-
©2016 Pieper Bar Review 1
CONTRACTS MNEMONICS 1) The ingredients for a valid contract are
TACO:
T – Definite TERMS, express or implied A – ACCEPTANCE of terms C
– CONSIDERATION O – OFFER inviting acceptance
2) An offer expires when it gets TIRED:
T – Reasonable TIME after an offer is made, or after expiration
date expressly stated in an offer
I – Mental INCAPACITY or death of offeror or offeree R –
REVOCATION of an offer communicated to an offeree before acceptance
E – EXPRESS or implied rejection communicated to offeror D –
DESTRUCTION of the subject matter of the offer or intervening
illegality
terminates an offer by operation of law 3) Options can DIE
by:
D – DESTRUCTION of subject matter I – Intervening ILLEGALITY E –
EXPIRATION of a stated option time extinguishes the option
4) In NY, a signed writing takes the place of consideration for
POP:
P – PRE–EXISTING duty O – Contract OPTIONS P – PAST
consideration (which must be recited in the signed writing)
5) Generally, contracting parties are free to modify a 3rd party
beneficiary (3PB) K, unless, prior to
receiving notice of the K modification, the 3PB got MAD: M –
MANIFESTED an assent called for in the 3PB K, at the request of one
of the
contracting parties (i.e., accepted a K offer arising from the
3PB K) A – Commenced a breach of K ACTION against the promisor, or
D – DETRIMENTALLY relied on the K
6) Contract assignments may involve the ADA:
A – ASSIGNMENT of a contractual right to collect money owed
under the K D – DELEGATION of the performance required under the K
A – ASSUMPTION of liability for performing the K
-
©2016 Pieper Bar Review 2
7) A gratuitous assignment becomes irrevocable, and a second
assignee prevails over a prior assignee of the contract when
J.P.N.C.: J – Recovers a JUDGMENT P – Gets PAID NC – Enters a NEW
CONTRACT
8) Absent express language in a K prohibiting assignment, K
rights are freely assignable, except those of SIR P: S – Where a
STATUTE expressly prohibits the assignment of a K right (but if
that
claim is reduced to judgment, it is assignable) I – Where the
assignment is coupled with an IMPROPER delegation of a duty
under the K to a person unqualified to fulfill that duty R –
Where the assignment increased the RISK to the other contracting
party P – Where the services to be rendered are highly PERSONAL in
nature (because
that would materially alter the bargain) 9) In New York, by
statute (see SIR P), you cannot assign a WASP:
W – WORKER’S COMPENSATION A – ALIMONY or child support payments
S – SPENDTHRIFT TRUSTS P – PERSONAL INJURY or wrongful death causes
of action
10) Look at HAIL to determine whether a breach is material or
immaterial:
H – HARDSHIP on breaching party if total material breach is
declared A – AMOUNT of benefit bestowed on non–breaching party I –
Whether breach was INNOCENT L – LIKELIHOOD of full performance
being achieved
11) Breach of contract defenses are I3 FU2MED & I S2IP:
I – INFANCY I – INSANITY – INCOMPETENCY I – INTOXICATION F –
FRAUD U – UNCONSCIONABILITY U – UNDUE INFLUENCE M – MISTAKE E –
EQUITABLE DEFENSES D – DURESS I – IMPOSSIBILITY of performance S –
STATUTE OF FRAUDS S – STATUTE OF LIMITATIONS I – ILLEGALITY P –
PAROLE EVIDENCE RULE
12) Lack of contractual capacity arises from the 3 I’s: I –
INFANCY I – INTOXICATION I – Mental INFIRMITY
-
©2016 Pieper Bar Review 3
13) SI2R M is a fraud: S – SCIENTER I – D lied with an INTENT to
defraud the P I – P suffered an economic INJURY R – P justifiably
RELIED on D’s misrepresentation M – D misrepresented a MATERIAL
fact, which induced P to enter the K
13a)Badges of constructive fraud SHIFTS:
S – SECRETLY done H – HASTILY done I – INADEQUACY of
consideration F – Made to a FAMILY member or Friend T – TRANSFEROR
continues to the control property S – SCIENTIFIC (knowledge) of the
creditor’s claim, an inability to pay it after
the transfer.
14) A unilateral mistake in calculating figures may allow the
mistaken party the remedy of equity of rescission, if he calls the
COPS: C – The computational mistake was COMMUNICATED to the other
party before
that person changed his/her position in reliance on those
mistaken figures O – The mistake involved was one of ORDINARY
negligence P – The mistaken party gave PROMPT notice of the mistake
S – The mistake will impose SUBSTANTIAL hardship on the party if
not corrected
15) The following SMART FLYS contracts must be in writing,
subscribed by the party to be charged
with the breach (i.e., must contain defendant’s signature): S –
SURETY contracts M – MARRIAGE contracts A – ANSWER for debts
discharged in bankruptcy R – REAL ESTATE contracts T – TESTAMENTARY
promises (NY ONLY) F – FINDERS FEE arrangements L – LEASES longer
than 1 year Y – Contracts not capable of complete performance
within 1 YEAR S – UCC Article 2 SALES CONTRACTS for $500 or
more
16) Use a COMB for promissory estoppel in NY:
C – CHARITABLE pledges O – To avoid OUTRAGEOUSLY unconscionable
results M – Oral MARRIAGE contracts B – Promises by gratuitous
BAILEES to obtain insurance on bailed goods
17) There are 4 T–CUP elements for a constructive trust:
T – TRANSFER of property in reliance on promise C – Existence of
CONFIDENTIAL or fiduciary relationship U – UNJUST enrichment to
transferee of property or to some third party, AND P – PROMISE,
express or implied, to hold property for plaintiff’s benefit,
which
promise has been breached
-
©2016 Pieper Bar Review 4
18) A THUG may render an illegal contract enforceable, based
on:
T – TYPE of illegality & extent to which the public is
harmed H – HARM that forfeiture would cause if contract was
declared unenforceable due
to illegality; ct looks to see whether contract has been
substantially performed U – UNJUST enrichment (a windfall) to party
asserting illegality defense G – Relative GUILT of each party
19) The theory of impossibility frequently involves the 4
Ds:
D – DEATH D – DANGER to life/ill health D – DESTRUCTION of the
subject matter of the law suit D – DELAYS, temporarily causing
performance to become impracticable or
impossible 20) OF MICE2 permits parole evidence:
O – To establish an ORAL condition precedent to legal
effectiveness of contract, provided it doesn’t contradict express
term(s) of the contract
F – A party cannot invoke the Parole Evidence Rule to shield
that party from allegations of FRAUD or Misrepresentation
M – To establish MUTUAL Mistake or claim for reformation of
contract I – To establish ILLEGALITY C – To establish failure of
CONSIDERATION E – To EXPLAIN ambiguous or missing terms E – To show
that no ENFORCEABLE agreement was ever intended
21) Contract law does not allow damages recovery for CAPS:
C – To recover consequential damages, unless they were within
the CONTEMPLATION OF BOTH PARTIES when the contract was
executed
A – Damages that party could have AVOIDED P – Damages for PAIN
& suffering or emotional distress resulting from a
breached contract, even if such damages were foreseeable S –
SPECULATIVE damages aren’t recoverable (all damages must be
proven
within a reasonable certainty) 22) Generally, parties can put
whatever terms they’d like into a K, except for PLUS:
P – Terms that violate PUBLIC POLICY L – Terms providing for an
excessive amount of LIQUIDATED DAMAGES U – Terms that are
UNCONSCIONABLE S – Clauses providing that one party can seek
SPECIFIC PERFORMANCE in
the event of a breach (the contract does NOT have to enforce
these clauses)
23) Apply a TISSUE to a covenant restricting a former employee
from competing: T – TIME restriction must be reasonable (usually
two years or fewer) I – INABILITY of the employee to gain work
elsewhere S – The geographic SPACE/SCOPE of the restriction must be
as narrow as
possible (must only be to the extent necessary to protect
employer’s interest) SUE – The employee services must be SPECIAL,
UNIQUE, or EXTRAORDINARY
-
©2016 Pieper Bar Review 5
SALES MNEMONICS
24) ICOP limits the Perfect Tender Rule: I – INSTALLMENT
contracts C – Timely delivery was COMMERCIALLY IMPRACTIBLE by an
event not
contemplated by the parties. O – Delivery in good faith,
OBJECTIVELY and reasonably believing the goods
would be acceptable to the buyer P – PRIOR TO DELIVERY DATE set
forth in the contract, conforming goods
are delivered to replace the nonconforming goods 25) Additional
terms will not be added to the contract when OCAN:
O – The offeror OBJECTS to additional terms within a reasonable
time C – The offer expressly CONDITIONS the agreement on accepting
the terms in
the offer as they are A – The additional terms materially ALTER
the offer N – Either or both parties are NON–MERCHANTS
26) A J STRAW clause materially alters an offer if it would
cause surprise or hardship to the offeror if the offeror was not
made aware of its existence:
J – Bestowing JURISDICTION on a particular court, or requiring
offeror to consent to jurisdiction in particular state
S – Shortening the STATUTE OF LIMITATIONS to sue for
non–conforming goods
T – Limiting TORT liability or limiting a buyer’s right to sue
for consequential damages R – Altering UCC rules for RISK OF LOSS A
– Adding an ARBITRATION CLAUSE (unless customary to do so in
the
trade) W – Adding a clause negating a WARRANTY (e.g., one of
merchantability or
fitness) 27) Exceptions to the Statute of Frauds requirement are
SWAMP:
S – Contracts for SPECIALLY manufactured goods W – WAIVER A –
