Contracts: Missed MBE Questions Rule Statements

Question 1

Under the UCC, a contract for the sale of goods is formed if:

Answer 1

RULE: Under the UCC, a contract for the sale of goods is formed if both parties intent to contract and there is a reasonably certain basis for giving a remedy in the event of a breach. Intent to contract is judged by outward, objective manifestation of intent, as determined by a reasonable person. When an agreement reflects an intent to be bound ONLY IF the price is subsequently set, no contract is formed UNTIL the price is set.

Question 2

When may gap fillers be provided under the UCC for missing terms:

Answer 2

RULE: UCC may provide gap fillers for missing contract terms. If the contract OMITS a term or if the parties agree to set a price in the FUTURE but FAIL to do so, the UCC supplies a reasonable price at the time of delivery.

Question 3

What happens when the offeree learns the offeror has taken action inconsistent with the offer?

Answer 3

RULE: If an offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked (i.e., constructive revocation) and can no longer be accepted.

Not an option contract because no consideration was provided. If the offeror is a merchant, there is no consideration necessary, but that is not applicable here.

Question 4

How can an offer be revoked by the offeror?

Answer 4

RULE: An offer can be revoked by the offeror 1) expressly, when the offeror communicates the revocation directly to the offeree or 2) constructively, when the offeree acquires reliable information the offeror has taken definite action inconsistent with the offer.

There was no consideration given for it to be an option contract.

Question 5

What is a substitute contract?

Answer 5

RULE: a substitute contract is a second agreement that immediately discharges the original contract such that the remedy for breach is LIMITED to the terms of the SECOND contract.

Question 6

When is an offer binding as an irrevocable option contract?

Answer 6

RULE: An offer is binding as an IRREVOCABLE option contract if: 1) offeror should have reasonably expected to induce reliance on the offer, 2) offeree reasonably relied on the offer, 3) reliance caused the offeree to suffer substantial detriment, and 4) injustice can be avoided only by enforcing the offer.

Question 7

What happens when a party assumes the risk of mistake?

Answer 7

RULE: A mutual mistake may render a contract voidable by the adversely affected party. But a party assumes the risk of the mistake—and cannot void the contract—if the party knew at the time of the contract that he/she had limited knowledge of the facts and accepted this knowledge as sufficient.

An annuity contract for the duration of someone’s life assumes the person will die but does not predict when death will occur. There is inherent risk of death before the purchase price is recouped. There is also an inherent risk the person lives longer than predicted, impacting the profitability of the annuity, which the insurance risk assumed.

Question 8

What is unconscionability?

Answer 8

RULE: A court may modify or refuse to enforce a contract on the ground that it is unconscionable. A contract is unconscionable when it is so unfair to one party that no reasonable person in that party’s position would have agreed to it.

Question 9

When can a plaintiff recover under a quasi-contract theory?

Answer 9

RULE: A plaintiff can recover under a quasi-contract theory—despite having no contractual relationship with the defendant—if the plaintiff conferred a non-gratuitous benefit on the defendant that resulted in unjust enrichment.

There is NO promissory estoppel here because PE is for when no valid contract was formed.

Question 10

What is a gratuitous assignment?

Answer 10

RULE: A gratuitous assignment—i.e., an assignment that is not supported by consideration—is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.

Question 11

Is evidence of a condition precedent admissible under the parol evidence rule?

Answer 11

RULE: Evidence used to establish a condition precedent that must occur before a contract becomes effective is admissible under an exception to the parol evidence rule.

Question 12

Under the UCC parol evidence rule, how can course of performance be used?

Answer 12

RULE: Under the UCC parol evidence rule, course of performance can be used to supplement or explain the terms of a final written agreement.

NOTE: course of dealing concerns PREVIOUS contracts between parties that can reasonably establish a common basis of understanding for interpreting their conduct.

Question 13

If the parties agree to a condition precedent, when is performance due?

Answer 13

Neither the trucker nor the manufacturer.

RULE: If contracting parties expressly agree to a condition precedent—an uncertain future event that must occur before a party’s obligation to perform arises—then performance is not due until the condition is fully satisfied.

Question 14

Under common law, what does a material breach of contract allow the nonbreaching party to do?

Answer 14

RULE: Under common law, a material breach of contract allows the nonbreaching party to withhold performance. A breach is material when the nonbreaching party does not receive the substantial benefit of its bargain, so substantial performance does not constitute a material breach (except as to an express condition).

Question 15

How can a condition be waived?

Answer 15

RULE: A party to a contract whose duty to perform is subject to a condition can waive the condition by words or conduct.

Question 16

What can a party who substantially performs recover?

What can a party who commits a material breach recover?

Answer 16

The dancer’s failure to perform for two weeks was not a material breach of the contract.

