be retracted, provided the other party has not yet changed position in reliance on the repudiation or prospective failure. The effect of a prospective failure is to allow the innocent party to suspend performance until she receives adequate assurances. She may treat this situation as a breach only if the assurances are not given. If a defaulting party regains his ability or willingness to perform, he must communicate that to the other party.

Question 3

If an accord agreement is breached:

Answer 3

If an accord agreement is breached by the debtor, the creditor may sue either on the original contract or for breach of the accord agreement, but not on both. If the accord agreement is breached by the creditor by suing on the original contract, the debtor may either: raise the accord agreement as an equitable defense and ask that the contract action be dismissed or wait until the creditor is successful in the action (i.e., until the debtor is damaged) and then bring an action at law for damages for breach of the accord contract. The debtor may not immediately sue for damages. If the accord agreement is breached by the creditor refusing to accept the performance agreed upon in the accord, the debtor may bring an action for breach of the accord agreement, but is not entitled to punitive damages. Punitive damages generally are not awarded in contract cases.

Question 4

When should the nonbreaching party treat an otherwise minor breach as a material breach?

Answer 4

If a minor breach is coupled with an anticipatory repudiation, the nonbreaching party may treat it as a material breach. Thus, the nonbreaching party may sue immediately for total damages and is permanently discharged from any duty of further performance. The courts hold that the nonbreaching party must not continue on with the contract, because to do so would be a failure to mitigate damages.

Question 5

Which of the following statements is correct regarding damages for a breach of a contract for the sale of goods?

Answer 5

In contracts for the sale of goods, compensatory damages may also include incidental damages. Either a nonbreaching buyer or a nonbreaching seller may recover incidental damages for a breach of a contract for the sale of goods. Incidental damages include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer’s breach. Consequential damages are special damages over and above standard expectation damages. These damages result from the nonbreaching party’s particular circumstances and are recoverable only if a reasonable person would have foreseen them as a probable result of breach. Note that in contracts for the sale of goods, only a buyer may recover consequential damages

Question 6

In a suit for restitution, the measure of recovery is:

Answer 6

In a suit for restitution, the measure of recovery is the value of the benefit conferred. Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. The value of the benefit conferred is usually measured by the benefit received by the defendant, but it may also be measured by the reasonable value of the work performed by the plaintiff.

Question 7

Which of the following types of evidence may be outside the scope of the parol evidence rule?

Answer 7

The parol evidence rule prohibits admissibility of extrinsic evidence that seeks to vary, contradict, or add to an integration. Other forms of extrinsic evidence may be admitted when they will not bring about this result, i.e., they will fall outside the scope of the parol evidence rule. When a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. This would be a condition precedent to effectiveness. The rationale is that one is not altering a written agreement by means of parol evidence if the written agreement never came into being. It should be borne in mind that parol evidence of such a condition precedent will not be admitted if it contradicts the express language of the written contract.

Question 8

Unless properly disclaimed, this warranty is included in every contract for the sale of goods:

Answer 8

Warranty of Title

Question 9

In a shipment contract, when goods are destroyed en route from the seller to the buyer, the risk of loss is borne by:

Answer 9

In a shipment contract, the risk of loss passes to the buyer when the goods are delivered to the carrier. Any loss incurred en route is borne by the buyer.

Question 10

Which of the following would not be considered valuable consideration that supports a contract?

Answer 10

The mere fulfillment of a condition to receive a gift is not adequate consideration. The fulfillment of the condition must be of some benefit to the promisor to constitute proper consideration. The benefit to the promisor need not have economic value. Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration.

Question 11

Which of the following normally would not be an exception to the preexisting legal duty rule?

Answer 11

In the case of an existing debt, payment by the debtor of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. However, because courts are anxious to avoid the preexisting duty rule, payment of a smaller debt may be sufficient consideration if the payment was in any way different (e.g., stock instead of cash) or if the debt was honestly disputed. Almost any variation, such as accelerating performance, is considered adequate consideration. A promise to perform a voidable obligation (e.g., a minor’s ratification of a contract upon reaching the age of majority) is also enforceable despite the absence of new consideration. If the scope of the legal duty owed is the subject of honest dispute, then a modifying agreement relating to it will ordinarily be given effect.