Judicial ADMISSION of contract M – “MERCHANT MEMORANDUM” P – PART
PERFORMANCE
28) If a sales contract is silent on a topic, the UCC implies
the following CIDER rules: C – Seller is not obligated to extend
CREDIT to the buyer I – Buyer has the right to INSPECT the seller’s
tendered goods (except no right
to inspect when the transaction involves a bill of lading) D –
Seller’s tender of DELIVERY is implied to be at seller’s place of
business,
unless both parties know that the goods are located elsewhere E
– Buyer and seller must EXCHANGE performance concurrently R – RISK
OF LOSS is on the party in the best position to bear that risk
-
©2016 Pieper Bar Review 6
29) SOAL–V and SORE–V affect risk of loss:
SOAL V – SALE ON APPROVAL LATE VESTING (goods held by the buyer
are not subject to claims of the buyer’s creditors)
SORE V – SALE OR RETURN EARLY VESTING (title and ROL vest
immediately in the buyer, even though the buyer has a right to
rescind the K)
30) Remedies available to a seller are SPARKLE:
S – STOPPING goods in transit P – Suing for the entire contract
PRICE A – Demanding ASSURANCES R – RE–SELLING goods to another
buyer K – KEEPING part of a breaching buyer’s deposit, never more
than $500 L – Suing for LOST Profit E – EXERCISING the right to
reclaim goods delivered to the insolvent buyer
31) Remedies available to a buyer are CID’S WAR:
C – COVER I – INCIDENTAL & consequential damages D – DAMAGES
for lost benefit of the bargain, or for the price paid S – SPECIFIC
PERFORMANCE on a contract for unique goods W – Breach of WARRANTY A
– ACCEPTANCE revocation R – REJECTING non–conforming goods
32) A sales contract contains M FEET warranties:
M – Warranty of MERCHANTABILITY F – Warranty of FITNESS for a
particular purpose E – Warranty against ENCUMBRANCES E – EXPRESS
warranties T – Warranty of TITLE
33) Express warranties are SAD:
S – SAMPLE or model, which is the basis of the bargain A –
Written or oral AFFIRMATION of fact or promise made by the seller
relating
to the goods D – DESCRIPTION of the goods in advertisements,
brochures, or catalogs
34) A P’s claim against a seller for a defective good can be
based on one or more overlapping but different PINE theories of
liability: P – Torts theory of strict PRODUCTS liability I –
Contract theory for breach of IMPLIED warranty N – Torts theory of
NEGLIGENCE E – Contract theory for breach of an EXPRESS
warranty
-
©2016 Pieper Bar Review 7
35) G.P.S. LAMP can use the following defenses against a breach
of warranty claim: G – GOVERNMENT military contract defense P –
Federal PREEMPTION S – STATUTE OF LIMITATIONS L – LACK of timely
notice to a seller A – ASSUMPTION of risk (can be asserted against
any PINE claim) M – Unforeseen MISUSE of a product P – Lack of
PRIVITY of contract
36) Strict products liability is imposed on a regular seller of
a DUD product:
D – DEFECTIVE, and an U – UNREASONABLY D – DANGEROUS product
37) When asserting a strict products liability claim, P must
prove that a DIM dangerous defect in the product proximately caused
a physical injury: D – DESIGN defect I – INADEQUATE warning M –
Mistake in the MANUFACTURING process
-
©2016 Pieper Bar Review 8
Damages The Goal: Contract law seeks to provide the
non–breaching party with its Expectation Damages, which place the
non–breaching party in as good a position as if the breaching party
had performed its obligations under the contract. Expectation
Damages are the usual form of damages awarded when a contract is
breached.
The General Formula: The Value of the Promised Performance
MINUS The Value of what the Plaintiff Received
PLUS Any Incidental and/or Consequential Damages
MINUS Any Costs that Were/Could have been
Avoided/Mitigated
To make use of this formula, it helps to know something about
each of its component parts: The “value of the promised
performance” is typically just the contract price, though a fact
pattern could tell you that the value of the performance was
something else, for example, if the buyer was getting a good
deal/discounted price. By allowing a plaintiff to recover the value
of the promised performance as opposed to just the contract price,
the plaintiff’s “benefit of the bargain” is preserved. The “value
of what the plaintiff received” is exactly what it says: some value
associated with the defendant’s performance (this value will be
identified in the fact pattern, if necessary). “Incidental damages”
are any “costs incurred in a reasonable effort, whether successful
or not, to avoid loss, as where a party pays brokerage fees in
arranging or attempting to arrange a substitute transaction.”
Restatement 2d Contracts § 347, comment c. In a sale of goods
contract, incidental damages are awarded to a non–breaching buyer
for any reasonable expenses arising out of the breach including
those incurred through cover, or any cost “reasonably incurred in
inspection, receipt, transportation and care and custody of goods
rightfully rejected . . . .” UCC 2–715. A non–breaching seller can
recover incidental damages for charges incurred in “stopping
delivery, in the transportation, care and custody of goods after
the buyer's breach, [or] in connection with return or resale of the
goods” etc. UCC 2–710. “Consequential damages” are additional
losses incurred by the plaintiff as a result of the defendant’s
breach, that usually arise in the area of lost profits following
the defendant’s failure to perform on time. To recover
consequential damages, the plaintiff must show 1) causation (the
damages were a result of the defendant’s breach), 2) the damages
were foreseeable at the time the parties entered into the contract,
3) a reasonable certainty as to the amount of damages, and 4) that
the damages could not have been mitigated.
-
©2016 Pieper Bar Review 9
“Costs that were or could have been avoided or mitigated” are
simply 1) costs that the plaintiff will no longer have to incur
following the defendant’s breach (sometimes referred to as “costs
avoided”), like any amounts that the plaintiff no longer has to pay
under the breached contract, and 2) losses that the plaintiff can
mitigate “by making substitute arrangements for the use of his [or
her] resources that are no longer needed to perform the contract”
(sometimes called “losses avoided”) Restatement 2d Contracts § 347,
comment d. To avoid pitfalls, always remember that contract law
prohibits the recovery of CAPS: C – CONSEQUENTIAL DAMAGES, unless
they were within the contemplation of both parties (foreseeable)
when the contract was executed A – Damages that party could have
AVOIDED P – Damages for PAIN & suffering or emotional distress
resulting from a breached contract, even if such damages were
foreseeable S – SPECULATIVE damages (all damages must be proven
within a reasonable certainty.
The Caveat: The formula and its component principles are a
guide. Any damages formula will work well in some situations, but
not work well in others. Our job is to think about concepts like
placing the non–breaching party in as good a position as
performance would have put her in, and not awarding damages for
costs that could have been avoided, and then apply them as
rationally as possible. By working through the scenarios to follow,
you should gain an understanding of how the courts award damages in
a range of different situations, so that you’ll be able to answer
any damages questions on the bar exam.
Alternate Method of Looking at Damages: Scholars have developed
an alternate measure of damages (not yet embraced by the courts but
tested on the Multistate Bar Exam, see e.g. OPE 3 Q98) which breaks
down the plaintiff’s recovery into expectation, restitution, and
reliance interests. See Joseph M. Perillo, Calamari and Perillo on
Contracts 490 (6th ed. 2009). Expectation Interest = the
plaintiff’s expected gain under the contract (essentially lost
profits) Restitution Interest = benefits conferred on the defendant
that the plaintiff is entitled to recover Reliance Interest = the
economic detriment incurred by the plaintiff as a result of the
breached contract, which typically includes the restitution
interest. This alternate, modern method embraces the same goal of
placing the non–breaching party in as good a position as if the
breaching party had performed its obligations under the contract,
but uses these interests to categorize the elements of the
plaintiff’s recovery. These terms are based on the traditional
measures of damages (reliance and restitution).
-
©2016 Pieper Bar Review 10
Examples: PROBLEM #1: Waste Damages for Immaterial Breach = Cost
of Completion (Unless Waste) When there has been a substantial
performance (“HAIL”) in good faith, but a defect exists (especially
one which is only incidental to the main purpose of the K), the a
court will usually award the cost of completion to the
non–breaching party (see Problem #2 above). However, if the cost to
correct this minor deficiency is drastically large in proportion to
the overall contract price, such that completion to the exact terms
of the contract would constitute “economic waste,” the court will
award an alternate measure of damages to protect the immaterially
breaching party. This alternate measure of damages is the
difference between the value of the property as constructed and the
value of the property if performance had been properly completed.
