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©2015 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
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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
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 S
2IP:
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
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12) Lack of contractual capacity arises from the 3 I’s:
I – INFANCY
I – INTOXICATION
I – Mental INFIRMITY
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
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
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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
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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
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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
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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
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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.
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“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).
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Examples:
PROBLEM #1: 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.
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PROBLEM #2: 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.
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.
PROBLEM #3: 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).
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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 #4: 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.
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PROBLEM #5: 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 #6: 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
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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).
PROBLEM #7: 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.
©2015 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.
©2015 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.
©2015 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
© 2015 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
© 2015 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.
© 2015 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.
© 2015 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).
© 2015 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.
© 2015 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.
© 2015 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.
© 2015 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.
© 2015 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.
© 2015 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).
© 2015 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.
© 2015 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.
© 2015 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
© 2015 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).
© 2015 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.
© 2015 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.
© 2015 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.
© 2015 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.
© 2015 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).
© 2015 Pieper Bar Review 37
19. An elderly man whose health was
declining relied on his nephew to
manage his finances. The nephew
would fill out checks for the elderly
man and then the elderly man would
sign them.
The nephew suggested that the elderly
man purchase a boat, and after many
discussions, convinced the elderly man
to purchase the nephew’s boat for
$20,000, an amount substantially more
than the boat was worth.
Does the elderly man have a valid basis
to vacate the transaction?
(A) Yes, based on misrepresentation.
(B) Yes, based on duress.
(C) Yes, based on undue influence.
(D) Yes, based on mistake.
19. Choice (A) is incorrect because the
facts do not indicate that the nephew
induced the elderly man to enter the
transaction based on any
misrepresentation or that the elderly
man relied on (was deceived by) any
misrepresentation.
Mistake as to value generally is not a
basis to rescind a contract. Thus, the
best answer is not choice (D).
The elderly man cannot successfully
argue duress because there were no
economic or other threats brought to
bear on him. Recognize that the theory
of duress only permits a party to avoid a
transaction where a wrongful act or
threat overcomes the free will of that
party and results in an oppressive or
abusive contract. Here, the elderly man
could have easily elected not to
purchase the boat. Thus, choice (B) is
not the best choice.
Undue influence speaks of “unfair”
persuasion by one party misusing a
position of trust and confidence, or by
using a dominant psychological
position in an unfair manner.
Unfairness may be established by the
excessive or inadequate consideration
involved. Choice (C) is the best choice.
© 2015 Pieper Bar Review 38
20. A builder agreed to construct two
cottages for an owner. One cottage was
to have three bedrooms and the price
agreed upon was $80,000. The other
was to have two bedrooms and the price
was $75,000. Upon completing each
cottage, the owner was to pay the
builder in full. The owner provided the
plans and specifications, and told the
builder that he was going to rent the
houses for the summer months. The
builder agreed to complete the two–
bedroom cottage by March 1, and the
three–bedroom cottage by March 15.
The builder began construction on the
three bedroom cottage on January 5,
and construction on the two–bedroom
cottage on February 1. On February 20,
after the three–bedroom cottage was
three–fourths completed, it was
destroyed by fire through the fault of
neither the builder nor the owner. The
builder completed the two–bedroom
cottage on February 26.
If the builder refuses to rebuild the
three–bedroom cottage, will he be able
to recover on the contract for the
completed two–bedroom cottage?
(A) Yes, because the builder did not
have an obligation to rebuild the
three–bedroom cottage.
(B) Yes, only if the owner waives his
claim for the breach of the contract
for the three–bedroom cottage.
(C) Yes, because the contract is
divisible.
(D) Yes, because of the doctrine of
impossibility of performance.
20. Since the builder was to receive
separate compensation for building
each of the two houses, this was a
divisible contract. Even if a party’s
performance falls short of that required
by the doctrine of substantial
performance, a court can avoid
forfeiture and allow recovery on the
contract by holding that the contract is
divisible (or severable) rather than
entire. Under the doctrine of divisible
contract, a party who is in breach can
nevertheless recover for part
performance.
Even if the builder does not build the
$80,000 cottage, he has substantially
performed his obligation to build the
$75,000 cottage and so should be
allowed to recover for that cottage
under the contract. Thus, (C) is the
correct answer.
Because the builder can recover for the
$75,000 cottage regardless of his
performance of the other part of the
contract, (A), (B), and (D) are incorrect
answers.
Note, the owner has a claim for
damages against the builder for the
builder’s failure to complete the three–
bedroom cottage. Restatement
(Second) of Contracts §240, illus. 1.
