Contract Issues Always Tested On Mbe

Front 1

Where P gets an unrequested benefit and the ∆ promises to give it ≠ consideration (not consideration).

the hypo was where P found stray dog, put ad in paper, ∆ (dog owner) contacted P who then returned the dog to ∆. ∆ of offered to give P a reward, but P refused. Later P changes his mind and wants and asks for the reward and ∆ refused to pay P. P sued ∆ for breach.

Back 1

P will not recover b/c no consideration.

-there was no bargained for exchange b/c a benefit had already been given or performed before the promise was made.

Front 2

Promise to do something the party is legally allowed to do = consideration.

facts will be a unilateral K (acceptance only by performance) where a relative or friend promises to pay the other to quite smoking, lose weight, stop using drugs.

Back 2

•thus a promise to pay P if she quits smoking for a year is enforceable. (the K is not illusory)

but, a promise to do something that the party is not legally allowed to do is not consideration.
• thus a promise to pay P if she quits doing cocaine is not enforceable for lack of consideration.

Front 3

Merchants FIRM OFFER?

Back 3

a merchants promise to keep an offer open is enforceable for up to 3 months if:
-in writing, and
-signed by the party making the offer (letterhead = signature)

• no consideration req'd (cf, C/law option k).

• no detrimental reliance req'd.

Front 4

merchant promises in writing and signed to keep the offer open or not to revoke for 6 months. How long is the firm offer open for?

Back 4

3 MONTHS (reasonable time not to exceed 3 months)

Front 5

Merchant makes a signed, written offer to sell a 1971 BMW. Can merchant revoke?

Back 5

YES, no promise to keep open or not to revoke.

Front 6

REQUIREMENT contracts (UCC)

ex: Merchant offers to buy all its requirements of rice from seller for two years for $10 a bag.

Back 6

Requirement contracts are enforceable as long as party uses good faith in assessing his requirements.

UCC allows quantity to be measured by buyer's needs or requirements.

*watch out for sudden increases in requirements. ex: for last 3 years Buyer ordered 100 bags of rice, then suddenly orders 500 bags of rice. Can buyer require seller to deliver 500 bags this year? NO, even if acted in good faith, Buyer cannot take Seller by surprise.

Front 7

Acceptance can be implied through conduct.

test: would reasonable person conclude they accepted.

Back 7

Acceptance can be IMPLIED through CONDUCT.

Front 8

Counteroffer is a rejection of the original offer.

-an offer terminates when the offeree rejects it.

Back 8

while a counteroffer is a rejection of the original offer, mere bargaining is not a rejection.

* MERE BARGAINING by the offeree is NOT a counteroffer, not a rejection of the offer.

Front 9

Sam offers to sell whiteacre to Patty for $400k, Patty says "I will only pay $350k." Sam refuses.
Can Patty later accept Sam's offer to buy whiteacre for $400k?

Back 9

NO.
- P made a counteroffer which acts as a rejection of Sam's offer.

Front 10

Sam offers to sell whiteacre to Patty for $400k, Patty says "will you take $350?" Sam refuses.
Can Patty later accept Sam's offer to buy whiteacre for $400k?

Back 10

YES.
- "mere bargaining" is not a rejection of the offer.

Front 11

Battle of the Forms (UCC)

*no mirror image rule under the UCC, thus an offeree's adding or changing a term does not prevent acceptance under the UCC.

Back 11

RULES:

1) if offeree accepts the offer and makes a MATERIAL change/addition to the terms = K under original terms.

2) if offeree accepts w/out material change and the parties are not merchants = K under original terms.

3) **if offeree accepts w/ nonmaterial change and both parties are merchants the change is incorporated into the K if the offeror doesn't object w/in a reasonable time.

Front 12

An offeree's term is included only if:

Back 12

a) both parties are MERCHANTS,

b) NON-material change/addition,

c) no objection w/in a REASONABLE TIME

*if offeror objects to the minor change w/in a reasonable time = K under original terms.

Front 13

What is a "material change" regarding whether an offeree's additional term is incorporated mean?

Back 13

a Material Change is:

-any change that SUBSTANTIALLY effects the ECONOMIC risks or benefits, or changes the usual remedy for breach of K.

ex: addition of an arbitration clause = material change b/c it changes the usual remedy for breach of K.

Front 14

Shipment of Non-Conforming Goods:

general rule: shipment of non-conforming goods is an acceptance & breach if sent w/out an accommodations letter.

Q1) When is a shipment of non-conforming goods treated as a counteroffer?

Q2) if the non-conforming goods are treated as a counter offer, what are the Buyers choices?