Question 12

The rights of a third-party beneficiary vest when he:

Answer 12

The promisor and promisee are generally free to modify the contract, and need not consult the third-party beneficiary unless his rights have vested. Once the third-party beneficiary’s rights have vested, the promisor and promisee cannot vary his rights without his consent. A third-party beneficiary’s rights vest when the beneficiary: manifests assent to the promise in a manner invited or requested by the parties; brings suit to enforce the promise; or materially changes position in justifiable reliance on the promise. In determining the promisee’s intentions in a third-party beneficiary situation, courts will often look at whether the third party is expressly designated in the contract. If so, it is more likely that it is primarily for his benefit. But it is not necessary that the third-party beneficiary be named, or even identifiable, at the time the contract is made; he need only be identifiable at the time performance is due. Even if a third party is named or is otherwise identifiable, the promisor and promisee are free to modify the contract if the third party’s rights have not yet vested as discussed above.

Question 13

As a general rule, if the promisor fails to perform under a contract, a donee third-party beneficiary whose rights have vested can sue:

Answer 13

As a general rule, if a promisor fails to perform under a contract, a donee third-party beneficiary whose rights have vested can sue the promisor to enforce the contract. Absent detrimental reliance, a donee beneficiary cannot sue the promisee because generally there is no right to sue for nondelivery of a gift.

Question 14

Under Article 2, when an offeree proposes additional or different terms as part of an otherwise valid acceptance, the acceptance __________.

Answer 14

The Article 2 battle of the forms provision provides that the proposal of additional or different terms by the offeree in a definite and timely acceptance is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.

Article 2 has abandoned the mirror image rule, which insists on an absolute and unequivocal acceptance of each and every term of the offer. Under that rule, any different or additional terms in the acceptance make the response a rejection and counteroffer.

Question 15

Under the Article 2 battle of the forms provision, whether additional or different terms proposed by the offeree during acceptance ultimately become part of a contract depends on whether or not __________.

Answer 15

Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants. If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract. They do not become part of the contract unless the offeror expressly agrees. If both parties are merchants, additional terms in the acceptance become part of the contract unless they materially alter the terms of the offer, the offer expressly limits acceptance to the terms of the offer, or the offeror has already objected to the terms (or objects within a reasonable time after notice of them is received).

Question 16

On July 1, a cattle breeder, who was planning to retire soon, sent a note to his neighbor offering to sell his prize bull for $15,000. On July 10, the neighbor, who was also a cattle breeder, wrote the following note to the retiring breeder:

“I have decided to take the bull. I will give you a cashier’s check on delivery on Saturday, July 28.”

The retiring breeder did not respond. The retiring breeder did not want to deliver the bull on July 28 and did not think that the delivery day was agreed to. Instead, he delivered the bull on Monday, July 30. The neighbor refused the delivery and stated that he had found another bull he likes better. The retiring breeder sues the neighbor for breach of contract.

Is the retiring breeder likely to prevail?

Answer 16

The retiring breeder will not prevail because he did not deliver the bull on July 28. This is a contract for a sale of goods and thus is governed by the UCC. Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance unless made expressly conditional on the assent to the additional terms. Here, the neighbor accepted the offer and added the additional term of a delivery date. Thus, there was a contract. Whether additional terms become part of the agreement depends on whether both parties are merchants. If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless they materially alter the terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to within a reasonable time. Here, both parties are breeders in the cattle business and, thus, are merchants. The change in the delivery date does not materially change the offer (i.e., it does not change a party’s risk or remedies), the offer did not limit the acceptance to its terms, and the retiring breeder did not object. Therefore, the July 28 delivery date became part of the contract. By delivering the bull on July 30th, the retiring breeder breached the contract. (A) is incorrect because this is a contract for the sale of goods, which requires perfect tender. Whether the breach was material or minor has no effect. (B) is incorrect because under the UCC, the July 28 term became part of the contract when the breeder failed to object to it. (C) is incorrect because, under the UCC, an acceptance is effective even if it includes additional terms. Thus, the neighbor’s letter on July 10 was sufficient to create a contract.

