MBE Review

Question 1

Mistake

Answer 1

The defense of mistake is not available where the party seeking to assert the mistake has assumed the risk of the mistake.

Question 2

Express Warranty

Answer 2

Any promise, affirmation, description, or sample that is part of the basis of the bargain is an express warranty, unless it is merely the seller’s opinion or commendation of the value of the goods.

Disclaimer clauses that conflict with express warranties are ignored. thus, any attempt to disclaim the warranty with the language “as is” would be ignored. Express warranties may be made by a merchant or a non-merchant.

Question 3

Restitution Damages

Answer 3

Although expectancy damages normally are awarded in a breach of conflict action, restitutionary damages are permitted in cases where the non breaching party has partially performed a below market price contract. Otherwise, the breaching party would profit from its breach.

Question 4

Good Faith Purchaser

Answer 4

A good faith purchaser of goods in the ordinary course of business from a merchant takes good title to the goods if the goods have been entrusted by the owner to the merchant and the merchant deals in the same kind of goods.

Satisfaction of a preexisting debt constitutes value.

Question 5

Risk of Loss

Answer 5

Where the goods are required to be delivered to a specific place (e.g., the buyer’s place of business) and delivery is to be made by a third party carrier (i.e., a destination contract), the risk of loss does not pass to the buyer until the goods are tendered to the buyer at the designated place.

If a destination contract, the risk of loss remains with the seller because the goods are destroyed prior to reaching the buyer.

If the seller fails to perfect tender the goods, the buyer has the option to reject the goods.

Payment in part or full, by the buyer, of the purchase price does not shift any portion of risk of loss to the buyer.

Question 6

Substitute Agreement

Answer 6

The substitute agreement completely replaces the original contract.

Question 7

Accord and Satisfaction

Answer 7

Since the electrician and the homeowner entered into an accord for which the homeowner failed to prove the required satisfaction, the electrician may seek damages under the accord of $8,000 or may seek damages under the original contract of $10,000.

The electrician must elect to receive damages under either the original contract or the accord.

Question 8

Auction

Answer 8

The sale of goods is complete when the auctioneer accepts the highest bid by the fall of the auctioneer’s hammer or in any other customary way.

In the absence of language to the contrary, the auction of an item is with reserve, and the items may be withdrawn from sale any time before the completion of the sale is announced.

A sale is completed upon the auctioneer gaveling the bid. A fact that the auction itself had not concluded is irrelevant. After the auctioneer accepts the bid, the seller cannot withdraw the item from the auction.

Question 9

The Mirror Image Rule

Answer 9

The mirror image rule, which states that acceptance must mirror the terms of the offer, does not apply to a sale of goods, such as a glass ornament.

If the customer is not a merchant, any additional terms in the acceptance are treated as a proposal. This proposal must be separately accepted by the customer in order to become part of the contract.

Question 10

Perfect Tender Rule

Answer 10

In a sale of goods transaction, such as the purchase of shirts, the UCC requires that the goods tendered by the seller conform in all respects to the contract.

Question 11

Accord and Satisfaction

Answer 11

Under an accord agreement, one party to a contract agrees to accept a different performance from the other party than what was promised in the existing contract.
Although the original debt is not generally discharged immediately upon entering into an accord, once the creditor accepts the lesser amount offered by the accord, the original contract is discharged.

Note, however, that agreeing to accept a different type of performance does discharge the original contract.

Question 12

Acceptance

Answer 12

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.

Question 13

Measure of Damages

Answer 13

The general measure of damages for the owner’s failure to pay the contract price, in whole or in part, is the profits that the builder would have earned, plus any costs incurred by the builder, less the amount of any payments made by the owner to the contractor and any materials purchased by the contractor that are used by the contractor on another job.

Profits + Costs Incurred - Payments - Material Purchased = Damages

Question 14

The Mailbox Rule

Answer 14

Although under the mailbox rule an acceptance is effective upon dispatch, the mailbox rule does not apply when the offer is irrevocable. Instead, in such case, the acceptance must be received before the offer expires.