Back 14

(1)
• a prompt shipment of non-conforming goods AND
• a notice (accommodations letter) attached = a Counter Offer.

(2)
• buyer can accept, or
• buyer can reject, but NO damages b/c not a breach.

Front 15

a promise to pay the debt of another must be in ___ to be enforceable.

Back 15

writing

Front 16

when does a promise to pay the debt of another NOT have to be in writing?

(exception to SOF)

Back 16

[Main Purpose Exception]

- if the "main purpose" of the promise is to benefit the person making the promise to pay the debt of another - no writing required to be enforceable.

Front 17

Statute of Frauds Acronym:

(MY LEGS)

Back 17

•Marriage
•Year
•Land
•Executor
•Goods over $500
•Surety (promise to answer debt of another)

Front 18

Statute of Frauds Acronym:

(MY LEGS)

Back 18

•Marriage
•Year
•Land
•Executor
•Goods over $500
•Surety (promise to answer debt of another)

Front 19

Statute of Frauds Acronym:

The 6 (MY LEGS) contracts that generally require a Writing are:

Back 19

•promises in consideration of Marriage.
•promises that can't be completed in one Year.
•promises creating an interest in Land.
•promise of Executor to pay estate debts out of his own funds.
•agreements for sale of Goods at $500 or more.
•promises to answer the debts of another (Surety).

Front 20

UNILATERAL MISTAKE will not result in a change (modification) in the K, unless the party that did not make the mistake KNEW or should have known of the mistake.

Back 20

if the party that did not make a mistake KNEW or should have known of the mistake--he cannot take advantage of the mistake.

Front 21

MUTUAL MISTAKE usually results in cancellation or modification of the K.

Back 21

Mutual Mistake is one where both parties made a mistake: if the mistake was mutual the K will usually be modified (or cancelled).

in contrast, a Unilateral Mistake will not result in a modification of the K, unless the non-mistaken party knew or should have known of the mistake.

Front 22

MODIFICATION of an Existing Contract:

Rule changes depending on whether the UCC or general K law applies.

Back 22

if the general K law (C/Law) applies:

Rule: there must be consideration given for the modification or the modification will not be enforced.

• if consideration was given for the modification--the modification is enforceable.

*CONSIDERATION is key if non-UCC

Front 23

MODIFICATION of an Existing Contract: an example of the general K law rule.

Ex: Owner called several painters and received bids from $8500 to $800 to paint his house. Painter submitted a bid (offer) to paint Owner's house for $8000 and Owner and Painter entered into a K for house painting at $8000. Shortley before Painter was scheduled to begin, he called Owner and said he discovered he will not make a profit if he were paid less than $8600. Owner agreed to pay Painter the extra $600. After Painter finished the job, Owner handed him $8000 and said that's all I'm going to pay b/c you had no right to raise the price.
Q: if Painter sues Owner for the additional $600, who will prevail?

Back 23

Owner, because Painter was already under a preexisting duty to paint the house for $8000.

*CONSIDERATION must be given for a modification to be enforceable if non-UCC.

Front 24

MODIFICATION of an Existing Contract:

•if the UCC applies: NO consideration is required to modify as long as the parties acted in __ __.

Back 24

"good faith"

under the UCC a modification is enforceable, even without consideration, so long as the parties acted in GOOD FAITH.

note: if modification is for the sale of goods at $500 or more the modification must be in writing.
However if the modification reduces the price below $500 (i.e., 400) the modification need not be written.

Front 25

Under the UCC, is parol evidence of "trade usage" of the contract terms admissible to explain or supplement the terms of the contract?

Back 25

YES.

-under the UCC, parol evidence of "Trade Usage" is always admissible to explain or supplement the terms of the contract.

Front 26

Under the UCC, Ks for the sale of goods at $500 or more must be in writing and signed by the party being charged in order for it to be enforceable.

Exception?

Back 26

if oral K of sale of goods at $500+ is between merchants, and one merchant sends a written confirmation of the deal to the other merchant and the other merchant doesn't object w/in 10 days of receiving the writing (written confirmation), that document satisfies the writing requirement and the K is enforceable.

-if the above happened, the ∆ merchant will lose if didn't object w/in 10 days.

Front 27

Hypo:
Silk merchant calls clothing manufacturer and offers to sell Manufacturer 20 bolts of silk at $50 per bolt, delivery in five weeks. Manufacturer immediately accepted the offer. After hanging up the phone, Silk merchant prepared a writing reciting the terms of the agreement, signed it and mailed it to Manufacturer who got the letter the next day, read it, and put it aside. Two days before delivery was due, Manufacturer called Silk merchant to cancel the order, despite Silk merchants insistence that they had a contract.
Q: if silk merchant sues manufacturer for breach, the silk merchant is likely to?