For example: A homeowner hired a contractor to build a home for
$100,000 and the specifications required, among other things, that
the pipes be “galvanized, lap welded pipe of the grade known as
'standard pipe' of Reading manufacture.” The contractor completed
the house perfectly, other than that he mistakenly used nearly
identical pipe manufactured, not by the Reading Manufacturing
Company, but by the Cohoes Rolling Mill Company. The contractor and
homeowner agreed that the contractor had substantially performed
the contract and that the breach was immaterial, but the homeowner
sought damages in the amount of $40,000 (the cost to complete the
contract, which would require ripping–up and then refinishing large
portions of the house). Here, the courts would say that replacing
the Cohoes pipe with identical Reading pipe (the only difference
being a stamp on the exterior of the pipe) would constitute
economic waste. Therefore, the courts would award as an alternate
measure of damages: the difference in value between the house with
Cohoes pipe that was received, and the same house with Reading pipe
that was called for in the contract. Jacobs & Young v. Kent,
230 N.Y. 239 (1921); City School Dist. v. McLane Constr. Co., 85
A.D.2d 749 (3d Dep’t 1981); Essay #1, Issue 2, February 2012; Essay
#1 July 1998 Exam (damages – cost of completion). However, courts
will not award this alternate measure of damages just because the
cost of completion is high. If the defect was not incidental to the
contract, and the breaching party did not finish the contract, the
cost of completion will be awarded even though the difference in
value damages might be lower. For example, the owner of a 26–acre
industrial site entered a contract with a demolition contractor to
sell the scrap metal from its buildings and equipment for $275,000.
The contract also required the demolition contractor to re–grade
the property to make the property more suitable for resale. The
demolition contractor removed the buildings and equipment, but
failed to re–grade the property, and the owner sued for breach of
contract. The owner sought the ordinary measure of damages, i.e.
the cost of completion (the cost to re–grade the property), which
was $110,000. The demolition contractor argued that this was waste,
offering proof that the plaintiff–owner could sell the un–graded
property for only $3,000 less than if the property was re–graded
(difference in value damages). The court ruled that the demolition
contractor owed the $110,000 cost of completion for the breach,
noting “[Defendant–contractor’s] completed performance would not
have involved undoing what in good faith was done improperly, but
only doing what was promised and left undone.” American Standard,
Inc. v. Schectman, 80 A.D.2d 318 (4th Dep’t 1981).
-
©2016 Pieper Bar Review 11
PROBLEM #2: Consequential Damages Must Be Foreseeable A
carpenter entered a $10,000 contract to renovate a homeowner’s
bathroom by July 1. Based on this contract, the carpenter entered a
separate contract to buy a car for $10,000, to be delivered on July
2. The car contract provided that if payment for the car was not
made on July 2, the cost of the car would increase to $12,000. The
carpenter renovated the homeowner’s bathroom but was not timely
paid. Consequently, the carpenter could not pay for the car on July
2, and was required to pay the additional $2,000 for the car at a
later date. The carpenter cannot recover the additional $2,000 from
the homeowner, because the breaching party is only liable for those
consequential losses that were foreseeable based on the available
information at the time of contracting. PROBLEM #3: Construction
Contract Where Homeowner Breaches No Recovery for costs that could
have been avoided A builder agreed to build a house for $100,000.
When the builder had completed $80,000 of the project, the
homeowner repudiated the contract and said she would not pay the
builder. The builder then completed construction of the home,
incurring an additional $5,000 cost. What can the builder recover
from the homeowner? Consider that the contract price was $100,000,
the builder’s reliance interest was $85,000, and his expectation
interest was $15,000, but we don’t award damages for “CAPS” (the
mnemonic above). A) $100,000 B) $ 95,000 C) $ 80,000 D) $ 85,000 It
cost the builder $85,000 to construct a $100,000 house. From these
figures, a court can determine that the builder would have made a
profit of $15,000 (his expectancy interest). However, the builder
cannot recover the $5,000 expended after the homeowner repudiated
the contract, because under contract law a party who stubbornly
continues to perform after the other party has repudiated cannot
recover losses that could have been avoided ($5,000). Thus, the
answer is B, $95,000, which is the value of what was promised
($100,000), less what was received ($0), plus any consequential or
incidental damages ($0), less the $5,000 cost that could have been
avoided by stopping work after the repudiation. Under the
alternate, modern approach, the amount needed to make the homeowner
whole would still be $95,000, consisting of an $80,000 reliance
interest for costs incurred prior to the repudiation, plus the
builder’s $15,000 lost profit expectancy interest. As with the
explanation above, the builder cannot recover costs that could have
been avoided.
-
©2016 Pieper Bar Review 12
PROBLEM #4: Emotional Distress Arising Out of a Breached
Contract A builder agreed to construct a house for a homeowner. The
builder knew when the contract was made that the homeowner was in
delicate health and the new house was of great importance to her.
When the house was done, the homeowner inspected it while the
builder waited outside. When the homeowner came out, she slammed
the front door and the whole house collapsed. Can the homeowner
recover for her emotional distress because of the builder’s breach
of contract? No. Such damages ordinarily are not allowed in a
breach of contract action. Keep in mind that there are rare
exceptions to this rule, where the court determines that a severe
emotional disturbance was not only foreseeable, but a likely result
of a breach. The limited circumstances in which a court has awarded
damages for a severe emotional disturbance arising out of a
breached contract include breached contracts for the burial of a
family member, where a messenger is aware of the contents of a
death notification and fails to make a timely delivery resulting in
a relative missing a funeral, where a person agrees to be filmed
for television on condition that her face is blacked out but his
face is shown, etc. John Edward Murray, Jr., Murray on Contracts, §
124 (5th ed. 2011). PROBLEM #5: Breach by Paying Party Construction
Contract Where Homeowner Breaches 1(a). A builder agreed with a
homeowner to build a house for $100,000, which would have generated
a $10,000 profit for the builder. If the homeowner repudiated the
contract before the builder began, then the builder could sue for
his lost bargain of $10,000, which is the value of the performance
(here, the contract price of $100,000), minus what the builder
received (here, nothing, since the fact pattern gives no indication
that the homeowner was paid anything), minus the cost of completion
(here, the $90,000 expenditure avoided by the builder not having to
complete performance). Under the alternate, modern method, the
damages would be the same, but the $10,000 would categorized as the
plaintiff’s expectancy interest. 1(b). If the builder had partially
performed the contract, spending $60,000 on construction prior to
the homeowner’s repudiation (anticipatory breach), the builder’s
damages would be $70,000, i.e., the value of the performance (here,
the contract price of $100,000), minus what the builder received
(here, nothing, since the fact pattern gives no indication that the
homeowner was paid anything), minus the cost of completion (here,
the remaining $30,000 expenditure avoided by the builder not having
to complete performance). Under the alternate, modern approach, the
amount needed to make the builder whole would still be $70,000,
consisting of a $60,000 reliance interest, plus a $10,000
expectancy interest. 1(c). If the builder had completed the
contract, spending $90,000, then he would be entitled to the entire
contract price. That could be measured by the value of the
performance (here, the contract price of $100,000), minus what the
builder received (here, nothing, since the fact pattern gives no
indication that the homeowner was paid anything), minus the cost of
completion (here, nothing, since the house was completed). Under
the alternate, modern approach, the amount needed to make the
builder whole would still be $100,000, consisting of a $90,000
reliance interest, plus a $10,000 expectancy interest.
-
©2016 Pieper Bar Review 13
PROBLEM #6: Repudiation Prior to Performance Repudiation by
Painter on Discounted Performance A painter contracted with a
homeowner to paint the homeowner’s house. The value of such a paint
job was $1,200, but the painter needed work and agreed to do the
job for $900. Before the homeowner paid any money to the painter,
the painter then repudiated the contract. 3(a). If the homeowner is
then forced to hire another painter to complete the job for $1,100
(a price reflecting a $100 discount for what we’ve been told was
the value of performance), the homeowner cannot recover $900 from
the repudiating painter, but only the loss incurred as a result of
entering a substitute contract. That is, the homeowner contracted
to receive a painted house for $900. As a result of the breach, she
received the painted house for $1,100. Since she is entitled to be
placed in as good a position as if the first painter performed (a
painted house for $900), the court will award her damages of $200
to reflect the difference between what she paid as a result of the
breach ($1,100) and the original contract price ($900). 3(b). If
after the painter’s repudiation, the homeowner decided not to paint
her house, she is still entitled to damages her “lost bargain.”
That is, contract law allows her to recover as if she had decided
to hire another painter. The law sets the price of this substitute
transaction at the market price (which the parties can establish
through expert testimony). So in this situation, the homeowner
would be entitled to recover the difference between the market
value of the job ($1,200) and what the homeowner would have had to
pay the painter under the contract ($900), resulting in an
expectation damages claim of $300 for the homeowner’s lost bargain.
Another way of looking at the same problem would be to award the
homeowner the value of the performance ($1,200), less the value of
what was received ($0), less the cost of paying the painter $900 (a
cost avoided), for a total of $300. 3(c). If the painter painted
the homeowner’s house defectively (the fact pattern would have to
tell you the performance was worth, for example, only $700), then
the homeowner’s damages in the event she did not hire someone to
fix the paint job, are similar to the scenario above, $500 (the
difference between the value of the properly performed paint job
($1,200) and the value of what the homeowner received (a $700 paint
job)). PROBLEM #7: Construction Contract Where Builder Breaches
Owner Recovers the Cost of Completion 2(a). A builder agreed with a
homeowner to build a basic frame house for $100,000. The homeowner
paid the builder upfront, $100,000. After doing most of the job,
the builder repudiated (breached) the contract. Other builders
would have charged the homeowner $5,000 to finish the job, but the
homeowner found builder X, who needed work and was willing to do it
for $4,000. How much can the homeowner recover from the breaching
builder? Only $4,000, which is the difference between what it cost
the homeowner to complete the home ($104,000, including the
$100,000 initially paid to the breaching builder and the $4,000
paid to builder X) and the $100,000 contract price. That $4,000
represents the homeowner’s out of pocket cost to remedy the initial
builder’s deficient performance. The builder repaying the homeowner
$4,000 will put the homeowner in as good a position as performance
by the builder would have. That is, a house built for a cost of
$100,000 to the homeowner.
