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Flashcards in MBE - Contracts Deck (136)

What are the key areas of applicable contract law on the MBE?

(1) Common law
(2) Article 2 of UCC


What types of Ks does Article 2 apply to?

Contracts for the SALE OF GOODS

Goods - moveable, personal property.


The common law for contracts applies to ____?

All types of contracts EXCEPT contracts for the sale of goods.


A contracts with B for the sale of a toupee for $5, what law applies?


It does not matter the PRICE or whether the parties are merchants or not. If goods involved, Article 2 applies


Martha buys "Guide to Insider Trading" book and the price includes a free class, what law applies?

Article 2 UCC - still.

With Ks for mixed goods & services key is to determine WHICH IS MORE IMPORTANT.

Here, it is the book.


M buys ticket for class, that comes with a free textbook, what law applies?

Common law.

This is a contract for services (class) - more important.


What is a legally enforceable agreement?



What remedy protects P from unjust enrichment whenever contract law yields an unfair result?


Remedy of last resort.


If restitution is applicable, what can P recover if victorious?

Reasonable value of benefit conferred.

NOT Original contract price.


What type of contract can be accepted in any reasonable way?

Bilateral Contract. (Extremely flexible).


What type of contract can be accepted only be performance?

Unilateral (Inflexible)


What is the first step in determining whether there is an agreement?

Was there an offer?


What is the definition of offer?

A manifestation of intent to be bound.


What is the most common trick on the bar with regard to offer?


Trick is to be able to spot an advertisement, which are generally NOT offers.


Is an advertisement generally an offer? Why or Why not


Because there is commonly no "quantity term" and an unlimited number of people could accept.


What is the exception to the general rule that advertisements are not offers?

An ad that specifies quantity.


Generally, indefiniteness results in an unenforceable offer, what are two exceptions?

(1) Open Price term, court usually reads in a "reasonable" price except regarding sale of real property.

(2) Requirements Contracts


How can an offer be terminated?

(1) Lapse
(2) Revocation


What occurs if an offer has lapsed?

The offer has been terminated. An offer lapses after a STATED TERM of a REASONABLE TIME has passed.


Who has the power of revocation?

The OFFEROR has the power to revoke an offer, which results in termination.


What is the general rule regarding revocation?

An offer can be revoked any time before acceptance.


How can an offer be revoked?

(1) Direct revocation, or
(2) Indirect revocation.


What is required for successful INDIRECT REVOCATION of an offer?

The offeror engages in CONDUCT that indicates he has changed his mind, AND the offeree is AWARE of conduct


On March 1, A offers to sell Jessica his Honda for $500. The next day I see my Honda to R, can Jessica still accept my offer?


While conduct indicating seller has changed mind is present, there is NO EVIDENCE Jessica was AWARE that seller changed mind and sold car.


What are the four exceptions where an offer cannot be revoked?


(1) Option
(2) Firm Offer
(3) Foreseeable Reliance before Acceptance
(4) Starting Performance in a Unilateral K


What is an option?

A promise to keep an offer open that is PAID FOR.


A promises B to keep his offer open for a week, can A still revoke?

YES - merely promising to keep an offer open is not enough.


Z promises to keep his offer open IN WRITING, what result?

MBE: Z can still revoke.


What is a Firm Offer?

Under Article 2, if a MERCHANT promises in a SIGNED writing to keep an OFFER OPEN, the offer is irrevocable.

Note - terms merchant and signed are broadly defined under Article 2.


Does a firm offer have a time limit, if so what?

Yes - 3 month time limit.


What is the difference between a void contract and a voidable contract?

Void contracts cannot be enforced, but an aggrieved party may elect to enforce a voidable contract.

Ultimately, void = K without any legal effect from beginning.

While voidable = K where both parties can elect to avoid K (by raising defenses)


What is required to form a contract?

MUTUAL ASSENT (Offer + acceptance)


NO applicable DEFENSES to formation


What is required to qualify as consideration?

(1) Bargained for exchange (something of legal value)


(2) Substitute for consideration, such as promissory estoppel, detrimental reliance or good faith modification under UCC


When is a revocation effective?

Effective when RECEIVED by offeree.