Question 15

Merchant

Answer 15

A person who deals exclusively in the type of goods that are the subject of the offer but also includes anyone who regularly deals in goods of the kind.

Question 16

Revival of an Offer

Answer 16

An offer is terminated by rejection. A counteroffer acts as a rejection of the original offer and creates a new offer. A terminated offer may be revived by the offeror, however. As with any open offer, the revived offer can be accepted by the offeree.

Question 17

Acceptance

Answer 17

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.

Question 18

Offer

Answer 18

A statement is an offer only if the person to whom it is communicated could reasonably interpret it as an offer. The primary test of whether a communication is an offer is based on the objective theory of contracts; i.e., whether an individual receiving the communication would believe that he could enter into an enforceable agreement by satisfying the condition.

Question 19

Essential Terms

Answer 19

For a contract to exist, the terms of the contract must be certain and definite, or the contract fails for indefiniteness.

Under Common Law, all essential terms - the parties, subject matter, price, and quantity - must be specified in the agreement or the contract fails.

Under the UCC, a court may supply missing terms, but a contract must still specify the parties, subject matter, and quantity.

Question 20

Modification

Answer 20

At common law, modification of an existing contract must be supported by consideration. Agreements to modify a contract may still be enforced if there is a rescission of the existing contract by destroying the contract, or some other outward sign, and then entering into a new contract, whereby one of the parties must perform more than required under the original contract.

Question 21

Modification of a contract for Services

Answer 21

Unlike a contract for goods, modification of a contract for services must be supported by consideration. Where a contract has both services and goods elements, the predominant purpose test applies. Consideration can be found when there is a change in a party’s duties, even where that change is financially beneficial to the party.

Question 22

Promissory Estoppel

Answer 22

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.

Question 23

Duress

Answer 23

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.

Question 24

Fraudulent Misrepresentation/Nondisclosure

Answer 24

A fraudulent misrepresentation gives the person defrauded the chance to avoid a contract with the person who made the fraudulent assertion. 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 disclosure would correct a mistake of the other party as to a basic assumption of the contract, and the failure to disclose would constitute lack of good faith and fair dealing.

Question 25

Curing a Misrepresentation

Answer 25

A misrepresentation is an assertion that is contrary to the existing facts. A fraudulent misrepresentation exists if the misrepresentation is made knowingly, without confidence in the assertion, or when the person making the assertion knows there is no basis for the assertion. A fraudulent misrepresentation need not be material, and may make the contract voidable at the adversely affected party’s option.

The contract is no longer voidable, however, if, following a misrepresentation but before the deceived party has avoided the contract, the fact are cured so as to be in accord with the facts that were previously misrepresented.

Question 26

Unconscionability

Answer 26

The UCC provides that a court may modify or refuse to enforce a contract or part of a contract on the ground that it is unconscionable, that is, when it is so unfair to one party that no reasonable person in the position of the parties would have agreed to it. The contract or part of the contract at issue must have been offensive at the time it was made.

Question 27

Warranty of Merchantability

Answer 27

Under UCC Article 2, a warranty of merchantability is implied whenever the seller of goods is a merchant. To be merchantable, goods must be fit for their ordinary purpose and pass without objection in the trade. A breach of this warranty must have been present at the time of the sale. However, if the buyer, before entering into the contract, has examined the goods as fully as the buyer desires, or has refused to examine the goods, there is no implied warranty with respect to defects that an examination would have revealed to the buyer.

Question 28

Construction Damages

Answer 28

In construction contracts, the general measure of expectation damages for failing to perform is the difference between the contract price and the cost of completion by another builder.

Question 29

Implied Warranty of Fitness for a Particular Purpose

Answer 29

The implied warranty of fitness for a particular purpose can be disclaimed by use of language such as “as is,” which calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty. However, such disclaimer must be in writing and conspicuous.