-
©2016 Pieper Bar Review 14
Applying the general formula to this rule, the homeowner’s
damages are the value of the promised performance, $100,000, minus
the value of what was received ($100,000 – remember, that the
homeowner in the end received the house he contracted for) (at this
point under the formula we are at $0), plus $4,000 incidental
damages paid to builder X as a result of the initial builder’s
breach. Under the alternate, modern approach, the amount needed to
make the homeowner whole would still be $4,000, consisting of a
$4,000 reliance interest. As a result of the breached contract, the
homeowner suffered an unanticipated $4,000 cost. 2(b). If instead
of paying the builder $100,000 upfront (as described above), the
homeowner had initially paid the builder $60,000, the homeowner
would owe the builder the remaining $40,000 less the $4,000 cost of
completion (i.e. $40,000 minus the $4,000 cost of completion =
$36,000). The court would reason that the builder “substantially
performed” his obligations (thus making the breach “immaterial”),
requiring the homeowner to fulfill her obligation, less the cost of
completion.
-
©2016 Pieper Bar Review 15
CONTRACT OFFERS
Effective Acceptance Terminated Revocation Unilateral Contract
Offer
When communicated to the offeree.
If the offer cannot be accepted by a promise (exception UCC Sale
of Goods contracts), it is accepted when contract performance is
fully completed. Under Restatement (Second) Contracts section 45,
acceptance occurs when an offeree tenders or begins performance,
but performance must be completed as a condition to any
recovery.
Passage of stated time or reasonable time, by a counteroffer, an
offeree’s rejection of the offer, incompetency of either party, or
by an intervening illegally.
Common Law and New York permit revocation anytime before
performance is fully completed. Restatement (Second) Contracts § 45
makes the offer irrevocable once performance has been tendered or
the offeree begins performance.
Bilateral Contract Offer
When communicated to the offeree.
When acceptance of the offer is dispatched (“mailbox rule”), or
acceptance is orally communicated to the offeror.
Passage of stated time or reasonable time, by a counteroffer, an
offeree’s rejection of the offer, incompetency of either party, or
by an intervening illegally.
Communicated to the offeree before acceptance has been
dispatched.
Options (Irrevokable Offers)
When communicated to the offeree. Options generally must be
supported by consideration (exception GOL section 5–1109 & UCC
section 2–205 where a signed writing takes the place of
consideration).
Acceptance of the option (called exercising the option) is
effective only when the acceptance is received by the offeror.
Passage of the stated date or after a reasonable time,
destruction of the subject matter or intervening illegality.
Not revocable by offeror, and not revoked by offeror’s death, or
offeree’s rejection or counteroffer. It can be revoked by the
offeror if revocation notice reaches offeree before the option
does.
Auction Offers (UCC 2–328)
The bid price (offer) is announced by the bidder to the
auctioneer.
Auction hammer falls and auctioneer announces “SOLD.”
A higher bid terminated a pending bid.
The bid is orally withdrawn by the bidder before the hammer
falls.
Rejection of the Offer
Only when it is received by the offeror.
Implied when offeror receives rejection.
Acceptance of offer is communicated to the offeror before the
offeror receives the rejection.
Offeree’s acceptance is mailed, received or is communicated to
the offeror before the rejection is received by offeror.
-
©2016 Pieper Bar Review 16
Pre–Existing Duty Rule Summary
Common Law Contracts: A price change had to be supported by new
consideration, otherwise the promise to pay the increased price was
unenforceable for lack of consideration. The parties’ original
price would govern.
UCC Sales Contracts §2-209(1): The agreed price increase is
enforceable without any new consideration if based on “good faith”
reason for asking for more money to perform the contract. No signed
writing is necessary unless the modified total price is $500 or
more, which then requires a signed writing. Restatement (Second)
Contracts §89: The agreed price increase is enforceable without any
new consideration if based on a good faith reason that was not
anticipated when the parties originally entered the contract. No
signed writing is required to enforce the modification.
New York General Obligations Law §5-1103: In contracts that do
not involve the sale of goods, the General Obligations Law
abolishes the Preexisting Duty Rule, provided the price
modification is contained in a writing signed by the party to be
charged with breach of the modified contract.
-
©2016 Pieper Bar Review 17
In-Class Multistate Questions:
Contracts
Formation, Performance, Breach, and Discharge (50%) What
Concepts Do They Expect You to Know? I. Formation of Contracts A.
Mutual assent 1. Offer and acceptance 2. Indefiniteness or absence
of terms 3. Implied–in–fact contract 4. “Pre–contract” obligations
based on reliance B. Consideration 1. Bargain and exchange and
substitutes for bargain: “moral obligation,” reliance, and
statutory substitutes 2. Modification of contracts: preexisting
duties 3. Compromise and settlement of claims
II. Performance, Breach, and Discharge A. Conditions 1. Express
2. Constructive
3. Obligations of good faith and fair dealing in performance and
enforcement of contracts
4. Suspension or excuse of conditions by waiver, election, or
estoppel 5. Prospective inability to perform: effect on other party
B. Impracticability and frustration of purpose C. Discharge of
contractual duties D. Express and implied warranties in sale–of–
goods contracts E. Substantial and partial breach and
anticipatory repudiation
50 % Defenses to
enforceability, Parol Evidence and
Interpretation, Remedies, and
Third-party Rights
50% Formation of
Contracts, Performance, Breach, and Discharge
Breakdown of Contracts on the MBE
-
© 2016 Pieper Bar Review 18
Defenses, Parol Evidence and Interpretation, Remedies, and
Third-party Rights (50%) What Concepts Do They Expect You to
Know?
I. Defenses to Enforceability A. Incapacity to contract B.
Duress C. Undue influence D. Mistake, misunderstanding E. Fraud,
misrepresentation, and nondisclosure F. Illegality,
unconscionability, and public policy G. Statute of frauds II. Parol
Evidence and Interpretation III. Remedies A. Measure of damages for
breach; protecting the expectation interest B. Consequential
damages: causation, certainty, and foresee ability C. Liquidated
damages and penalties D. Avoidable consequences and mitigation of
damages E. Rescission and reformation F. Specific performance;
injunction against breach; declaratory judgment G. Restitutionary
and reliance recoveries H. Remedial rights of breaching parties IV.
Third-party Rights A. Third–party beneficiaries 1. Intended
beneficiaries 2. Incidental beneficiaries 3. Impairment or
extinguishment of third– party rights 4. Enforcement by the
promisee B. Assignment of rights and delegation of duties
-
© 2016 Pieper Bar Review 19
1. A homeowner advertised his home for sale at an asking price
of $100,000. A prospective buyer expressed an interest in buying it
at the asking price if the homeowner would paint the exterior. The
homeowner agreed, but told the buyer that his attorney was out of
town for two weeks and couldn’t draw up the papers immediately. The
parties agreed that the homeowner would contract to have the house
painted in the meantime.
The next day, the buyer met the painting contractor and selected
an unusual shade of purple paint for the house. Ten days later,
when the painting contractor was nearly finished painting the
house, the buyer received a termination notice from his employer.
The buyer immediately informed the homeowner that he would no
longer be able to buy the house.
The homeowner approached several realtors regarding the listing
of his home, but the realtors informed him that he would need to
have the exterior repainted, since the color the buyer had chosen
was highly unattractive to most buyers.
If the homeowner sues the buyer to recover his costs in painting
the house, is the homeowner likely to prevail?
(A) No, since the homeowner was not
bound under an enforceable contract to have the house
painted.
(B) No, since the painting did not constitute an unjust
enrichment to the buyer.
(C) Yes, since the buyer breached the contract for the sale of
the house.
(D) Yes, under a quasi–contract theory, since the homeowner
relied to his detriment on the buyer’s promise to purchase the
house.
1. Although the painting of the house was part of the contract
for sale which should have been in writing, courts allow recovery
on a quasi–contract theory when one party to an oral agreement has
performed or partly performed in reliance on the contract. Here,
the lead in to the question tells us that the homeowner incurred
“costs,” and the reason he incurred those costs was the oral
agreement with the buyer. Thus, (A) is an incorrect answer.
While the homeowner cannot compel specific performance of the
entire agreement, he can recover the amount he actually expended.
Thus, the answer is (D), not (C).
The basis of recovery is not unjust enrichment, so (B) is
incorrect.
-
© 2016 Pieper Bar Review 20
2. Which of the following scenarios would warrant a
quasi–contractual recovery?
(A) A fierce blizzard surprised a cross
country skier as he skied through the forest. To avoid freezing
to death, the skier broke into a nearby chalet, burned the owner’s
firewood, and left after the storm subsided. The owner sued the
skier for the fair rental value of the chalet and for the fair
market value of the firewood.