When is a written communication received?

When it is DELIVERED to recipient's place of business through which the contract was made or another location authorized to receive this type of communication.

Does not matter when recipient actually reads it.


What occurs when a merchant states in writing that an "offer will be open for 10 days."

FIRM OFFER under Article 2.

(i) Merchant
(ii) offers to sell goods in a signed writing
(iii) and the writing gives assurances that it will be held open.


When is a revocation timely?

When received by offeree.


What is the effect of part performance of a unilateral contract?

Offer can NO LONGER be revoked.

Distinguish PREPARATION to perform -- substantial preparations to performed do not make the offer irrevocable BUT may constitute detrimental reliance.


What is the effect of a counteroffer generally

Operates as a rejection, but mere bargaining does not.


What is the effect of a conditional acceptance?

Generally not an acceptance at all. Its actually a rejection.

However, offeror can still accept the conditional offer to form contract.


What is the mirror image rule?

Under COMMON LAW, there must be an absolute and unequivocal acceptance of each and every term of offer.

Any different or additional terms in the acceptance make the response a Rejection or Counteroffer.


What is the battle of the forms provision?

Under ARTICLE 2, (which abandoned the mirror image rule) the proposal of additional or different terms by the offeree in a definite and timely acceptance DOES NOT constitute a rejection and counteroffer,

but rather is EFFECTIVE as an acceptance, unless the acceptance is expressly made conditional on assent to new/changed terms.


Under Article 2, the offeree's new or altered term is included ONLY IF...

(1) Both parties are MERCHANTS
(2) There is no MATERIAL CHANGE, and
(3) No objection within a REASONABLE TIME


Regarding a potential K for the sale of goods, an offeree's written acceptance that DISCLAIMS ALL WARRANTIES (when the offer makes no mention of warranties) results in what?

Offeree's change to disclaim all warranties would likely NOT BE INCLUDED - it is an example of a material change.

Material change = change that is likely to cause HARDSHIP or SURPRISE for offeror.


If one party dies before acceptance, what result?

Death of either party before acceptance terminates a revocable offer,

however, death does not terminate an irrevocable offer (like an option).


What is the general rule regarding acceptance?

The language of the offeror controls.


Under a bilateral K, what is the function of starting performance?

Stating performance IS ACCEPTANCE (and carries implied promise to finish the job).


Under an unilateral K, what is the function of starting performance?

Starting performance IS NOT ACCEPTANCE (so there is no obligation to finish job).

Completing performance is acceptance.


H offers me $10,000 to paint his house, and I can only accept by painting the House. Once I start painting, can H still revoke his offer?


NYBE: H can revoke until completion.


What is the effect of an improper performance under the common law?

Simultaneous acceptance and breach.


What is the effect of an improper performance under Article 2?

Simultaneous acceptance and breach UNLESS seller is sending the goods as an accommodation to buyer.


Mail Box Rule

Acceptance by mail or similar means creates a K at the moment of dispatch (placed in mailbox) provided the mail is properly addressed and stamped.

Note exceptions exist.


What are the exceptions to the Mail Box Rule?

(1) Offer STIPULATES that acceptance is not effective until received, or

(2) Option K is involved


To what is the mail box rule applicable?

ACCEPTANCE only. It does not apply to other events in the contract setting, such as rejection or revocation.


If the offeree sends a rejection and then sends acceptance, what result?

RACE. Whichever arrives first is effective.


General rule regarding offer and silence.

Generally, silence is not acceptance.


When is acceptance generally timely?

Acceptance is effective when MAILED.

It does not matter if the acceptance gets delayed or lost in the mail either.


What are the exceptions to the general rule regarding timely acceptance?

(1) Offer states otherwise
(2) Irrevocable offer
(3) Rejection SENT FIRST


If offeree mails a rejection on May 8 and then mails an acceptance on May 9 - what result?

Whichever gets there first is effective.


Does the mail box rule apply to irrevocable offers?

No - MBR does not apply to irrevocable offers, acceptance is effective only when received.


What are the defenses against formation?


(1) Ambiguity/Misunderstanding
(2) Misrepresentation/Non-Disclosure of a Material Act
(3) Public Policy
(4) Lack of capacity
(5) Economic duress
(6) Mistake about Material Fact
(7) No Consideration


What is the general rule regarding the defense of lack of capacity?