Back 27

Win, because the manufacturer did not object to the memorialization of their agreement w/in 10 days.

-this is an exception to the general rule that Ks for the sale of goods at $500 or more be in writing.
-the letter that recited the terms of the oral agreement (also signed) satisfies the writing requirement.

Front 28

Three issues re: 3PBs on the MBE

Back 28

1) is there in fact a 3PB or is the 3P merely an incidental beneficiary to the K.

2) if the 3PB can sue what defenses can be raised.

3) when can the K be modified or canceled by the original parties w/out consent of the 3PB.

Front 29

is there in fact a 3PB or is the 3P merely an incidental beneficiary to the K?

Back 29

if the 3P obtains rights under the K, he is a 3PB

Front 30

if the 3PB can sue, what defenses can be raised?

Back 30

if ∆ is sued by 3P, he can raise any defense he could have raised had he been sued by a party to the K.

Front 31

when can the K be modified or canceled by the original parties w/out consent of the 3PB?

Back 31

a K can be canceled or modified without consent of 3PB until the rights of the 3PB have vested.
- once the 3PB's rights have vested, the 3PB must consent to any change to the K.

Front 32

When do the rights of a third party beneficiary VEST?

(three situations on the MBE)

Back 32

3PBs rights are vested if:

(i) 3P is asked to assent to the K and he ASSENTS.

(ii) 3P learns of the K and DETRIMENTALLY RELIES on it.

(iii) 3P brings a lawsuit to enforce the K (vesting at time lawsuit is filed, can't change until after suit is resolved).

note: vesting doesn't occur merely b/c 3P was notified of the contract.

Front 33

to prevail under PROMISSORY ESTOPPEL the plaintiff must establish:

(Promissory Estoppel is a substitute for consideration)

Back 33

for Promissory Estoppel to apply, plaintiff must prove:

i) Promise by the ∆,

ii) at time of promise ∆ had a Reasonable Expectation there would be reliance,

iii) plaintiff actually relied on the promise,

iv) the interests of Justice requires enforcement of the promise.

*foreseeable reliance is key

Front 34

Hypo:

Tenant's lease expires next month. Landlord promises to renew. In reliance, Tenant paints the apartment. Landlord refuses to renew. Was there consideration for Landlord's promise to renew?

Back 34

NO consideration was given.

but, Tenant can seek to enforce on promissory estoppel.

Front 35

Hypo:

Sesame Street agreed orally to employ Big Bird for the rest of his life. Is a writing required?

Back 35

NO.

-lifetime contracts don't fall under the SOF.

Front 36

Hypo:

Sesame Street agreed orally to employ Big Bird for three years. Is a writing required?

Back 36

Yes.

- a contract that can't be completed in one year must be in writing.

Front 37

Hypo:

Rancher orally agrees to pay Bartley to dig ditches on his ranch to begin January 1, 2011. Bartley finishes digging ditches a year and half later. Was a writing required?

Back 37

NO.

- as long as full performance within one year was theoretically possible, no writing is required by the SOF.

Front 38

[FOB at specific location]

FOB means "free on board"

Back 38

if FOB is followed by name of place or city, the "risk of loss" is on the seller until the goods get to the specified location and makes reasonable arraignments to get the goods to buyer. only then does the risk of loss shift to the buyer.

While the risk of loss is on the seller, if something happens to the goods the loss is on the seller.
- if the risk of loss was on the seller when the goods are destroyed, the buyer can recover amount to replace the goods.

Front 39

if the specific place for the FOB is where the seller is located the contract is ______ contract

if the specific place for the FOB is any other place other than the seller's location, it is a ____ contract.

Back 39

-SHIPMENT contract

-DESTINATION contract

Front 40

ASSIGNMENT OF RIGHTS

Two people make a contract; later one (assignor) transfers his rights to a third party (assignee). The party who owes the duty is the obligor.

Back 40

Assignor: party that transfers his rights under the K

Assignee: third party who received the rights of the assignor.

Obligor: party who owes the duty

Front 41

ASSIGNMENT OF RIGHTS

R1: a valid assignment of something someone owes you does not require consideration. (gifts can be assigned)

R2: generally an assignment NOT required to be in writing.

R3: an assignment is revoked when the assignor collects/accepts the money from the obligor (creditor).

Back 41

ASSIGNMENT OF RIGHTS

R1: a valid assignment of something someone owes you does not require consideration. (gifts can be assigned)

R2: generally an assignment NOT required to be in writing.

R3: an assignment is revoked when the assignor collects/accepts the money from the obligor (creditor).