Question 17

On September 15, a manufacturer of office furniture received an email purchase-order form from a retailer of office furniture. The order was for 100 executive leather swivel chairs and specified a delivery date no later than November 1, at a total cost of $10,000, as quoted on the manufacturer’s website. Two days later, the manufacturer emailed its own purchase-order acceptance form to the retailer, who was a new customer and had never seen the form before. The purchase-order acceptance form stated that it was an acceptance of the specified order, was signed by the manufacturer’s sales manager, and contained all of the terms of the retailer’s form, but it also contained an express warranty and a clause disclaiming all implied warranties such as the implied warranty of merchantability.

Assuming that there were no further communications between the parties, what is the status of the relationship between the parties?

Answer 17

The manufacturer and the retailer have a contract without the disclaimer. In contracts for the sale of goods, a definite expression of acceptance operates as an acceptance even if it states additional terms. Between merchants, additional terms proposed by the offeree in an acceptance automatically become part of the contract unless (i) they materially alter the original terms of the offer (e.g., they change a party’s risk or the remedies available); (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror had already objected to the additional terms or objects within a reasonable time.

Question 18

At common law, a written communication revoking an offer is considered “received” by an offeree at the moment:

Answer 18

A written revocation of an offer is effective when it is received by the offeree. At common law, a written communication is considered to have been “received” as soon as it comes into the physical possession of the person addressed (or of someone authorized by him to receive it) or when it is deposited in some place authorized as the place for this or similar communications to be deposited.

The offeree need not review the contents of the revocation for it to be effective.

The rule for revocation is different from the rule for acceptance, which generally creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped.

Question 19

Does the mailbox rule apply when the offeree sends a rejection followed by an acceptance?

Answer 19

No. In such a case, whichever is received first controls. Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of posting, with a couple of exceptions not relevant here. Rejection, on the other hand, is effective when received.

Question 20

Does the mailbox rule apply to option contracts?

Answer 20

No

Question 21

An advertising agency specializing in aerial banners and skywriting signed a contract with a film production company that was premiering a new blockbuster film. The contract provided that the agency would advertise the film by flying over the city towing a giant streamer belonging to the film company heralding the film’s catch phrase and title in large letters. This contract specified that the flight was to be conducted on the first Saturday in June at noon (the day of the local premier), and the film company was to pay the advertising agency $500 for the flight.

On the designated Saturday, the advertising agency was unable to fly because of a defective fuel pump. The defective condition was entirely unforeseeable and did not occur through any negligence or fault of the agency. The film company did not pay the agency, and each of the parties has sued the other for damages.

Which of the following best states the rights and liabilities of the parties?

Answer 21

The film company will be able to recover damages from the advertising agency because the agency’s failure to fly constituted a breach of contract. The parties entered into a bilateral contract—the agency promised to fly with the streamer and the film company promised to pay for the flight. The agency breached the contract by failing to fly on the designated Saturday. Its duty to fly was not discharged by impossibility. A contractual duty to perform may be discharged by objective impossibility (i.e., no one could have performed), but subjective impossibility (defendant could not perform) is insufficient. Here, the defect in the plane constituted only subjective impossibility (if it amounted to impossibility at all) because the agency could have obtained another plane to pull the streamer. If the agency had been unable to fly the plane because of weather (e.g., a severe ice storm), its performance would have been objectively impossible, and the agency would have been discharged. However, under these facts, the film company is entitled to damages for the agency’s breach.

Question 22

Which of the following acts alone would be sufficient to allow enforcement of an oral contract for the sale of real property?

Answer 22

Upon the seller’s conveyance of the property to the purchaser, the seller can enforce the buyer’s oral promise to pay.

Under the doctrine of part performance, conduct that unequivocally indicates that the parties have contracted for the sale of the land will take the contract out of the Statute of Frauds. However, most jurisdictions require at least two of the following: payment (in whole or in part), possession, and/or valuable improvements.

