MBE One Sheet

Question 1

Ks & Sales

Answer 1

• Uniform Commercial Code (UCC) applies to transactions in goods.
• CL applies to everything else (services).
• Cts look at the predominant purpose of K if it is not clear which applies.

Question 2

FORMATION OF CONTRACTS—OFFER, ACCEPTANCE, AND CONSIDERATION: Offer

Answer 2

• Creation: There must be intent to enter into a K plus
  specific terms (price, quantity, & identity of parties).
• And, it must be communicated to offeree.
• Note: A requirements/output K will not fail for lack of quantity. The amount sold/requested must be in
  good faith & not unreasonably disproportionate to a
  stated estimate/prior comparable output.
• Termination of an offer: 4 ways to terminate offer:
  (1) Lapse of time: an offer lapses after a reasonable time.
  (2) Rejection (including counteroffer, which is a rejection & new offer)
  (3) Revocation of an offer: An offer can be revoked b/f acceptance unless it is falls into one of the 4 :
  (A) Firm offer by a merchant in a signed writing under UCC. Can be held open for a max of 3 months.
  (B) Option K: a promise to hold open offer plus consideration for that promise.
  (C) Unilateral K: if offeree begins performance on a unilateral K, offer is held open for a reasonable time.
  (D) Reasonably foreseeable substantial reliance on offer.
  (4) Death/incapacity of offeror

Question 3

ACCEPTANCE

Answer 3

• Look at type of K
• Bilateral Ks are accepted by promise to perform/ beginning performance.
• Unilateral Ks (rewards, prizes, or offers that specify they are unilateral) can only be accepted by full performance.
• Tip: most Ks are bilateral.
• Article 2: An offer for SOGs is accepted by promising to ship/shipping the goods.
• Note: if seller ships defective goods w/ an accommodation letter, that constitutes a counteroffer.
• If there is no letter, it is an acceptance & breach.
• Acceptance is effective: acceptance is effective when sent (mailbox rule).
• Exceptions: an option K (acceptance effective upon
  receipt) or if a rejection then an acceptance is mailed (the one received first controls).
• Terms of acceptance
• CL: acceptance must be “mirror image” of offer.
• UCC: An acceptance does not need to mirror offer & may have additional/different terms.
• Between merchants, an additional term will be a part of K unless it materially alters it, offeror objects w/in reasonable time, or offer limits acceptance to offer terms.
• Majority rule: a different term is knocked out& replaced w/ gap fillers.

Question 4

CONSIDERATION

Answer 4

• “Bargained-for exchange”
• The following are not consideration: a promise to make a gift, a moral obligation, past consideration, or an illusory promise.
• Reliance (a substitute for consideration): if there is a
  promise & foreseeable & justifiable reliance, enforcement will be granted as necessary to avoid injustice.
• Modifications:
• CL: Consideration is needed to modify K. The performance of a preexisting legal duty is not consideration unless it falls into an exception (unforeseen difficulty, a good faith settlement of a
  lawsuit, a good faith payment in full of a due disputed debt, a written promise to pay a time-barred
  debt, or if duty was owed to 3rd person).
• UCC: only good faith is needed to modify K.

Question 5

PERFORMANCE, BREACH, AND DISCHARGE: Common law

Answer 5

• One has to substantially perform one’s duties in order for the other party’s duty to arise.
• Exception: Express condition (“I will buy it if I like it” or “I will buy it if I can get a 10% interest rate”).
• These must be complied with exactly.
• Tip: cts find that most conditions are “constructive” & substantial performance is enough.

Question 6

PERFORMANCE, BREACH, AND DISCHARGE: UCC

Answer 6

• UCC: Seller must provide perfect tender of goods (or buyer can reject goods).
• If seller does not provide perfect tender & buyer rejects goods, seller only has an automatic right to cure if (1) there is time left to perform under K, or (2) seller reasonably believed that buyer would accept the nonconforming goods with/without a money allowance such as a discount (ex. seller sent better goods than contracted for).
• Exception: Installment K. Buyer may reject an installment if there is a “substantial impairment” & seller cannot cure the installment.
• Note on revocation: If buyer accepts goods, he may not reject them. However, he may later revoke his acceptance.
• Revocation is a higher standard than rejection as it
  requires showing that defect substantially impairs value of the goods to him, among other things.

Question 7

PERFORMANCE, BREACH, AND DISCHARGE: Delivery obligations

Answer 7

• Carrier cases: Most Ks are shipment Ks (K is silent/ has shipping terms like “FOB Seller’s Place of Business,” “CIF,” “C&F,” or “FAS”).
• Seller only has to get goods to shipper & risk of loss (ROL) passes to buyer at that point.
• For destination Ks (Ks that state, “FOB Buyer’s Place of Business” or “Ex-Ship”), seller has to get goods to destination.
• Non-carrier cases: If seller is a merchant, seller must actually deliver goods to buyer for ROL to pass.
• If seller is not a merchant, seller must tender delivery (make goods available) for ROL to pass.
• Breach: if seller is in breach, ROL is on seller until defective goods are cured by seller/accepted by buyer.