(B) A plane crash rendered a passenger unconscious for 24 hours.
A physician at the scene of the crash rendered medical assistance
to the unconscious passenger and later sued the passenger for the
value of his medical services.
(C) A homeowner hired a landscaper to maintain his lawn at 12
Oak Park Drive. The landscaper parked his truck, which has an
elaborate sign identifying his lawn service company, in front of
the homeowner’s neighbor’s house at 14 Oak Park Drive, and
mistakenly mowed the neighbor’s lawn while the neighbor watched
from her window. The landscaper sued the neighbor for the fair
value of the lawn mowing services.
(D) An elderly uncle told his niece that he would give his house
to her if she would live with him and take care of him for one
year. At the conclusion of the year, the uncle refused to give his
house to the niece, and the niece, unable to obtain specific
performance because of the statute of frauds, sued her uncle for
the fair market value of the property.
2. A quasi–contract, as distinguished from an implied–in–fact
contract, occurs when there is no basis for concluding that the
parties by their behavior impliedly entered into a contract. In (A)
and (C), the skier and neighbor impliedly agreed by their conduct
to pay for the services rendered to him. Thus, each is liable under
the theory of an implied–in–fact contract, rather than
quasi–contract.
In (B), the passenger has not by his conduct impliedly agreed to
pay for the services rendered. Since he was unconscious, he could
not have knowingly agreed to or acquiesced to the services provided
by the physician. Therefore (B) is the correct answer.
The situation described in (D) also gives rise to quasi–contract
(i.e, where an express contract fails because of the statute of
frauds, incapacity of one of the parties, illegality, mutual
mistake, etc., then in order to avoid the unjust enrichment of one
of the parties, a quasi–contract may be imposed). The measure of
damages in (D), however, is incorrect; it is not the value of the
property, but rather the fair market value of the niece’s services
which will be awarded by the court.
-
© 2016 Pieper Bar Review 21
3. A student had just completed his junior year of college and
was looking for a summer job. He was approached by a homeowner, who
said to him, “I have twenty gallons of paint in my garage. If you
will paint my house with it during the next three weeks, I will pay
you $1,000.” The student immediately went to the hardware store and
purchased three paint brushes for $20. That night, the homeowner
telephoned the student and said, “I’m sorry, but my nephew arrived
yesterday, and he needs the work badly, so I won’t need you to
paint my house.” If the student sues the homeowner for breach of
contract, is the student likely to prevail? (A) Yes, because once
an offeree
commences work pursuant to a unilateral contract offer, the
offer becomes irrevocable.
(B) Yes, because the homeowner induced the student to purchase
the paint brushes, and promissory estoppel would effectively
convert the homeowner’s offer into an option contract.
(C) No, because an offeror may revoke a unilateral contract at
any time before it is accepted by completion of the act
requested.
(D) No, because the homeowner revoked his offer before it was
accepted.
3. An offer for a unilateral contract becomes irrevocable when
the offeree tenders performance or commences the work requested,
but not when there is only mere preparation to perform that work.
The purchase of paint brushes is only preparation and therefore the
homeowner had the right to revoke the offer at the time he did. (D)
is the correct answer.
(C) is an overly broad statement of the homeowner’s right to
revoke. He could not revoke at any time prior to completion, but
only before work on the requested project commenced. Choice (C)
would be the correct choice under New York law. Peterson v.
Pattberg, 248 NY 86 (1928). The performing party has a cause of
action for restitution in quasi contract, but no claim for breach
of contract.
(B) is incorrect because the reliance in this case, the purchase
of $20 worth of paint brushes, was not of such substantial
character that the doctrine of promissory estoppel under §87(2) of
the Restatement (Second) of Contracts would convert the offer into
an option contract. The courts will only award a remedy on the
grounds of promissory estoppel where the reliance was substantial
(e.g., a substantial expense or forgoing substantial alternatives)
and foreseeable. Here the economic injury suffered is not of
unconscionable proportion and enforcement of the contract would not
be “necessary to avoid injustice.” This answer choice may be
tempting since it provides an equitable solution to the student,
but it is incorrect (the bar examiners like to provide answer
choices that suggest a fair outcome on equitable grounds to throw
you off). (A) is incorrect because the student had not begun the
work. Here, homeowner revoked the offer before the student either
tendered performance or commenced the paint job. The student had
merely prepared to start the paint job. Calamari, Calamari and
Perillo on Contracts § 2.22 at 93–94 (6th ed. 2009).
-
© 2016 Pieper Bar Review 22
4. A store owner received a written offer from a clothing
wholesaler to purchase 600 Oxford style, white, cotton shirts for
$2 per shirt, totaling $1,200. The wholesale price for similar
shirts is typically $20 per shirt. The store owner thought that the
wholesaler must have lost his mind, but, nevertheless, agreed to
the offer. The parties each signed a purchase order which called
for delivery of the shirts to the owner’s place of business and
payment of the purchase price on July 1. Two days later, the
wholesaler called the owner and told him that he had made a mistake
because he had read from the wrong line of his price list. He said
that unless the owner paid him $20 per shirt, the price of the
shirt on the correct line of the price list, or a total price of
$12,000, he would not deliver the shirts. The owner refused to pay
anything more than $1,200. When the wholesaler failed to deliver
the shirts on July 1, the owner purchased 300 comparable shirts for
$20 per shirt and brought suit against the wholesaler for damages
resulting from the wholesaler’s breach of contract.
Which of the following will the court conclude?
(A) The wholesaler will prevail
because he made a unilateral mistake.
(B) The wholesaler will prevail because of the doctrine of
mutual mistake.
(C) The wholesaler will prevail since it was obvious to the
owner on May 1 that the wholesaler made a blatant mistake in
quoting the price of $2 per shirt.
(D) The owner will prevail because he accepted the offer.
4. A contract can be rescinded for unilateral mistake such as
this one only when the unilateral mistake was so obvious that the
other party must have known that the first party made a
mistake.
This question clearly indicates that a unilateral mistake was
made by the wholesaler, but that fact alone is not sufficient
reason to permit him to rescind the contract. Because (C) is more
precise, (A) is not the best answer.
(B) is clearly incorrect because there was no mutual mistake by
both parties. There is only a unilateral mistake.
(C) is the correct answer. There is a substantial disparity
between the contract price of $2 per shirt and the market value of
the shirts at wholesale, which seems to be $20 a shirt. If the
buyer, because of the disparity in price, was aware or should have
been aware that the seller had made a mistake, the seller will be
able to rescind the contract and, therefore, will prevail.
(D) is incorrect because the owner will not prevail since he was
aware of the mistake.
-
© 2016 Pieper Bar Review 23
5. On March 18, a department store published an ad in the local
newspaper that stated:
“Now that winter is behind us, we will be selling our inventory
of forty mink coats (which have a retail price of $2,000 per coat)
for $600 each, at 8:30 a.m., Saturday, March 20. One coat per
person. First Come First Served.”
The owner of a nearby fur store decided to purchase one of the
coats to hold in her inventory until next fall. She was the first
customer in line when the department store opened its doors on
March 20. She tendered $600 in cash and asked to purchase one of
the advertised mink coats. The manager of the fur department
recognized her as the owner of a competing fur store and refused to
sell her a coat.
The owner of the fur store brought an action against the
department store seeking a judgment that it deliver a coat to her
in exchange for $600, or, in the alternative, for damages resulting
from the department store’s failure to sell her a coat.
In her action against the department store, will the owner of
the fur store prevail?
(A) Yes, on either remedy, because her
tender of the $600 was a valid acceptance of the department
store’s offer.
(B) Yes, because the department store breached a valid contract,
but the owner of the fur store will only be able to collect money
damages.
(C) No, on both remedies, because an advertisement to the
general public is only an invitation to make an offer, and when the
owner of the fur store made the offer, the department store
properly refused to accept it.
(D) No, on both remedies, because by placing the “one coat per
person” restriction in the ad, the department store was reserving
its right to refuse to sell coats to competitors.
5. An advertisement indicating a present intention to sell to an
individual who meets specific criteria (for example, being one of
the first customers at the store on the day of the sale)
constitutes an offer. The owner of the fur store properly accepted
this offer by arriving at the store and tendering $600 for the
coat. She will not obtain specific performance, however, because
the coat was not unique. There were forty in stock at the store,
and damages will be a sufficient remedy. She will be entitled to
recover the difference between the fair market value of the coat
and $600. Therefore, (B) is correct and (A) is incorrect.
(C) is incorrect. Although most advertisements do not constitute
offers, the criteria of this particular advertisement were specific
enough to constitute an offer.
The advertisement was not to the general public but only to the
first forty customers who accepted. Customers reasonably understand
that they have the power to accept when an advertisement identifies
the quantity to be sold. Murray on Contracts §35 at 79 (5th ed.
2011).
(D) is incorrect because the “one coat per person” limitation
does not reasonably indicate to a purchaser that there is any
limitation on who may purchase a coat.
-
© 2016 Pieper Bar Review 24
6. A series of seven arsons occurred at a city’s homeless
shelter. On January 15, the city council adopted a resolution that
stated:
The city will pay $15,000 for the arrest and conviction of
anyone found guilty of the seven arsons at the city’s homeless
shelter.