© 2015 Pieper Bar Review 39
21. A contractor entered into a written contract
to construct a house for a homeowner in
accordance with certain plans and
specifications for $95,000, payable in
installments as the work progressed. No
lien law was applicable in the jurisdiction.
As the house neared completion and the
contractor had been paid $90,000, the
contractor informed the homeowner that his
credit was shaky with plumbing supply
company which sold him plumbing
supplies. He explained that he would be
unable to obtain delivery of $3,000 worth
of sinks and toilets to complete the project,
unless he paid the company $8,000 which
he owed for the plumbing supplies
previously purchased for the homeowner’s
house.
The homeowner thereafter called the
company on the telephone and told its
manager that if he delivered the $3,000
worth of sinks and toilets which the
contractor had ordered for the house, the
homeowner would act as a surety for the
contractor’s outstanding obligation to pay
the $8,000.
The manager agreed and shipped the sinks
and toilets. Thereafter, the contractor filed
for bankruptcy without having made any
payment to the plumbing supply and
without completing the house for the
homeowner.
If the plumbing supply company brings an
action against the homeowner, will the
plumbing supply company prevail?
(A) No, because the homeowner’s promise
to pay the $8,000 is unenforceable
because of the statute of frauds.
(B) No, because the contractor was
already obligated to pay for the
plumbing supplies, and therefore the
homeowner’s promise was not
supported by consideration.
(C) Yes, and it will recover $3,000.
(D) Yes, and it will recover $8,000.
21. A promise to pay the debt of another
ordinarily must be in writing to be
enforceable due to the statute of frauds.
However, there is an exception under the
“main purpose rule.” If the main purpose of
the guarantee is to further the goals of the
guarantor, the statute of frauds is
inapplicable. That rule is applicable here,
because the main purpose of the
homeowner’s promise was to get his house
finished. Restatement (Second) of
Contracts §116 illus. 3 (1981). Therefore,
(A) is incorrect.
(B) is incorrect because the manager’s
shipment of the goods was valid
consideration to support the homeowner’s
promise to pay the debt.
The promise made by the homeowner was
to pay the entire $8,000 due for plumbing
materials used in the construction of his
house. Once the main purpose rule takes
the promise out of the statute of frauds, that
promise is enforceable. Therefore, the
homeowner owes the entire $8,000, not just
the $3,000 for the fixtures shipped, and
(D), not (C), is the correct answer.
© 2015 Pieper Bar Review 40
22. When is the court most likely to invoke
the parol evidence rule?
(A) When it discovers evidence of fraud.
(B) When parties seek to introduce
evidence concerning a consistent
term in a fully integrated contract
with a merger clause.
(C) When parties seek to introduce
evidence concerning a consistent
additional term on a partially
integrated contract.
(D) When parties seek to introduce
evidence explaining the trade
meaning of a critical contract term in
a fully integrated contract.
22. “A writing that is final is an integration
of the terms embodied in it. When it is
final and complete it is a total
integration. A writing that is final, but
does not completely express the parties’
contract is a partial integration.” Perillo,
Calamari & Perillo on Contracts §3.2 at
107 (6th ed. 2009).
“Thus, a partial integration may not be
contradicted by what has been called
‘parol evidence.’ A total integration not
only cannot be contradicted by the type
of evidence in question but cannot even
be supplemental by consistent (non–
contradictory) additional terms.” Id.;
Restatement (Second) Contracts §210(1)
and Comment a.
“A merger clause states that the writing is
a final, complete, and exclusive statement
of all of the terms agreed on. Williston’s
first rule, which is followed by most
courts, is that a merger clause will
ordinarily resolve the issue of total
integration.” Perillo, Calamari & Perillo
§3.6 at 122 (6th ed. 2009). Thus choice
(B) is the best choice for invoking the
parol evidence rule.
The general rule is that parol evidence is
admissible to show fraud in the
inducement. Thus, choice (A) is not
correct.
A partial integration, being final but
incomplete, may be supplemented by
consistent additional terms.” Perillo,
Calamari & Perillo § 3.2 at 107 (6th ed.
2009). Thus, the parol evidence rule
would not be a bar to choice (C).
UCC 2–202 provides that even a writing
intended by the parties as a final
expression of their agreement may be
explained or supplemented by a course of
dealing, by trade usage or by a course of
performance. Thus parol evidence could
be used in choice (D).