RULE: A party who substantially performs contractual obligations 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 can recover only for any benefit conferred on the nonbreaching party minus damages for the breach.

Question 17

What can a non-repudiating party who materially breaches recover?

Answer 17

RULE: A non-repudiating party who materially breaches the contract cannot recover damages for the other party’s anticipatory breach because the material breach discharges the other party’s duty to perform.

Question 18

What are consequential damages and when are they recoverable?

Answer 18

RULE: Consequential damages—i.e., losses arising from the parties’ special circumstances—are recoverable only if they were reasonably foreseeable to the breaching party when the contract was entered.

Question 19

What happens when the subject matter of the offer is destroyed?

Answer 19

RULE: An offer can be terminated by operation of law—e.g., when the subject matter of the offer is destroyed.

Question 20

When can offer be accepted after it is terminated?

Answer 20

RULE: An offer cannot be accepted after it terminates (e.g., is rejected by the offeree). But the offer can be revived if the offeror conveys that it is still open, which creates a renewed opportunity for the offeree to accept.

Question 21

Under the UCC, a contract is formed if…

Answer 21

RULE: 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.

Question 22

A contracting party’s duty to perform is discharged by impracticability when:

Answer 22

RULE: A contracting party’s duty to perform is discharged by impracticability when (1) an unanticipated 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.

Question 23

When can an auctioneer withdraw goods during a reserve and no-reserve auction?

Answer 23

RULE: 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 24

How can an offeree accept an offer?

Answer 24

RULE: 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 25

How can a debtor satisfy a debt disputed in good faith?

Answer 25

RULE: If a debt is disputed in good faith, then the debtor can offer to satisfy the debt by giving the creditor a check with a conspicuous “payment in full” notation. But if the debt is certain and undisputed, then it cannot be satisfied by a check for a lesser amount—even if the creditor cashes the check.

Question 26

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

Answer 26

RULE: 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.

Question 27

Does the parol evidence rule bar evidence relating to a defense to contract formation?

Answer 27

RULE: The parol evidence rule does not bar evidence of prior or contemporaneous communications between contracting parties when the evidence is offered to establish a defense to contract formation (e.g., misrepresentation).

Question 28

When will a court interpret a contract as divisible VS indivisible?

Answer 28

RULE: 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.

Question 29

Does a buyer of assorted goods have to specify the assortment under the UCC?

Answer 29

RULE: The UCC imposes a duty on the buyer of assorted goods to specify the assortment unless the contract states otherwise. The seller can treat the buyer’s failure to specify the assortment as a breach only if it materially impacts the seller’s performance.

Question 30

Under the UCC, when is payment due with an installment contract?

Answer 30

RULE: 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 31

What can a party who breaches a contract recover?

Answer 31

RULE: A party who breaches a contract can 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.

Question 32

When does an offer terminate by lapse?

When does a revocable offer terminate by revocation?

Answer 32

RULE: an offer terminates by lapse if it is not accepted by a specified date, or if no date is specified, after a reasonable period of time.

A revocable offer terminates by revocation if it is revoked by the offeror prior to acceptance.

Question 33

At a reserve or no-reserve auction, when does a bidder have the right to withdraw a bid?

Answer 33

RULE: at a reserve or no-reserve auction, a bidder has the right to withdraw a bid until the auctioneer announces the completion of the auction sale.

Question 34

Under the UCC, a firm offer is irrevocable and cannot be modified for a period…

Answer 34

RULE: Under the UCC, a firm offer is irrevocable and cannot be modified for a period not to exceed three months, even if a longer time period is implied or stated, unless the offeree gives consideration to validate it beyond the three month period.

Question 35

Under the common-law mirror-image rule, an acceptance must match the terms of an offer…

Answer 35

RULE: under the common-law mirror-image rule, an acceptance must match the terms of an offer exactly to be effective. An acceptance acts as a counteroffer, a rejection of the original offer and acts as a new offer, if it is conditioned upon the offeror’s assent to different or additional terms.

Question 36

Under the UCC, an acceptance that includes new or revised terms is effective so long as

Answer 36

RULE: Under the UCC, an acceptance that includes new or revised terms is effective so long as it is not conditioned upon the offeror’s agreement to such terms

Question 37

Under the UCC, is consideration needed to modify a contract?

Answer 37

RULE: Under the UCC, no consideration is needed to modify a contract. All that is required is good faith, honesty in fact and fair dealing per reasonable commercial standards.

Question 38

Under the pre-existing duty rule, a promise to perform a duty…

Answer 38

RULE: under the pre-existing duty rule, a promise to perform a duty that a party is already legally bound to perform is not consideration.

Question 39

Can you enforce a charitable subscription on promissory estoppel grounds?