The city council proceedings were telecast live over the city’s
local access cable channel. No other publicity was disseminated by
the city.
On January 25, the city council passed a resolution repealing
its reward offer because the city was facing budget constraints.
The January 25 proceedings were not telecast over the local access
cable channel because the channel was televising the city’s high
school basketball tournament that night. The city council
documented the resolution in the minutes of its proceedings, and
the minutes were published in the legal notices in the back pages
of the local paper.
On February 1, a bar patron overheard a conversation implicating
a disturbed electrician in the arsons. Since he knew of the reward,
but had not heard of its revocation, the patron relayed the
information to the police. The police lawfully arrested the
electrician who confessed and was subsequently convicted of the
arsons. The bar patron sought to recover the reward money, but the
city refused.
If the bar patron sues the city to recover the reward, will he
prevail?
(A) Yes, because he knew of the January 15
resolution at the time he talked to the police and had no
knowledge of the January 25 resolution repealing the city’s
offer.
(B) Yes, because he had no knowledge of the January 25
resolution repealing the city’s offer and his knowledge of the
January 15 resolution is irrelevant.
(C) No, because the January 25 resolution effectively revoked
the offer.
(D) No, because the offer was not accepted within a reasonable
time.
6. The January 15 resolution was a unilateral contract offer
which could be accepted by anyone with knowledge of that offer. It
was a specific offer for a specific crime as contrasted with a
standing offer to reward for any particular crime, e.g., “$10,000
to anyone who provides information leading to the capture of any
killer of a police officer.” This latter type offer can be claimed
even if the offeree was unaware of it.
Restatement (Second) Contracts § 23 provides that “[s]tanding
offers of rewards made by governmental bodies [are] intended to
create a climate in which people do certain acts in the hope of
earning unknown rewards.” Illustration 3 under § 23 explains, “A
city ordinance provides a standing reward of [$50,000] will be paid
for information leading to the arrest and conviction of anyone
guilty of [any] arson within the city limits. A furnishes such
information. A is entitled to the reward whether or not he knew of
the reward or was motivated by hope of the reward.” Id. Here, the
January 25 resolution revoking the earlier offer was not publicized
in such a way as to revoke the offer except as to those who had
actual knowledge of the revocation. (A), which incorporates both of
these concepts, is the correct answer.
(B) is incorrect because it suggests that the bar patron could
have claimed the reward even if he had not known of the January 15
reward offer. A person who acts without knowledge of an offer is
generally incapable of enforcing a contract. The only exception is
standing offers of reward made by the government.
(C) is incorrect because the January 25 council proceeding was
not televised. Since the purported revocation did not receive
publicity comparable to the January 15 offer, it would be
ineffective. Murray on Contracts § 43 at 121 (5th ed. 2011);
Calamari, Calamari and Perillo on Contracts § 220(d) at 81–82 (6th
ed. 2009).
(D) is incorrect because the offer was accepted within two weeks
from the time it was made, which is a reasonable time for a reward
offer to remain outstanding.
-
© 2016 Pieper Bar Review 25
7. Prior to the start of an auction, each bidder and the
auctioneer signed documents sufficient to satisfy the statute of
frauds should a contract be formed at the auction, and the
auctioneer announced that the auction would be “without reserve.”
The auctioneer then began to auction a valuable Picasso painting.
The first bidder bid $100,000 for the painting. A second bidder
immediately thereafter bid $125,000. One minute later, the second
bidder withdrew his bid. No further bids were made and nothing
relevant was said during the next five minutes. At that time, the
auctioneer announced that the auction sale was terminated.
Which of the following is a correct statement of the parties’
legal rights and duties?
(A) There is a binding contract
between the auctioneer and the second bidder for $125,000.
(B) There is a binding contract between the auctioneer and the
first bidder for $100,000, because the second bidder’s withdrawal
revived the prior bid.
(C) The auctioneer is not contractually bound to sell the
painting, because no bids were made within a reasonable time of the
second bidder’s revocation.
(D) The auctioneer is not contractually bound to sell the
painting, because he could withdraw the painting from auction at
any time before his hammer fell.
7. Auctions of personal property are governed by UCC §2–328.
(A) is incorrect because, under UCC §2–328(3), a bidder may
retract his bid at any time before the auctioneer’s hammer
falls.
(B) is incorrect because, under UCC §2–328(3), the retraction of
a bid does not revive a prior bid.
If the auction sale is “without reserve,” the auctioneer cannot
withdraw the article from auction. (D) is therefore incorrect.
However, if there are no bids within a reasonable time, an
auctioneer can terminate an auction that is “without reserve.”
Since this occurred, (C) is correct.
-
© 2016 Pieper Bar Review 26
8. On June 1, a property seller mailed a signed letter to a
buyer which stated:
“I will sell you my house at 23 Garden Lane in Louisville for
$150,000. I want a deposit of $15,000 and will close at the
registry of deeds on August 1st. Please reply by June 15.”
On June 3, the buyer wrote back:
“Thank you. Would you consider selling for $145,000?”
On June 5, the seller wrote to the buyer:
“I have received your letter of June 3. I reject your offer to
buy my house for $145,000.”
On June 7, the buyer wrote to the seller:
“I have received your letter of June 5, and accept the offer
contained in your letter of June 1. I am enclosing herewith my
check in the amount of $15,000 as the deposit you requested. Please
deliver a deed to the property conveying marketable title at the
closing on August 1, at which time I will pay to you the balance of
the purchase price.”
On June 9, the seller wrote to the buyer:
“I am returning herewith your check for $15,000. I am not
contractually obligated to sell you my house at 23 Garden Lane,
Louisville.”
The buyer appeared at the Louisville registry of deeds on August
1, prepared to tender the entire $150,000 purchase price, but the
seller did not appear. The buyer brought an action against the
seller for specific performance of the contract.
Will the buyer likely prevail?:
(A) No, because his June 3 letter was a
counter–offer. (B) No, because the seller’s June 5 letter
revoked his June 1 offer. (C) No, because the buyer’s June 7
letter was
not an effective acceptance because it contained additional
terms.
(D) Yes, the buyer will prevail.
8. (A) is incorrect because the June 3 letter would best be
characterized as an inquiry. An inquiry does not constitute a
counter–offer and therefore is not a rejection of the original
offer.
(B) is incorrect because the June 5 letter was a reply to the
inquiry of June 3, and did not by its terms revoke the June 1
offer. This choice incorrectly characterizes the June 3 letter as a
counter–offer, when it was really only an inquiry.
(C) is incorrect because the additional terms set forth in the
June 7 letter were terms that were implied in the original offer
(namely, that the seller convey marketable title). As we will cover
in further detail in real property, if a contract for the sale of
real property makes no mention of the quality of title to be
conveyed, it is implied in the contract (not in the deed) that the
seller will tender marketable title at closing.
(D) therefore is correct because the buyer accepted the seller’s
June 1 offer though his June 7 letter.
-
© 2016 Pieper Bar Review 27
9. A university advertised for bids for a new ice hockey arena.
The bids were to be submitted June 1 and opened on June 15, at
which time the contract would be awarded. One of the major items
included in the bid was a large compressor.
A general contractor planned to bid on the project and asked
several compressor dealers to bid on the required compressor. He
indicated to the dealers that if he won the contract, he would
enter into a contract to buy the compressor from the lowest bidder
on June 20, with delivery to take place on August 20. On May 15, a
large compressor dealer submitted a written offer to sell to the
contractor the required compressor for $75,000. This was the lowest
offer received by the contractor. On May 20, the contractor called
the dealer, stated his intent to bid on the university ice hockey
arena, and asked if the dealer would hold his offer open until June
21. The dealer said yes. The contractor then submitted a $5,000,000
bid to construct the ice hockey arena.
The university awarded the contract to the contractor, who was
the lowest bidder, on June 15. On June 16, the dealer learned that
the contractor received the contract, immediately called the
contractor, and revoked the offer to sell the compressor for
$75,000. On June 17, the contractor wrote to the dealer and
accepted the offer to sell the compressor for $75,000. When the
dealer did not deliver the compressor on August 20, the contractor
purchased the compressor elsewhere for $90,000. In an action by the
contractor against the dealer to recover the $15,000 difference
between the purchase price and the amount of the dealer’s offer,
will the contractor prevail?
(A) Yes, because the dealer’s offer was a
“firm” offer under the Uniform Commercial Code and could not be
revoked until June 21.
(B) Yes, because the dealer’s agreement to keep the offer open
until June 21 was enforceable since the dealer knew that the offer
would induce substantial reliance on the part of the
contractor.
(C) Yes, because a written offer must be revoked by a
writing.
(D) No, because the dealer validly revoked his offer before the
contractor accepted it.
~ ~ ~ ~ ~ 9. A similar scenario was presented in
Essay #1 on the February 2001 New York Bar Exam.
(B) is correct. The offer made by the dealer to the contractor
is governed by the rules of promissory estoppel set forth in §87(2)
of the Restatement (Second) of Contracts. When the dealer made the
offer, he knew it would induce substantial reliance by the
contractor in bidding on the skating rink contract. Therefore, an
option contract was created and the option was properly exercised
by the contractor.