Question 8

PERFORMANCE, BREACH, AND DISCHARGE: Excusing performance and conditions:

Answer 8

• A party is excused from performing if other party breaches.
• An anticipatory repudiation occurs when a party unequivocally breaches. If this occurs, other party can sue immediately, suspend performance & wait to sue, treat K as discharged, or urge other party to perform.
• A prospective inability to perform is when a party has reasonable grounds for insecurity that other will not perform. The insecure party can demand adequate assurances that performance will take place. Note that conditions can also be waived.

Question 9

PERFORMANCE, BREACH, AND DISCHARGE: Discharging duties:

Answer 9

A duty can be discharged by:
(1) Occurrence of a condition subsequent: This is a condition that cuts off a duty. (“I will paint the house until it starts to rain.” The rain is a condition subsequent that cuts off the duty to paint the house.)
(2) Agreement: ex. novation (new party steps into shoes of an existing party), modification, release, accord & satisfaction (parties agree to new/different consideration), & rescission (K is undone).
(3) Frustration of purpose: primary purpose of K known by both parties at time of contracting is substantially frustrated by an unforeseeable event that occurred after K was entered into.
(4) Impossibility: an event that renders performance impossible occurs after K was made, it was not reasonably foreseeable at the time of K, the nonoccurrence was a basic assumption of the parties, neither party is at fault, & neither party bears the risk.

Question 10

PERFORMANCE, BREACH, AND DISCHARGE: Warranties

Answer 10

• Express warranties are affirmations of fact about goods/sample of goods. These cannot be disclaimed. Mere “puffery” does not create an express warranty.
• The implied warranty of merchantability is made by a merchant & warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed (by express language such as a conspicuous “as is” clause/through conduct).
• The implied warranty of fitness for a particular purpose can be made by any seller who knows of buyer’s specific purpose & buyer relies on seller. It can be disclaimed. Tip: seller does not have to be a merchant.
• A limitation of remedies clause is a contractual provision that limits/controls remedies. It is enforceable unless it is unconscionable/it “fails of its essential purpose.” The clause is unconscionable if it attempts to limit/avoid paying consequential damages for a personal injury due to a consumer product.

Question 11

INTERPRETATION: General rule:

Answer 11

• Express terms control.
• Then cts look to course of performance, course of
  dealing, & trade usage.

Question 12

INTERPRETATION: Gap fillers:

Answer 12

• UCC has default rules for terms that govern Ks for SOGs if no term is stated in K (if nothing is said as to price, price is a reasonable price at time of delivery).

Question 13

INTERPRETATION: Keeping terms out with the parol evidence rule (PER):

Answer 13

• PER applies when a party wants to add a term from preliminary negotiations to a final written agreement.
• If there is a complete integration, no terms will be admitted into evidence.
• Tip: look for a merger/integration clause in K; ex. one that states, “this is the full & final agreement.”
• If there is a partial integration, consistent additional terms are admitted.
• PER does not apply to (FICCL) formation defenses, interpretation of a term, failure of a condition precedent, a clerical error, or later mods.

Question 14

THIRD-PARTY RIGHTS: THIRD-PARTY BENEFICIARIES (TPBs)

Answer 14

• Intended TPBs have rights under K once their rights vest.
• Rights vest when there is assent, reliance, or when 3rd party brings a lawsuit.
• Incidental TPBs do not have rights under K.
• Factors to determine if a TPB is intended:
  (1) Is TPB expressly designated in K?
  (2) Is performance directly to the TPB?
  (3) Does TPB have any rights?
  (4) What is the relationship between TPB & promisee?

Question 15

THIRD-PARTY RIGHTS: DELEGATION

Answer 15

• Tip: if you mix up assignment & delegation, remember that generally, one delegates duties & assigns rights (usually right to be paid).
• Generally, one may delegate duties under a K unless K prohibits it/if K involves special skill, judgment, or trust.
• Neither consent, nor consideration, nor a writing is needed to delegate a duty.
• Delegator remains liable on K after delegation.
• Delegatee is liable if he receives consideration from delegator.

Question 16

THIRD-PARTY RIGHTS: ASSIGNMENT

Answer 16

• Generally, rights can be assigned unless assignment substantially changes obligor’s duties/K prohibits it.
• Assignment may not be revoked if there was consideration given/if it is payment for a preexisting debt.
• An assignment is revoked if assignor takes performance directly/makes a subsequent assignment to a different party.

Question 17

DEFENSES: STATUTE OF FRAUDS (SOF) DEFENSES

Answer 17

• Rule: SOF requires a writing signed by party to be charged that evidences K.
• Tip: the “party to be charged” generally means D.
• Which Ks fall into the SOF? (MYLEGS) Ks made in consideration of marriage, Ks that cannot be performed within a year, Ks for the sale of land,
  promises made by an executor to pay a debt from his own estate, Ks for sale of goods for $500 or more, & surety Ks.