An incapacitated defendant may DISAFFIRM the K.


Minors, Intoxication or Mental Incompetency are all examples of what...

Individuals who lack capacity.


If S (adult) contracts to sell a motorcycle to H (minor), but then S refuses to complete the sale - can H enforce the agreement against S?

YES. Even though H is a minor, all we care about is S's capacity - and he's an adult so the K is enforceable.


What is implied affirmation?

Relates to defense of lack of capacity.

If individual who previously lacked capacity RETAINS THE BENEFIT of the K after (re) gaining capacity - results in an enforceable valid K.


What is the exception to the defense of lack of capacity?

An incapacitated party is liable for NECESSITIES but only for their reasonable value., not contract price.

(Shelter, food, clothing, medical care)


When is the defense of economic duress successful?

When (1) there was threat to break existing K,
(2) the only reason buyer agreed to second K was to get 1st deal done, and
(3) no reasonable alternative.


Is the misrepresentation/Non-disclosure of a material fact a defense to contract formation?

Yes, honest misrepresentation of material fact is a fatal flaw in agreement process.

Must go to material fact.


B and S contract for the delivery of cotton on the "peerless." B means the one sailing in May; S means the one in July. Neither knows or has reason to know there are 2 ships named Peerless - result?

No K.

Successful defense to contract formation.


If a party alleges MISTAKE ABOUT A MATERIAL FACT as a defense, what is the difference between mutual mistake and unilateral mistake?

If the parties make a MUTUAL MISTAKE to a material fact, meaning something central to the K, then defense to contract formation exists.

HOWEVER, unilateral mistake is not a defense, unless the other party KNEW or HAD REASON TO KNOW of other's mistake.


S and B contract for the sale of art print. Both believe the print is by Warhol. What if the print IS by Warhol but is worth 10,000, not 75,000 as they both believed?

K valid. No defense.

Mistake as to VALUE is generally not considered material.


What is the definition of consideration?

Bargained for legal detriment or benefit. A person can bargain for a promise, performance or even forbearance.


If there is no consideration, what result?

No K. Also a defense to K formation.


What is the rule regarding PAST CONSIDERATION?

MBE: past consideration is NOT consideration at all.

NYBE: past consideration is consideration if it expressly stated in a signed writing and can be proven.


What is an illusory promise?


If B agrees to buy "as many widgets as I want for $100" the promise is unenforceable bc B may not want any widgets at all.

However, requirements K ok.


What two concepts require a merchant beyond a typical merchant?

(1) Implied warrant of merchantibility

(2) Entrustment


What are the general rules regarding contract modification under both common law and Article 2?

Common Law: new consideration is required to modify a contract. Performing a PREEXISTING DUTY is not enough.

Article 2: Consideration is not required to modify a contract, but you must show good faith.


Is the partial payment of debt a debt adequate consideration?

Depends on if the debt is due and undisputed.


What is the rule regarding consideration for a time barred debt?

A written promise to pay a debt, collection of which is barred by statute of limitations, is enforceable even without consideration.


Visa is barred by the SOL from collecting the $2,500 you owe them. You write VISA: "I know I owe you money. I will pay you $1500." Do you have to pay Visa $1,500.

YES - bc no consideration for VISA promise since you already owed the money and money was due right now.


Can promissory estoppel act as a substitute for consideration?

Yes FORESEEABLE RELIANCE may make a promise enforceable even without consideration.


What is the court's stance on covenants to not compete?

A court will invalidate or narrow a covenant not to compete that operates as a RESTRAINT OF TRADE.


What does the court look to when determining the validity of covenant not to compete?

The court will consider the SCOPE (duration and geography)

And the NEED (uniqueness of service).


What is an exculpatory clause?

An exculpatory clause can eliminate liability for negligence, but NOT for gross negligence or intentional torts.


What about unconscionability.

Generally, not a valid defense against enforcement.

Substantive - TERMS are unfair.
Procedural - agreement PROCESS are unfair.


Generally, what is the statute of frauds?

When a writing is required.