© 2015 Pieper Bar Review 41
23. A restaurant owner and a contractor
entered into an agreement for
construction of a restaurant. The plans
and specifications required the
contractor to install an “Airflow
Heating System.” About a week before
the heating system was to be installed,
the contractor discovered that it would
take four months to obtain an “Airflow
Heating System,” but that a “Flowheat
Heating System” was immediately
available. Since, the contractor was
unable to contact the owner to receive
his permission for the change, he
consulted a heating engineer, who
determined that the “Flowheat” system
was as good as the “Airflow” system, it
would heat just as well, and that it was
of somewhat better quality. Relying
upon this advice, the contractor
installed the Flowheat system. The
restaurant owner objected to the
substitution of the Flowheat system and
refused to pay the contractor.
In an action by the contractor against
the restaurant owner for damages,
which of the following would be the
amount of damages recoverable by the
contractor?
(A) The contractor can recover because
of the doctrine of impossibility of
performance.
(B) The contractor can recover under
the doctrine of substantial
performance.
(C) The contractor cannot recover
because he failed to contact the
owner.
(D) The contractor can recover in
quasi–contract.
23. (B) is correct because, under the
doctrine of substantial performance, the
contractor can recover on the contract.
Although the contractor did not
completely or exactly conform to the
specifications of the contract, he
substantially performed. Under the
common law rule, substantial
performance is enough to allow a party
to recover on a contract, though he may
still be liable for damages resulting
from his technical breach. See Essay 3,
July 2008.
To require the contractor to remove the
“Flowheat” system and the cost of
reinstalling an “Airflow” system would
result in economic waste.
(A) is not applicable to this kind of
situation. Generally, the doctrine of
impossibility only applies to situations
where the contract has become illegal,
the subject matter of the contract has
been destroyed, or a party to a personal
services contract has died or become
disabled.
(C) is incorrect because the owner was
not available, so the contractor could
not contact him.
(D) is incorrect because the doctrine of
substantial performance allows
recovery on the contract itself, not in
quasi–contract.
© 2015 Pieper Bar Review 42
24. A renowned financial planner entered
into a written contract with a woman to
prepare an estate plan for a fee of
$10,000, to be paid upon the completion
of the plan. The woman retained the
financial planner because of his
reputation, skill and experience in
financial planning. However, the woman
and the financial planner got along poorly
and, after the second conference, when
only a draft of a plan dealing with life
insurance and real estate had been
submitted to the woman, they had a
profound disagreement about the proper
way to handle the woman’s stock
portfolio. Hoping to avoid such
encounters in the future, the financial
planner, without the woman’s
knowledge, assigned all of his rights and
duties under his financial planning
contract with the woman to an associate
who had recently graduated from college.
The associate expressly promised the
financial planner to carry out the work to
the best of his ability.
The woman, upon learning of the
assignment, refused to allow the associate
to proceed with the financial plan and
brought an action against the financial
planner to compel him to resume and
complete performance of the contract.
Is the woman entitled to such relief?
(A) No, because the financial planner
has contracted to render personal
services to the woman.
(B) No, because the financial planner
effectively delegated his remaining
duties under the contract to the
associate.
(C) Yes, because the financial planner is
a preeminent financial planner and
his services are unique.
(D) Yes, because the financial planner
has personally completed a
substantial portion of the project.
24. The contract for an estate plan is a
personal service, and so a specific
performance remedy is not available. (A)
is therefore correct.
(B) is incorrect because the financial
planner cannot effectively delegate his
obligations under a contract requiring his
skill and expertise.
(C) is incorrect. Although it is the reason
why the delegation to the associate was
improper, it does not support an award of
specific performance.
(D) is incorrect because the financial
planner’s completion of a portion of the
work does not become the basis of a
specific performance remedy for the
remainder.
© 2015 Pieper Bar Review 43
25. A seller agreed to sell 5,000 widgets to
a buyer for $15,000. The goods were to
be delivered on or before December 15.
On December 5th, while the goods
were in transit but before the goods
were delivered, the buyer called the
seller and told him that she did not want
the goods and would not accept them
because she had purchased them
cheaper somewhere else.
What right did the buyer’s telephone
call give the seller?
(A) The right to stop the goods in
transit if they were sent in carload
lots.
(B) The right to stop the goods in
transit even if they were not sent in
carload lots.
(C) The right to stop delivery of the
goods even if they had reached the
buyer’s city and the carrier had
acknowledged to the buyer that it
was holding them for her.
(D) The right to stop the goods in
transit only if the buyer is
insolvent.
25. (A) is the correct answer because the
buyer’s phone call constituted an
anticipatory breach of the contract
between the buyer and seller. Since this
is a contract for the sale of goods, UCC
Article 2 applies. Under Article 2, a
seller has the right to stop goods in
transit when there has been an
anticipatory breach, but only if they
were sent in carload lots (for example,
an entire freight car of widgets).
Therefore, (B) is incorrect.