Front 42

ASSIGNMENT OF RIGHTS

An assignment is NOT revocable if:

Back 42

An assignment is NOT revocable if:

i) assignee collected from the creditor (the deal is complete)

ii) consideration was given for the assignment

iii) assignee detrimentally relied on the assignment

Front 43

ASSIGNMENT OF RIGHTS

If a creditor (obligor) refuses to pay the assignee when due, the assignee can sue the creditor in an __ to __ the __.

Back 43

action; collect; debt

Front 44

ASSIGNMENT OF RIGHTS

Contract between Batman and Gotham provides that "rights under this contract are not assignable." Batman assigns his right to payment to Robin anyway.
Can Robin collect from Gotham?

Back 44

Yes, the assignment is valid.

but, Batman is liable to Gotham for breach.

note: had the facts been the same but the contract said "all assignments under this contract are void." Robin will not be able to collect from Gotham.

Front 45

ASSIGNMENT OF RIGHTS

an assignment cannot substantially change the duties of the obligor (creditor).

Thus, can Gotham assign its rights to Batman's services to Metropolis?

Back 45

No,

-this would substantially change the duties of the obligor.

Front 46

[Obligor Liable to Assignee]

R1: obligor must know of the assignment

R2: if assignor performs, assignee can sue obligor if not paid.

R3: if assignor does not perform, assignee cannot collect from obligor.

Back 46

[Obligor Liable to Assignee]

R1: obligor must know of the assignment

R2: if assignor performs, assignee can sue obligor if not paid.

R3: if assignor does not perform, assignee cannot collect from obligor.

Front 47

ACCORD & SATISFACTION
(look for: ∆ incurring a different obligation than he originally had)

1) Accord- is the agreement to substitute the __ obligation for a __ obligation under the original contract.

2) Satisfaction- is when the party performs the __.

Back 47

1) original; new

2) accord

Front 48

ACCORD & SATISFACTION

the legal ramification of the "accord" is that it __ X's obligation under the original contract until X __ his obligation under the accord.

Back 48

suspends; performs

Front 49

ACCORD & SATISFACTION

the legal ramifications of "satisfaction" is that when X __ the accord, X is no longer under any contract obligation to Y.

Back 49

performs

Front 50

ACCORD & SATISFACTION

if X doesn't perform (doesn't satisfy the accord), Y can sue X under either __ contract or the __.

Back 50

original; accord

• the non-breaching party (Y) gets to pick which to sue under; may make a difference as to damages.

• Y gets to pick because the original obligation is wiped out only when the accord is satisfied.

Front 51

hypo: Debtor owed creditor $1000 on a promissory note due on Aug. 1. After debtor told creditor that he might not be able pay on the due date, creditor agreed to extinguish the note if debtor would buy him a new TV worth $1000 from creditors work which he can get a discount on, to be delivered to creditor on Aug 15. Parties memorialized the agreement (written and signed) on July 26.
Q: is the new agreement b/w creditor and debtor legally enforceable?

Back 51

Yes, because debtor incurred a different obligation than he originally had.

Yes, under the doctrine of accord and satisfaction.

Front 52

ACCORD & SATISFACTION

can the creditor sue the debtor under the original obligation before performance of the new obligation is due?

Back 52

NO, the suspends debtor's obligation under the original agreement until the date the new obligation (accord) is due.

Front 53

If the contract s not for the sale of goods, will answer choice that mentions "good faith" ever be a right answer?

Back 53

No.

"good faith" only applies to contracts covered by the UCC.

Thus if the contract is not for the sale of goods, an answer choice with the phrase "good faith" is always wrong on the MBE.
-immediately eliminate it.

Front 54

ANTICIPATORY BREACH

what is it?

Back 54

when before performance is due, the party signals to the other that INTENDS not to perform.

Front 55

ANTICIPATORY BREACH

• There must be __ statement of __ not to perform.

Back 55

clear; intent

Front 56

ANTICIPATORY BREACH

• expressions of __ as to one's ability to perform cannot support a suit for anticipatory breach.

Back 56

doubt

Front 57

ANTICIPATORY BREACH

• if not clear manifestation of intent not to perform, the non-breaching party must: (a) ______ or (b) ______.

Back 57

• if not clear manifestation of intent not to perform, the non-breaching party must either:
(a) SEEK assurances, or
(b) WAIT until performance is due and if other doesn't perform, sue for breach.

Front 58

ANTICIPATORY BREACH

must a repudiation (clear intent not to perform) be in writing?

Back 58

NO,

a repudiation of contract need not be written.

Front 59

ANTICIPATORY BREACH

if there has been a valid anticipatory breach (repudiation), the non-breaching party can: _____ and/or ____.