Answer 39

RULE: a charitable subscription, (a written promise to contribute money or property to a charitable institution), IS enforceable on promissory estoppel grounds without proof of detrimental reliance or substantial injustice. All that is needed is proof the promisor reasonably expected to induce reliance on the promise.

Question 40

A party to an illegal contract may recover restitution damages if:

Answer 40

RULE: a party to an illegal contract may recover restitution damages if that party conferred a benefit on the other party AND
1) was justifiably ignorant of the facts that made the contract illegal,
2) was less culpable than the other party OR
3) withdrew before the contract’s illegal purpose was achieved and did not engage in serious misconduct

Question 41

What does an implied warranty of merchantability require and how is it disclaimed?

Answer 41

RULE: the implied warranty of merchantability requires a merchant seller to provide a buyer with merchantable goods. This warranty may be disclaimed for defects that an examination would have revealed if, before entering the contract, the buyer examined the goods as fully desired or refused to examine them.

Question 42

A donee beneficiary can sue the promisee only if:

Answer 42

RULE: a donee beneficiary can sue the promisee only if:
1) the promisee told the donee beneficiary about the contract
2) the promisee should have reasonably foreseen reliance AND
3) the donee beneficiary justifiably and detrimentally relied on the contract

Question 43

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:

Answer 43

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

Question 44

when can the nonoccurence of a condition be excused?

Answer 44

RULE: the nonoccurence of a condition may be excused if the party who benefits from the condition waives it by words or conduct. Once the condition is excused, then the waiving party cannot raise it as a defense.

Question 45

What do compensatory damages consist of?

Answer 45

RULE: compensatory damages consist of expectation, consequential, and incidental damages. In real estate contracts requiring delivery of possession, late delivery is a breach that entitles the buyer to expectation damages measured by the fair market rental value of the property for the time the buyer was denied possession.

Question 46

What does nonperformance accompanied by a repudiation of an installment contract consistitute?

Answer 46

RULE: nonperformance accompanied by a repudiation of an installment contract generally constitutes a total breach. But if the only remaining duty is held by the breaching party and is for the payment of money in unrelated installments, then nonperformance is merely a partial breach.

Question 47

An offer is terminated by rejection. A modification of the terms of the offer acts as a

Answer 47

RULE: an offer is terminated by rejection. A modification of the terms of the offer acts as a rejection of the original offer and as a new counteroffer.

Question 48

An auction sale is complete when the auctioneer announces its end, such as by the fall of the auctioneers hammer or in any other customary way. When a bid is made at the same time as the falling of the hammer, the auctioneer may:

Answer 48

RULE: when a bid is made at the same time as the falling of the hammer, the auctioneer may, at his discretion, treat the bid as continuing the bidding process and open to everyone, or declare the sale completed at the fall of the hammer.

Question 49

A settlement agreement is a contract, so it can only be enforced if it is supported by consideration. For consideration to exist…

Answer 49

RULE: for consideration to exist, 1) there must be a bargained for exchange of promises or performance AND 2) the promised or provided performance must have legal value.

A party’s promise not to bring a suit or assert a legal defense has value and constitutes consideration for a settlement agreement ONLY if the claim or defense is subject to a GOOD FAITH DISPUTE or the party HONESTLY BELIEVES the claim or defense may be valid.

Question 50

Undue influence is the

Answer 50

RULE: undue influence is the unfair persuasion of a party to assent to a contract.

Question 51

In order for a contract to be voidable for duress, there must be

Answer 51

RULE: for a contract to be voidable for duress, there must be an improper threat that deprives a party of a meaningful choice.

The threat of civil action is not improper unless it is made in bad faith.

Question 52

An individual who is the subject of a court ordered guardianship over that individual’s property lacks

Answer 52

RULE: An individual who is the subject of a court ordered guardianship over that individual’s property lacks the capacity to enter into a contract.

Question 53

When one party is mistaken as to an essential element of the contract, the mistaken party can void the contract IF:

Answer 53

RULE: When one party is mistaken as to an essential element of the contract, the mistaken party can void the contract IF she did not bear the risk of the mistake and the non-mistaken party caused the mistake, had a duty to disclose or failed to disclose the mistake, or knew or should have known the other party was mistaken.

Question 54

A duty of good faith and fair dealing is implied in all contracts. Included in this duty is a duty to not hinder the…

Answer 54

RULE: A duty of good faith and fair dealing is implied in all contracts. Included in this duty is a duty to not hinder the other party’s performance as well as a duty to cooperate when necessary. If the party whose duty is subject to a condition wrongfully prevents or interferes with the occurrence of that condition, then, under the doctrine of prevention, the condition is excused and the party wrongfully interfering has an absolute duty to perform. This includes cases when a party’s duty is subject to the other party’s performance and the party prevents that performance.