Question 18

DEFENSES: SOF Exceptions

Answer 18

• Exceptions—where no signed writing is required
• Land: part performance (when one’s actions evidence K; ex. buyer does 2/3 things: (1) takes possession of property, (2) improves land significantly, or (3) pays a substantial amount of the purchase price).
• Sale of goods: 4 exceptions
  (1) merchants confirmatory memo exception,
  (2) when seller has made a substantial beginning in manufacture/commitments for specially manufactured goods not suitable for sale to others in seller’s ordinary course of business,
  (3) judicial admissions (one admits in his pleadings, testimony, or in court that there is a K—it is enforceable up to quantity admitted), and
  (4) part performance (one pays for/accepts a part of K).
• Surety: a promise to pay debt of another if other does not pay falls w/in SOF unless main purpose of surety promise is to serve a pecuniary interest of person making the promise.
• Cannot be performed w/in a year: full performance on one side will serve as a substitute for a signed writing.

Question 19

DEFENSES: CAPACITY DEFENSES

Answer 19

• Incapacity for minors, mentally incompetent, or intoxicated persons.
• However, they may be liable for “necessities.”
• Duress: when a party threatens to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.
• Undue influence: unfair persuasion where a person in a position of trust, confidence, or dominance uses that position to convince another to enter into a K that is not in that party’s best interest.

Question 20

DEFENSES: LACK OF CONTRACT FORMATION DEFENSES

Answer 20

(1) Mutual mistake: if both parties are mistaken about a basic assumption of fact that materially affects the agreed upon exchange & neither bears the risk, K is voidable.
(2) Unilateral mistake: if a party knew/had reason to know of other party’s mistake, K is voidable.
(3)Mutual misunderstanding: no K if both parties have a different understanding of a material term that is open to at least 2 reasonable interpretations & neither party has any reason to know of the meaning attached by the other.
(4) Illegal subject matter (selling drugs): K is void. If it is for an illegal purpose (leasing a car to transport drugs), it is voidable by party who didn’t have the illegal purpose (car owner) if he didn’t know the purpose/he knew of the purpose but didn’t facilitate it & it doesn’t involve “serious moral turpitude.”
(5) Unconscionability: 2 necessary elements: (a) procedural unconscionability unfair bargaining process—hidden/incomprehensible terms) & (b) substantive unconscionability (grossly unfair terms). Voidable.
(6) Other defenses: fraud, misrepresentation, nondisclosure, & public policy.

Question 21

REMEDIES: General rule:

Answer 21

• Damaged party recovers expectation damages.
• This is the loss of value of breaching party’s performance plus incidental damages plus consequential damages minus any expenses saved as a result of breach. Mitigation of damages is required.

Question 22

REMEDIES: Incidental & Consequential Damages

Answer 22

• Incidental damages: those related to avoiding the loss from breach (storing goods after a breach).
• Consequential damages: those that are foreseen at the time K is entered into.

Question 23

REMEDIES: UCC Formulas

Answer 23

• Seller breaches & buyer has goods: buyer gets value of goods as contracted for minus value of goods as delivered plus incidental & consequential damages.
• Seller breaches & seller has goods: buyer gets difference between market price (or replacement price) & K price plus incidental & consequential damages minus expenses saved.
• Buyer breaches & buyer has goods: seller gets K price.
• Buyer breaches & seller has goods: seller gets difference between K price & market price (or resale price) plus incidental damages minus expenses saved.
• Lost volume seller: Seller gets lost profits plus incidentals. Tip: Seller is a lost volume seller when there is an unlimited amount of the product available. - The MBE fact pattern will make this very clear.

Question 24

REMEDIES: Equitable remedies

Answer 24

• Specific performance is not usually available unless goods are unique/it is a land K.
• An injunction is an equitable remedy that tells a party to do/not do something. An injunction for a noncompete clause will be granted if covenant is reasonable in time, scope, & geography.
• Rescission is undoing K when K is void/voidable or b/c it is impossible to perform.
• Reformation is a remedy either party may seek when K does not reflect terms the parties agreed to.

Question 25

REMEDIES: Liquidated damages clauses

Answer 25

- Liquidated damages clauses are enforced if damages are difficult to estimate at the time K was made & a reasonable forecast of damages. - Penalties are not permitted under K law.

Question 26

REMEDIES: Restitution

Answer 26

- P recovers value of benefit conferred. - This remedy may be sought when K is breached, when it is unenforceable, or when there is no K. - Restitution is granted in Ks that are implied in law (quasi-contracts), which arises when P has conferred a benefit on D, P reasonably expected to be paid, & D would be unjustly enriched otherwise.

Question 27

REMEDIES