(A) is wrong because the promise to keep an offer open under UCC
§2–205 must be in writing. Here, the dealer’s promise to keep the
offer open was oral.
(C) is wrong because the offer, if it was revocable at all,
could have been revoked by a telephone call.
(D) is incorrect because the offer was not revocable before June
21 for the reasons set forth in (B).
-
© 2016 Pieper Bar Review 28
10. On March 16, an artist mailed to a patron an offer to paint
the patron’s portrait for $2,500. On April 1, the patron mailed
back his acceptance, but conditioned the acceptance upon the
painter framing the portrait in a frame worth at least $500.
On April 2, the patron found in his attic a frame perfect for
the portrait. That same day, the patron faxed to the artist an
acceptance of the artist’s offer and advised the artist that he had
a suitable frame in which to put the painting.
On April 3, the artist received the patron’s April 1
correspondence.
What is the status of the parties relationship on April 4?
(A) There is no contract to paint the
portrait for $2,500 because of the “mailbox rule.”
(B) There is no contract to paint the
portrait because the patron’s counter–offer rescinded the
artist’s offer.
(C) There is a contract to paint the
portrait for $2,500, and for the artist to supply a $500
frame.
(D) There is a contract to paint the
portrait for $2,500 but no obligation for the artist to supply a
$500 frame.
10. A rejection terminates the offeree’s power of acceptance. A
counter–offer (a new proposal), because it is an implied rejection
of the offer, has the same effect as an express rejection.
Restatement (Second) Contracts § 39. Thus, (C) is not correct
because the artist’s obligation to obtain the frame was a
counter–offer that the artist never agreed to.
(B) otherwise would be correct except for the fact that a
rejection (the April 1 letter) is effective only when received
(April 3) by the offeror (the artist). (B) is not correct because,
before the artist received the counter–offer (rejection), he
received the April 2 acceptance by fax. Thus, there was a binding
contract as of April 2 and (D) is correct.
(A) is incorrect because the mailbox rule states that an
acceptance is effective when dispatched and put out of the
offeree’s control (dropped into the mailbox), and it applies to an
“acceptance” and not a rejection of the offer (a counter–offer). A
rejection is not effective when dropped into the mailbox, but
rather only when received by the offeror, here the artist.
-
© 2016 Pieper Bar Review 29
11. The owner of a chain of fast food restaurants entered into a
written contract with a manager to operate one of her restaurants
for two years at a salary of $52,000 per year, payable at the rate
of $1,000 per week. After the manager had worked at the restaurant
for 16 months, he suggested to the owner a way of recycling the fat
used to cook french fries which would result in significant savings
in both purchase and disposal costs for the entire restaurant
chain. The suggestion was implemented immediately and was very
successful.
Thereafter, the owner told him that she was so pleased with his
fat recycling suggestion, that she was raising his pay to $2,500
per week for the remainder of the contract.
When the manager’s next paycheck arrived, it was only for
$1,000. He approached the owner and she told him that, after
talking with her accountant, she had decided not to raise his pay,
but would continue to honor the conditions of the original
contract.
If the manager brings an action against the owner to secure the
additional $1,500 per week, will he prevail?
(A) Yes, because he conferred a material
benefit on the owner. (B) Yes, because his promise to manage
the restaurant for the remainder of the contract term would make
the owner’s promise enforceable.
(C) No, because past consideration would not support the owner’s
promise.
(D) No, because a contract for more than a year in duration must
be in writing to be enforceable.
11. The suggestion to recycle fat was not part of any bargain
between the manager and the owner, and neither past nor “moral”
consideration is sufficient to support the owner’s promise to pay
the manager more money for the job he was already contractually
obligated to perform for $1,000 per week. Since this contract is
governed by common law rules, new or additional consideration is
necessary to support a modification. Therefore, (C) is correct. See
Pieper NYAA p. 247 (2014).
(A) is incorrect because the conferring of a material benefit,
if not bargained for, does not support a contract. The benefit
conferred by the manager was not “bargained for” as part of the
owner’s promise since it already had been performed by the
manager.
(B) is incorrect because the manager is already contractually
bound to manage the restaurant for the remainder of the term, and
his promise to live up to his existing contract cannot furnish
consideration for a modification of that contract.
(D) is incorrect because, at the time the owner promised to
increase the manager’s salary, the contract had less than one year
to run and therefore the promise would not be unenforceable because
of the statute of frauds.
-
© 2016 Pieper Bar Review 30
12. A talented sailor was tied for the lead in a prestigious
weekly race series, with one week remaining before the final race
of the season. Unfortunately, his boat began to leak and required
emergency repairs if the sailor expected to compete in the final
race. A local carpenter told the sailor that because his regular
boss did not have any work for him for the coming week, he would
repair the boat for $1,200 paid in advance. The sailor paid the
$1,200 on the condition that the repairs be completed so that the
boat could sail the following weekend, and the carpenter began the
repairs.
On Thursday morning the carpenter informed the sailor that his
regular boss needed him for an emergency job on Thursday and
Friday. His boss had offered to pay him $500 per day to work for
him, so the carpenter told the sailor he would not finish the boat
by Saturday unless the sailor paid him an additional $300 on
Saturday and agreed not to sue the carpenter for his anticipatory
breach of contract. Because the sailor was anxious to win the race
series, he agreed to the carpenter’s proposal. The carpenter
finished the boat by Saturday morning. When the sailor took
possession of the boat, he refused to pay the carpenter the
additional $300 promised on Thursday.
If the carpenter brings an action against the sailor in a common
law jurisdiction, will he be able to recover the $300?
(A) Yes, because the emergency excused the
carpenter’s original performance deadline, and his promise to
complete the job despite the emergency was valid consideration for
the second agreement.
(B) Yes, because the sailor’s promise not to sue for the
anticipatory breach of contract was a bargained–for exchange for
the carpenter’s promise to complete the job on time.
(C) No, because of the preexisting duty rule. (D) No, because
the carpenter’s conduct was
unconscionable.
12. The carpenter was under a legal duty to complete the repairs
by Saturday. Since the facts state that the action was brought in a
common law jurisdiction (and not in a jurisdiction recognizing the
Restatement (Second) of Contracts) and the contract was not a
contract for the sale of goods governed by the Uniform Commercial
Code, consideration is required for a modification of the contract.
The carpenter is doing exactly what he originally promised to do,
and, therefore, there is no consideration to support the promise to
pay the additional $300. Therefore, (C) is correct.
(D) is an attractive choice but wrong, because the conduct of
the carpenter is not sufficiently unconscionable. He originally
agreed to do the work at a low price because he was out of work,
and he started the job in good faith. It was only because his
regular boss called him and offered him more money that he asked
for additional compensation for the sailor’s job. The preexisting
duty rule clearly applies here, making (C) the better answer.
(A) is incorrect because of the preexisting duty rule. The
carpenter’s promise is to do exactly what he is already legally
obligated to do.
(B) is incorrect because the sailor is not bargaining with the
carpenter to give up his lawsuit in exchange for agreeing to pay
the carpenter an additional $300. Both of these promises are to the
sailor’s detriment, and there is no new promise to the carpenter’s
detriment
-
© 2016 Pieper Bar Review 31
13. A man applied for and obtained a $100,000 life insurance
policy. The policy contained the following language:
“This policy shall not insure against a death which occurs when
the insured is scuba diving, unless he is diving with a certified
P.A.D.I. instructor.”
Two months after the policy was issued, the man was scuba diving
in the company of the senior dive instructor. The instructor was
certified by S.S.I., a training organization similar to P.A.D.I.,
and had 30 years of scuba diving experience. While the man and the
instructor were diving, a great white shark appeared and attacked
the man, killing him instantly. Prior to this attack, no great
white sharks had been spotted in or near those waters for more than
one hundred years.
The beneficiary of the policy bought an action to collect on the
policy, but the insurance company refused to pay.
What is the insurance company’s best defense?
(A) The death would not have occurred
if the insured had the benefit of a certified P.A.D.I.
instructor’s experience during the fatal dive.
(B) Scuba diving is a hazardous activity properly excluded from
the policy.
(C) The insured failed to comply with a contractual
condition.
(D) The purpose of the policy exclusion was to protect the
company against the type of scuba diving fatality which
occurred.
13. (C) is the correct answer. The language quoted from the
policy is a condition precedent to performance, which must be
satisfied before there can be a recovery under the contract.
American Home Assur. Co. v. International Ins. Co., 90 N.Y.2d 433,
442–443 (1997); Security Mut. Ins. Co. v. Acker–Fitzsimons Corp.,
31 N.Y.2d 436 (1972).
(B) is incorrect because scuba diving is not excluded from the
policy. Only diving without a certified P.A.D.I. instructor will
result in application of the exclusion.
(A) and (D) are also incorrect. Whether the statements are true
or whether the death would have resulted under different conditions
is irrelevant. The specific language of the condition is
controlling.
Thus, a condition precedent to the performance of this contract
(payment of money) was that any drowning death by scuba diving be
in the presence of P.A.D.I. instructor. Perillo, Calamari &
Perillo on Contracts §11.5 at 362 (6th ed. 2009).
