CONTRACTS AND SALES MBE Flashcards

Question

# CONTRACTS AND SALES - MBE = PROMISSORY ESTOPPEL AND CHARITABLE SUBSCRITI

Answer 1

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.

Answer 2

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.

Answer 3

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.

Answer 4

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.

Answer 5

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.

Answer 6

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. **

Answer 7

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.)

Answer 8

. 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.

Answer 9

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.

Answer 10

**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.

Answer 11

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

Answer 12

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.

Answer 13

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.

Answer 14

**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.

Answer 15

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.

Answer 16

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.

Answer 17

(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.

Answer 18

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.

Answer 19

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 20

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.

Answer 21

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.

Answer 22

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.

Answer 23

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).