Question 23

A manufacturing company was in the business of making copper tubing. A retail seller telephoned the manufacturing company’s sales department and placed an order for 10,000 linear feet of copper tubing at a sale price of $2 per foot. The tubing was to be used in the production of a custom order for one of the retail seller’s customers. The manufacturing company installed special equipment for the manufacture of the tubing to the retail seller’s specifications and had completed a portion of the order when the retail seller again telephoned the sales department. This time, however, the retail seller canceled its order, saying it no longer had need of the tubing because its customer had been declared bankrupt and refused to pay for the order.

If the manufacturing company sues for breach, will it win?

Answer 23

The manufacturing company will win because the contract is fully enforceable under the UCC. Tubing is a good, so Article 2 of the UCC applies. The contract is for the sale of goods over $500 (10,000 linear feet at $2/foot), so ordinarily section 2-201 would require a writing. However, section 2-201(3) provides that a writing is not required where the contract is for “specially manufactured” goods not suitable for resale in the ordinary course of the seller’s business and the seller has made a substantial beginning of their manufacture or commitments for their procurement. Because the tubing is a custom order of unique specifications and the manufacturing company has begun manufacturing it, this exception to the UCC Statute of Frauds applies.

Question 24

Under the UCC, in a single delivery contract, a seller may always cure a shipment that the buyer has rejected because of defects by delivering conforming goods within:

Answer 24

If the buyer has rejected goods because of defects, the seller may, within the time originally provided for performance, “cure” by giving reasonable notice of her intention to do so and making a new tender of conforming goods which the buyer must then accept.

Ordinarily, the seller has no right to cure beyond the original contract time. However, in cases where the buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable “with or without money allowance,” the seller, on reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or the seller could not have known of the defect despite proper business conduct.

There is no set time period, such as 10 days after the notice of rejection is sent or received, in which the seller always has a right to cure. As stated above, the length of time to cure depends on the specifics of the contract and the circumstances surrounding the defective delivery.

Question 25

The owner of an exclusive clothing salon entered into a written agreement with a customer to sell the customer a certain full-length fake fur coat for $12,000, with delivery by December 7. On December 6, the customer went to the salon at 5:30 p.m., and the salon owner told her that her coat was ready and she could take it home with her. The customer inspected the coat and discovered that a button was missing. She told the salon owner that she would not accept the coat without the missing button. He informed her that the tailor had gone home for the day at 5 p.m. and would not be back at the salon until 8:30 a.m. on December 8, because Congress had enacted a law declaring December 7 to be Pearl Harbor Day, a new federal holiday, and the tailor had the day off. The salon owner assured the customer that the coat could be ready with the button sewn on by 9:15 a.m. on December 8.

Which of the following best states the customer’s position?

Answer 25

Although the customer is entitled to reject the coat for even a minor defect such as one button being missing, she is required to give the seller an opportunity to cure this defect. Because this is a contract for the sale of goods, the Uniform Commercial Code applies. Pursuant to the UCC, if goods or any tender fail in any respect to conform to the contract, the buyer may reject the goods. This rule of perfect tender allows rejection for any defect, and does not require material breach. However, the perfect tender rule is softened by the rules allowing the seller to cure the defect by giving reasonable notice of an intention to cure and making a new tender of conforming goods within the time originally provided for performance. Also, where the buyer rejects a tender that the seller reasonably believed would be acceptable with or without money allowance, the seller, upon reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. Here, one button missing on a $12,000 coat is a very minor defect. However, pursuant to the perfect tender rule, the customer has the right to reject the coat even for this defect. In turn, the salon owner is entitled to cure the defect by notifying the customer of his intention to do so and by making a conforming tender. The salon owner has told the customer that the tailor will sew on the button, which will result in the coat’s conforming to the contract. Although the tailor, due to the holiday, will not be able to sew on the button by the agreed-upon date of delivery, being able to do so early in the morning of the day after falls within a further reasonable time beyond the original contract time within which to make a conforming tender. In any event, at this point the customer must give the salon owner an opportunity to cure.