-
© 2016 Pieper Bar Review 32
14. A homeowner and a painter entered into a contract to paint
the homeowner’s house for $700 prior to a wedding that was being
held in the homeowner’s backyard. The contract specifically stated
that payment was contingent upon completion by the wedding
date.
The next day, the painter was offered a more lucrative job, so
the painter told a handyman that he was the owner of the house, and
that he needed the house painted by the wedding day for $500. The
painter paid the handyman, who began work on the job, but failed to
complete the job on time.
If the homeowner brings an action against the painter and the
handyman, from whom can he recover damages?
(A) The painter only. (B) The handyman only. (C) Both the
painter and the
handyman. (D) Either the painter or the handyman,
at the homeowner’s election, but not both.
14. The homeowner has a valid cause of action against the
painter because the painter was a party to the original contract
and was not discharged from his obligations when he delegated the
work.
On the other hand, the handyman, who is really a subcontractor,
is not liable to the homeowner because the two are not in privity.
Indeed, the painter told the handyman that the painter was the
owner of the house, so the handyman had no reason to know of the
actual homeowner’s interest in the completion of the paint job.
Moreover, because the painter did not relay the urgency of painting
the house, it is unlikely that the painter can recover from the
handyman as time was not made “of the essence” in the contract
between the painter and the handyman.
(A) is therefore correct.
-
© 2016 Pieper Bar Review 33
15. A patient owed her physician $25,000 for professional
services. The physician orally assigned this claim to her adult
daughter as a wedding gift. Shortly thereafter, after suffering
sudden, severe losses in the stock market, the doctor assigned the
same claim to her stockbroker in a signed writing, in partial
satisfaction of advances legally made by the stockbroker.
Subsequently, the patient, without knowledge of either assignment,
paid the physician the $25,000 then due, which the physician
promptly lost at a horse track, although she remains solvent.
Assuming that Article 9 of the Uniform Commercial Code does NOT
apply to either of the assignments in this situation, which of the
following is a correct statement of the parties’ rights and
liabilities?
(A) As the assignee prior in time, the
physician’s daughter can recover $25,000 from the patient, who
acted at her peril in paying the physician.
(B) As the sole assignee for value, the stockbroker can recover
$25,000 from the patient, who acted at her peril in paying the
physician.
(C) Neither the physician’s daughter nor the stockbroker can
recover from the patient, but the physician’s daughter, though not
the stockbroker, can recover $25,000 from the physician.
(D) Neither the daughter nor the stockbroker can recover from
the patient, but the stockbroker, though not the physician’s
daughter, can recover $25,000 from the physician.
15. Generally, an assignment terminates the assignor’s right to
collect the contract benefit (here, the account receivable), but
the assignee, absent a filing of a UCC Article 9 financing
statement, must immediately notify the obligor owing the money
(here, the patient) of the assignment. Since neither assignee
notified the patient, she satisfied her debt by paying the
physician. Choice (D) is the correct answer.
Choice (A) is not the correct answer because, even though the
“first–in–time” rule generally prevails, it does not apply when the
first assignee was gratuitous. A gratuitous assignment is revocable
until the gratuitous assignee gets paid, recovers a judgment
against the person owing the money, or enters a new agreement with
the obligor. Thus, the physician’s daughter has no claim against
either the physician or the patient since her rights were revoked
by (1) the reassignment of the same right, as well as (2) the
payment of the debt to the physician. Choices (A) and (C) are
incorrect.
Although past consideration makes the assignment to the
stockbroker non–gratuitous, because the stockbroker did not notify
the patient, the patient’s payment of the debt to the physician
(the assignor) extinguished the patient’s obligation. Thus, choice
(B) is incorrect.
Choice (D) is the best choice. Even though the physician’s
daughter’s gratuitous assignment right was extinguished by the
physician’s reassignment of the same right to the stockbroker, and
the stockbroker’s right against the patient was extinguished by his
failure to give notice to the patient prior to her making payment
in full to the physician, none of this extinguished the original
$25,000 claim the stockbroker had against the physician which was
supported by consideration. Thus, the stockbroker has a claim
against the physician.
-
© 2016 Pieper Bar Review 34
16. A farmer entered into a contract to sell her entire tobacco
crop to a buyer for $100,000, to be paid by the buyer upon
delivery. Thereafter, the farmer purchased a race horse from a
breeder, and, in writing, assigned her right to payment from the
buyer to the breeder as payment for the horse. The race horse was
diseased when the breeder delivered it to the farmer and it died
the next day.
If delivery of the diseased race horse constituted a breach of
warranty of merchantability by the breeder, what is the farmer’s
right vis–a–vis the assigned rights to the tobacco crop?
(A) The assignment to the breeder from
the farmer would be revoked automatically.
(B) The farmer could revoke the assignment to the breeder by
giving him notice.
(C) The farmer could only revoke the assignment through an
action for rescission.
(D) The farmer could not revoke the assignment by any
procedure.
16. Choice (C) is the correct answer. An assignment for
consideration is in effect a transfer of title to, or ownership of,
a contract right. The transferee, or assignee, takes title to this
contract right to collect money. In order to revoke the assignment,
an action for rescission would have to be commenced. The farmer
does have a right to rescind here, because she had a right to
reject the race horse, however, it must be accomplished through
court action.
The farmer cannot revoke the assignment by any other method.
Therefore, choices (A) and (B) are incorrect.
Choice (D) is incorrect because the farmer may revoke the
assignment.
-
© 2016 Pieper Bar Review 35
17. A real estate investor entered into an agreement for a
builder to construct a six bedroom summer home and a three bedroom
summer home that the investor wanted to rent out for the summer
months. The investor was to pay for each house when each was
completed. The builder agreed to have the six bedroom home
completed by March 15, and the three bedroom home completed by
March 30. A pipe burst in the three bedroom home during
construction and destroyed all of the rooms but the den. The six
bedroom home was not completed until June 15, which was too late to
take advantage of the summer rental market.
The real estate investor refused to pay the builder for the six
bedroom house when the bill was tendered on June 25.
Will the builder succeed in its breach of contract action
against the real estate investor?
(A) No, because the law implies that
the time set forth in the contract is of the essence.
(B) Yes, because the contract did not specifically provide that
time was of the essence.
(C) Yes, because the flood in the three–bedroom home would
extend the time for completion of the six–bedroom home.
(D) Yes, under the common law, but not if the Uniform Commercial
Code was enacted by the jurisdiction.
17. In contracts other than UCC contracts, time usually is not
of the essence unless the parties make it an express condition of
the contract or the circumstances indicate that the parties
intended time to be of the essence.
(A) is not correct. “A party [generally]
need not perform on the precise day stated in the contract
unless time is made of the essence.” Calamari, Contracts § 11.18 at
376 (6th ed. 2000). Note, however, although usually construction
contracts are not made time of the essence, they may be of the
essence even though it is not expressly stated. It depends on the
parties’ intent, and the circumstances. Id. at n.24. Since the
circumstances here did not indicate that time was of the essence,
and the contract did not specifically provide that time was of the
essence, (B) is the best answer.
Since the two contracts were divisible, the flood in the three
bedroom house would extend its completion date, but it would not
affect the completion date for the six bedroom house. Thus, (C) is
an incorrect answer.
The UCC does not apply to building contracts. Thus, (D) is an
incorrect answer.
-
© 2016 Pieper Bar Review 36
18. The owner of a female horse that won horse racing’s most
prestigious event was unable to breed the horse when its racing
career ended. The owner entered into a written contract to sell the
horse for $50,000 to a veterinarian, who truthfully described
himself as an avid horse racing fan. $50,000 was a generous price
for a sterile thoroughbred, but far less than what the owner could
have obtained if the horse had been capable of reproducing.
Using his expertise in breeding animals that had previously been
incapable of conceiving, the veterinarian extracted eggs from the
horse and fertilized them in vitro. When the owner learned that the
horse was pregnant, he brought an action to rescind the sale.
Will the owner prevail?
(A) No, because he has no basis to rescind this valid
contract.
(B) No, because of mutual mistake. (C) Yes, because the
veterinarian failed
to disclose that he specialized in the breeding of previously
infertile animals.
(D) Yes, because his ignorance of the fact that the horse was
capable of being bred successfully constitutes unilateral
mistake.
18. In this case, the veterinarian saw an opportunity to use his
unique skills to create great value from a retired race horse. He
was not mistaken concerning the ability of the horse to produce
offspring. Therefore, there was no mutual mistake and (B) is
incorrect.
While the veterinarian probably knew that the owner thought that
the horse would never have offspring, it was not a proven fact at
the time of the sale that it could not reproduce. The facts do not
indicate that it was pregnant at the time of the sale. A mistaken
belief about possible future events does not form the basis for
rescission for unilateral mistake. This doctrine is reserved for an
obvious mistake of fact known at the time the contract was
completed. (D) is therefore incorrect.
The owner and the veterinarian bargained at arms length.
Although the owner did not disclose his plans, he made no
misrepresentation. He is not, in fact, obligated to make full
disclosure of his plans. Therefore, the owner may not rescind the
contract for fraud and (C) is incorrect.
(A) is correct because there is no basis to rescind this
contract. See the two cases in the NYAA pp. 594-595 (2014).
-
© 2016 Pieper Bar Review 37
19. An elderly man whose health was declining relied on