MBE Contracts

Question 1

Formation General Rule

Answer 1

A valid contract is formed when there is: (1) mutual assent (an offer and acceptance of that offer by the other party); (2) adequate consideration or a substitute; AND (3) no defenses to formation that would invalidate an otherwise valid contract entered into by the parties.

Question 2

Article 2 of the Uniform Commercial Code (UCC) governs…

Answer 2

all contracts for the sale of goods.

Goods are defined as all things that are movable.

Question 3

An offer is

Answer 3

An offer is (1) a manifestation of intent to contract by one party, (2) with clear and definite terms, (3) that is communicated to an identified offeree.

Question 4

Acceptance is

Answer 4

Acceptance is a manifestation of assent to the terms of the offer, which indicates a commitment to be bound.

Question 5

For bilateral contracts, _____________________ manifests acceptance.

Answer 5

the start of performance

Question 6

For unilateral contracts, the start of performance only makes an offer irrevocable, and the offer is accepted only when __________________________.

Answer 6

performance is complete

Question 7

Unless the offeror states otherwise, acceptance of an offer is deemed accepted once the acceptance is __________________.

Answer 7

sent or communicated (i.e. placed in the mail).

Question 8

However, _______________ of an offer is deemed effective when received by the offeree

Answer 8

revocation

Question 9

Mailbox Rule

Answer 9

Under the Mailbox Rule, if the offeror mails a letter to the offeree revoking the offer, but the offeree sends a letter to the offeror accepting the offer before receiving the revocation letter, a valid contract has been created. This is because the acceptance was effective before the revocation became effective.

Question 10

Does the Mailbox Rule apply to Option Contracts?

Answer 10

No

Question 11

Mirror Image Rule – Common Law

Answer 11

The common law mirror image rule holds that an acceptance must exactly mirror the offer.

Question 12

Does the Mirror Image Rule apply to the UCC?

Answer 12

NO

The UCC states that acceptance does not have to mirror the offer and the acceptance may include different or additional terms, without revocation of the offer and thus constituting a valid contract.

Question 13

When are the offeree’s additional or different terms deemed included in the contract?

Answer 13

The offeree’s different or additional terms are deemed included in the contract ONLY IF:
(1) both parties are merchants;
(2) the term is not a material change;
(3) the offer does not expressly limit acceptance to the exact terms of the offer; AND
(4) no objection was made within a reasonable time.

Question 14

What’s a material change?

Answer 14

A material change is any change that is likely to cause hardship or surprise to the offeror (i.e. a disclaimer of warranties, an arbitration clause, payment of shipping/handling charges).

Question 15

Implied in Fact Contracts General Rule

Answer 15

Contracts may be created by the conduct of the parties, without spoken or written words. Conduct by both parties will create a contract if:
(1) the conduct is intentional; AND
(2) each party knows (or has reason to know) that the other party will interpret the conduct as an agreement to enter into a contract.

Question 16

Consideration General Rule

Answer 16

Consideration is a bargained for exchange of a promise. Contracts are NOT enforceable without consideration by BOTH parties.
Generally, past or moral consideration is NOT sufficient to support a contract.

Question 17

Is Past or Moral Consideration sufficient to contract?

Answer 17

NO

Question 18

Most offers may be revoked at any time before acceptance through______________.

Answer 18

unambiguous words or conduct.

Question 19

A revocation of an offer is effective when __________________.

Answer 19

received

Question 20

A counteroffer (an offer with new terms) constitutes BOTH a ________________AND a __________________.

Answer 20

A counteroffer (an offer with new terms) constitutes BOTH a rejection that terminates the original offer AND a new offer.

Question 21

Some offers are irrevocable including:

Answer 21

(1) Option contracts (when consideration is given for a promise to keep an offer open); (2) a Merchant’s firm offer; AND (3) Offers that were relied on to the offeree’s detriment.

Question 22

A Merchant’s Firm Offer is:

Answer 22

A Merchant’s Firm Offer is:
(1) an offer to buy or sell goods;
(2) by a merchant (a person who deals in goods of the kind);
(3) in a signed writing;
(4) which states that the offer will be held open and is not revocable during the time stated (or if no time is stated for a reasonable time), but not to exceed three months;
AND
(5) that the assurance to keep the offer open must be separately signed by the offeror if the form is supplied by the offeree (such as initialing the specific paragraph).

A merchant’s firm offer is enforceable without consideration.

Question 23

Under ________________, contract modifications MUST be supported by ______________.

Answer 23

Common Law; consideration.

Question 24

When modifying an agreement, past performance or performance of a preexisting duty owed to a party is NOT treated as adequate consideration.
EXCEPT?

Answer 24

(1) an addition or change in the performance or promise; OR
(2) a fair and equitable modification due to unanticipated changed circumstances and the contract is NOT yet fully performed by either party (usually the unanticipated circumstances must be severe or far beyond what was foreseen).

Question 25

Modifications must be in writing if:

Answer 25

(a) they fall within the Statute of Frauds; OR (b) the original contract states that modifications must be made in writing.

Question 26

Contracts that lack consideration may be enforced to avoid injustice under the doctrine of__________________.

Answer 26

promissory estoppel.

Question 27

Promissory estoppel applies when:

Answer 27

(1) a party reasonably and foreseeably relied to his detriment on the promise of the other party;
(2) the promisor should have reasonably expected a change in position in reliance of the promise; AND
(3) enforcement of the promise is necessary to avoid injustice.

Question 28

A contract is voidable (it may be rescinded or reformed) when there is a _______ mistake

Answer 28

mutual mistake.

Question 29

Mutual mistake occurs when:

Answer 29

(1) both parties are mistaken as to a basic assumption on which the contract is made;
(2) the mistake is material to the contract; AND
(3) the person asserting the mistake did not bear the risk of the mistake (by agreement or by a party treating their limited knowledge as sufficient).

Question 30

A unilateral mistake is

Answer 30

(1) a mistake made by one party,
(2) that is unknown to the other party,
(3) concerning a basic assumption,
(4) that has a material effect.