Back 59

sue immediately and/or make alternative arraignments

Front 60

ANTICIPATORY BREACH

what can a non-breaching party do if there is a valid anticipatory breach by the other party?

Back 60

i) sue immediately, and/or

ii) make alternative arraignments

Front 61

ANTICIPATORY BREACH

*** if the non-breaching party has done NOTHING in reliance on the breach, the breaching party can:

Back 61

change his mind (decide to perform) and notify the non-breaching party that he will perform and the original contract is enforceable and there will be no breach.

Front 62

ANTICIPATORY BREACH

Remedy? (limitations)

Q: when can the non-breaching party cancel the contract and hire someone else OR sue for damages for the time b/w when performance was due and the time performance was began?

Back 62

• if there was a MAJOR change to the K causing material prejudice and material damage:

-non-breaching party can cancel the K

• for MINOR breaches:

-non-breaching party is limited to money damages. (can't cancel)

Front 63

ANTICIPATORY BREACH

if the breaching party were the star of the show, could the non-breaching party cancel the contract (and hire someone else)?

Back 63

Yes, this would be a Major change.

-would cause ticket sales to drop which would be a material prejudice.

Front 64

Death/Incapacity of ESSENTIAL Person:

• if unique party is unable to perform b/c of sickness or incapacity performance is __ during that time and not liable for damages, unless contract provides otherwise.

Back 64

excused

Front 65

In a unique personal service contract, if the unique (or essential) person is unable to perform because of sickness or incapacity is he liable for breach?

Back 65

NO (unless K otherwise provides).

Sickness or incapacity of a unique person in a personal service contract EXCUSES performance during that time and that person is not liable for damages, unless the K states otherwise.

Front 66

Reasonable Delay in Starting Performance:

• is not considered a breach of K that gives rise to damages.

Back 66

look for a construction contract where there is a start date and a finish date.
-where beginning of performance is delayed.

Front 67

While a Reasonable Delay in Starting Performance is not considered a breach of K that gives rise to damages, if the party (contractor) doesn't finish on time while there be damages?

Back 67

Yes. failure to complete performance by the deadline is a breach that gives rise to damages.

Front 68

Reasonable Delay in Starting Performance:

note: if there is a reasonable delay in starting performance, plaintiff doesn't have to pay until the work starts.

Back 68

if there is a reasonable delay in starting performance, plaintiff doesn't have to pay until the work starts.

Front 69

Time-is-of-the-essence Clause

Cts are skeptical of these clause but will enforce where:

Back 69

i) breaching party clearly agreed and knows what the clause means,

ii) valid reason for the clause (ie, Buyer lease was to expire soon after was to be complete)

iii) non-breaching party doesn't gain an unfair advantage b/c of the clause

Front 70

Basic Principle of Contract Damages is to:

Back 70

place non-breaching party in position he would have been in had the K been completed.

Front 71

will nominal damages be awarded where actual damages can be ascertained?

Back 71

NO.

• if actual damages can be ascertained, there will be no nominal damages.

Front 72

VOLUME SELLER (UCC)

-Volume seller is a seller with a large inventory of the same item.

•if the original buyer backs out of the deal, the damages are:

Back 72

wholesale price (price of item to seller) - contract price w/ the buyer that backed out.

•wholesale price MINUS original contract price.

*if there was a downpayment by the breaching buyer, it will be reduced from the award.

Front 73

VOLUME SELLER (UCC)
[aka, "lost" volume seller]

Do the measure of damages change if the volume seller makes substantially more when he sales the car to another than he would have made off of the original party that backed out?

Back 73

NO.

measure of damages does NOT change just because volume seller makes more than he would have from the breaching party when he sales to another.

Front 74

if the seller is NOT a volume seller, but merely a seller of a limited item, what are his damages if the buyer backs out?

Back 74

Lost Profits only.

a seller of a limited item (non-volume seller) can only recover lost profits.

Front 75

Hypo:

Singer calls nightclub owner and tells him "I might not be able to start until February 10." Under the contract performance was to begin February 1.
Q: Can nightclub owner bring an immediate suit against the singer?

Back 75

NO, because the phone call did not constitute a repudiation.

•an anticipatory breach requires a clear expression of intent not to perform.

Front 76

modification of a contract for services must be supported by __.

Back 76

CONSIDERATION

-must give new value
-preexisting legal duty ≠ consd

Front 77

NO privity is required for the benefit or burden of an __ __ to run.

BUT, Vertical Privity is required for the benefit and burden to run for __ __.

Back 77

EQUITABLE SERVITUDE

REAL COVENANT