(D) is incorrect because a seller has the
right to stop the goods in transit upon
the buyer’s anticipatory breach
regardless of whether the buyer was
insolvent. Furthermore, the facts do not
indicate that the buyer was insolvent,
but they do indicate that the buyer
anticipatorily breached the contract. If
the buyer was insolvent, the seller
would have the right to stop the goods
in transit whether or not they were sent
in carload lots.
(C) is incorrect because a seller loses
her right to stop goods in transit once a
carrier has acknowledged the buyer’s
right to the goods.
© 2015 Pieper Bar Review 44
26. A buyer and seller entered into a
contract for the purchase and sale of
1,000 widgets at a price of $5 per
widget. The widgets were to be
shipped F.O.B. the buyer’s plant, and
were to be delivered to the plant on or
before December 1. The seller shipped
them out on November 27. Later in the
day on November 27, before the buyer
received the widgets, the buyer called
the seller and informed the seller that,
since widgets were no longer popular
gift items, he was cancelling the order.
The goods were destroyed by fire after
the buyer’s telephone call.
At the time of the fire, which party bore
the risk of loss of the widgets?
(A) The buyer, because the risk of loss
shifted as soon as the seller
delivered the goods to the carrier.
(B) The buyer, because she repudiated
the contract.
(C) The buyer, but only to the extent
that the seller’s insurance failed to
cover the loss.
(D) The seller, because the contract
specified “F.O.B. buyer’s plant.”
26. Ordinarily, the risk of loss passes
entirely to the buyer when the seller
completes his delivery obligations.
Since the contract specifies F.O.B.
buyer’s plant, the risk ordinarily would
not pass until the goods actually reach
the buyer. However, if the buyer
repudiates or breaches the contract, the
risk of loss immediately shifts to the
buyer as to goods that are identified, to
the extent that the seller’s insurance
fails to cover the loss. UCC §2–510(1).
Therefore, (C) is the correct answer,
since the buyer repudiated the contract.
Note, that this same F.O.B. risk of loss
rule was tested on Essay #1 of the July
2003 New York Bar Exam.
(A) is incorrect. Since the contract
specifies F.O.B. buyer’s plant, the risk
of loss did not shift when the seller
delivered the goods to the carrier.
(B) is incorrect because the risk of loss
only passed to the buyer to the extent
that the seller’s insurance did not cover
the loss.
(D) is incorrect because the risk of loss
shifted to the buyer, in part, when he
repudiated the contract.
© 2015 Pieper Bar Review 45
27. A manufacturer of off–road construction
vehicles, entered into a written contract
with a dealer to sell to the dealer three
large trucks for $30,000 each. The
manufacturer was to deliver one truck on
March 1, one on April 1, and one on May
1. Payment for each of the trucks, in the
amount of $30,000, was to be made
within 5 days after each delivery. The
manufacturer delivered the first truck on
March 1.
On March 4, the dealer called the
manufacturer and informed him that,
because he had encountered a delay in
obtaining a bank loan, he could not pay
for the truck delivered on March 1 until
March 20. The dealer, although he had
been a reputable heavy equipment dealer
for 25 years, had not paid for vehicles in
a timely fashion since February 20. The
dealer still has possession of the truck
delivered on March 1.
Which of the following remedies is NOT
available to the manufacturer on March
5?
(A) Immediately demanding a return of
the truck delivered on March 1, and
reclaiming that truck.
(B) Refusing to deliver the truck
scheduled for April 1 delivery unless
the dealer pays for the first truck
before then and pays for the April 1
truck in cash on or before the time of
delivery.
(C) Suing the dealer for the $30,000.
(D) Terminating the contract for the
April 1 and May 1 trucks.
27. The dealer was insolvent between
February 20 and March 20 under the
definition of insolvency under § 1–201 of
the UCC because he could not pay his
debts when they were due. Therefore, the
manufacturer, after demanding the return
of the truck within 10 days of delivery,
could reclaim the truck delivered on
March 1st under § 2–702 of the UCC.
Therefore, (A) is an available remedy and
an incorrect answer.
(B) is also an available remedy and,
therefore, a wrong answer. If an
insolvent buyer defaults on a payment
obligation under an installment contract,
the seller is not obligated to ship in the
future on credit, but can demand payment
in cash and can also demand that the
insolvent buyer pay for any prior
delivered installments before any further
installments are delivered. UCC § 2–
702(1).
(C) is also an available remedy and,
therefore, a wrong answer. Where there
is a breach of the obligation to pay for
one installment, the seller can sue for that
installment prior to completion of all
deliveries, if the amount of each
installment is clear, as it is in this case
($30,000 per installment).