Most oral contracts ARE ENFORCEABLE, only certain kinds of contracts need to be in writing to be enforced.


What are the typical contracts that fall under the statute of frauds writing requirement?

(1) Transfer of an Interest in Real Property
(2) Performance cannot be completed within a year
(3) Sale of Goods for $500 or more
(4) Lease of Goods for $1000 or more (Article 2A NY Only)
(5) Suretyship

(6) Contract Modifications
(7) Miscellaneous NY Provisions


SOF and Transfer of Real Property. Ex - W authorizes an agent to sell his ranch. Must the agent's authorization be in writing?

Yes. Agent's authority concerning real property must be in writing under Equal Dignities Rule.


Sesame Street orally agreed to employ Bird for THE REST OF HIS LIFE. Is a writing required? What if Sesame Street orally agreed to employ Bird for THREE YEARS?

Lifetime contract:
MBE: lifetime K does not fall under SOF
NYBE: Yes requires writing under SOF

Three Year contract:
Yes, requires writing under SOF.


Hillary orally agreed to buy a raft for $500 - is writing required by the SOF.



Gateway alleges that D orally agreed to lease a computer from Gateway for one year at $300/month, is this within SOF?

Yes. Total K amount for the LEASE OF GOODS is over $1,000.


H agrees to have P paint house for $10,000. C chimes in, "If H doesn't pay you, I will." Is C's promise to pay me within the SOF?

YES - suretyship.

C is liable only if H doesn't pay - C is back up/secondarily liable.


When is a contract modification under SOF?

Must be in writing only if the K as modified, not the original, is within SOF.


What constitutes a satisfactory writing under under Article 2 (for sale of goods)?

Must contain (1) a quantity term, and (2) be signed by party to be charged with breach of contract.

**Remember Art 2 makes it easier to form K.


What constitutes a satisfactory writing for any general contract?

Must contain (1) all material terms AND (2) be signed by the D.


What are the exceptions to the SOF requirement for general contracts?

(1) Real Property
(2) Full Performance Exception (to one year prong)
(3) Contracts for Sale of Goods with certain requirements
(4) Suretyship


What are the exceptions to the SOF requirement under Article 2A - regarding a K for sale of goods for $500 or more?

(1) goods accepted or paid for by buyer
(2) custom made goods
(3) judicial admission
(4) merchants confirmation memo


What is the general rule regarding Merchants Confirmatory Memo?

Generally, one party can use its own signed writing to satisfy the SOF against the other party if:

(1) both parties are merchants
(2) Writing claims agreement/has quantity, and
(3) there is no written objection within 10 days.


Two merchants agree over the phone and one sends a written confirmation later. What concept is applicable?

Merchant's Confirmation Memo Rule regarding Contracts for Sale of Goods and SOF.

Article 2 lets a merchant use ITS OWN CONFIRMATION to satisfy the SOF against ANOTHER merchant.


What is the main purpose exception?

Exception to SOF - does not apply in NY.

On MBE, if surety's main purpose in making promise was to benefit himself, then no writing required for enforcement.

However, in NY writing still required.


From what sources can the terms of a contract result?

(1) Words of parties
(2) Conduct
(3) Seller's Warranties of Quality in a Sale of Goods


What is required to discuss a parole evidence rule problem?

A WRITING. So if the fact pattern involves an oral agreement, its SOF not PER.


What is the parole evidence rule?

Keeps out evidence of a prior of contemporaneous agreement (Either oral or written) that contracts a LATER writing.

Policy: give primacy to later writing.


What are the exceptions to the PER, where evidence gets let in?

(1) Correct clerical error
(2) Establish defense against formation
(3) Interpret vague or ambiguous term
(4) Supplement/add to a partially-integrated writing


What is the effect of a merger clause?

Merger clause means writing is complete and cannot be supplemented


What is the effect of subsequent developments on the PER?

PER has NOTHING to do with what happens after an agreement is reduced to writing.


What types of conduct can explain terms or fill in gaps?

(1) Course of performance
(2) Course of dealing
(3) Usage of Trade


What is the best conduct evidence of what the parties intended?

Course of performance.


What is an express warranty?

Statement of fact, promise or description of goods for which a seller is liable for breach.

Opinion is NOT


If the seller uses a sample or model, does this qualify as an express warranty?

YES - common trick


What is an implied warranty?

(Implied warranty of merchantability)

Definition - the goods are fit for their particular purpose. Seller must be DEALER - not simply merchant.


You buy running shoes from Foot Locker, the K is silent as to quality. Is there an implied warranty of merchantability?

YES - shoe store selling shoes = Dealer with specialized knowledge.

Dealers make implied warranty/promise that shoes are fit for ordinary use.


What is the difference between an Implied Warranty of MERCHANTABILITY and an Implied Warranty of FITNESS FOR A PARTICULAR PURPOSE?

IWM = seller must be dealer

IWF = warranty that goods are fit for particular purpose bc seller knows buyer has a SPECIAL USE for goods and is relying on seller to pick out goods suitable for that use.


What type of seller can make an implied warranty of fitness?

ANY SELLER, merchant or not.


What are the lessor's warranties in a lease of goods?

Same warranties as under Article 2 EXCEPT "finance lease"


What is the purpose of warranties, express or implied?

A guarantee or promise which provides assurance by one party to the other that specific facts or conditions are true.


What is the rule regarding disclaimers and limitations on warranty liability in sales and leases of goods?

A seller can disclaim IMPLIED, but not express, warranties.


What is the effect of "as is" or "with all faults" language?

If K uses this magic phrasing, makes clear to buyer that all implied warranties are DISCLAIMED.


What is the general rule regarding limitation of buyer's remedies?

Generally, seller can limit buyer's remedies of ANY WARRANTY (express or implied) if the limitation is not unconscionable.


What is the exception to the general rule that seller can limit buyer's remedies for any warranty if limitation is not unconscionable?


Limiting the buyer's remedies for personal injury in the case of consumer goods is presumed unconscionable.


What is the hierarchy regarding ROL (Risk of Loss) when goods are damaged or destroyed before buyer gets them?

(1) Agreement
(2) Breach (Breaching party bears risk)
(3) Delivery by common carrier
(4) Non-carrier cases


If one party breaches contract for sale of beer and beer is damaged before it reaches buyer, who bears ROL?

Breaching party, even if the loss is UNRELATED to breach.


Who bears the ROL when there is delivery by COMMON CARRIER?

ROL shifts to buyer when seller completes its delivery obligations.


When does seller complete delivery obligations under a shipment contract (questions presume this type of K)?

Seller must get the goods to a COMMON CARRIER, make delivery arrangements and notify buyer.


When does seller complete delivery obligations under a destination contract?

Seller must get the goods to a specific destination (usually buyers location).


What is meant when parties contract for delivery FOB?

FOB New York City, means that the parties contracted for ROL to pass from seller to buyer at this named location, New York City.


What is meant by FOB X = where SELLER is located?

Shipment K


What is meant by FOB X = anywhere else?

Destination K


Who bears ROL where buyer is to pick up OR seller is to deliver goods (w/o common carrier)?

ROL determination depends on whether seller is a MERCHANT.

If seller is merchant - seller bears ROL until buyer takes POSSESSION of goods.

If seller is not merchant - ROL passes to buyer once seller makes the goods available to buyer (tenders).


Who bears ROL in a lease of goods?


Generally, ROL is on the LESSOR.

Exception for finance lease = ROL is on lessee.


What is the perfect tender rule?

For proper performance under Article 2, regarding contract for sale of goods, if tender is not perfect, buyer may reject the goods.


What is effect of option to cure?

A seller who fails to make perfect tender may have an option to cure. This option depends on whether the time for performance has expired.


When does the seller maintain an option to cure after delivery time has expired?

If in the past, buyer had been flexible regarding imperfect tender (had accepted partially imperfect tender) in PRIOR DEALINGS.


What is an installment contract?

Requires or authorizes delivery in separate installments.


What is the rule regarding the rejection of installment contracts?

The perfect tender rule does not apply to installment K, buyer may reject only for SUBSTANTIAL IMPAIRMENT.


What are the limits of a firm offer? (elements)

(1) merchant status, (2) signed writing, (3) reasonable time limit (no more than 3 months held open).