(D) is the correct answer because the
seller cannot terminate the entire
installment contract when the buyer
failed to pay only one installment on
time, even when the buyer is technically
insolvent. “An installment contract is
one which requires or authorizes the
delivery of goods in separate lots to be
separately accepted....” UCC § 2–612.
The seller may, however, demand
assurances of payment before he makes
future deliveries and can require payment
in cash at the time of delivery.
© 2015 Pieper Bar Review 46
28. A buyer and a seller entered into a
written contract for the sale of 10,000
lawnmowers, for delivery on February
1. On January 10, the seller notified the
buyer that due to a fire in its factory, the
factory would remain closed until
February 1, but the seller could
guarantee delivery no later than
February 15. The buyer rejected the
seller’s proposal, immediately
contacted with another lawnmower
distributor to obtain 10,000
lawnmowers at a slightly higher cost,
and brought an action against the seller
to recover the difference between the
cost of the replacement lawnmowers
and the original contract price.
In the buyer’s action against the seller,
will the buyer prevail?
(A) No, because the seller gave
assurances of its willingness and
ability to perform the contract in
February.
(B) No, because the buyer’s lawsuit is
premature before February 1.
(C) Yes, because buyer’s complaint
alleges an actionable tort by seller.
(D) Yes, because buyer’s complaint
alleges an actionable breach of
contract by seller.
28. The notice given by seller to buyer
amounted to an anticipatory breach of
contract by seller, since it
unequivocally stated that it would not
be able to ship conforming goods in the
quantity stated at the time required.
Such an anticipatory breach gives the
buyer, among other remedies, the right
to cover: i.e, the right to purchase the
goods elsewhere and to sue the seller
for the difference between the price the
buyer had to pay for the goods and the
original contract price. The buyer did
this and now has a right to sue in
contract for damages. Thus, (D) is the
correct answer.
The buyer’s suit is based on breach of
contract. The seller has committed no
tort against the buyer. Therefore, (C) is
incorrect.
(A) is incorrect because of the perfect
tender rule under UCC Article 2. This
rule does not allow for a unilateral
delay in performance to a later,
reasonable time when the seller has
unforeseen difficulties.
(B) is incorrect because the buyer does
not have to wait until the date of
performance when there has been an
anticipatory breach.
© 2015 Pieper Bar Review 47
29. On October 1, a buyer entered into a
written contract with a seller for the
purchase of 1,000 mechanical dogs at $20
per dog, to be specially manufactured by
the seller according to the buyer’s
specifications. In order to obtain
operating funds, the seller, as borrower,
entered into a written agreement on
October 5 with a finance company. In
relevant part, this agreement recited,
“Seller hereby transfers and assigns to
the finance company its October 1
mechanical dog contract with Buyer,
as security for a 50–day loan of
$15,000, the advance and receipt of
which are hereby acknowledged by
Seller ....” No copy of the agreement, or
statement relating to it, was filed in an
office of public record.
By November 16, the seller, without legal
excuse, had delivered no dogs, but the
buyer brought no action against the seller.
If the buyer brings an action against the
finance company on account of seller’s
default, will the buyer prevail?
(A) No, because the October 5
assignment by the seller to the
finance company was only an
assignment for security.
(B) No, because no record of the
October 5 transaction between seller
and finance company was publicly
filed.
(C) Yes, because the buyer was a third–
party intended beneficiary of the
October 5 transaction between seller
and the finance company.
(D) Yes, because the October 5
transaction between the seller and
the finance company affected, with
respect to buyer as creditor, a
novation of debtors.
29. UCC 2–210 states that the assignee of a
sale of goods contract impliedly assumes
the full duties of performance under the
terms of that contract unless it is clear
from the circumstances of the assignment
that the assignee did not intend to assume
the delegation of duties.
The purpose of the assignment of the
contract to the finance company was to
give the finance company a security
interest to insure repayment of the loan.
It was only an assignment of the benefits
of the contract, not a delegation of the
duties. The finance company never
expressly or impliedly agreed to perform
the obligations of the contract and
therefore, was not liable for a breach of
the contract. Therefore, (A) is correct.
(B) is incorrect because the filing of the
contract would only be material if there
was a question of priority among
competing security interests, a problem
not present here. The critical issue with
respect to the finance company’s liability
is whether it accepted the obligations of
the contract, which it did not.
(C) is incorrect because there was no
intent to benefit the buyer in the security
assignment made by the seller and the
finance company, and so the buyer was
not an intended third party beneficiary.
(D) is incorrect because there was no
novation –– no agreement by the buyer,
the finance company, and the seller to
substitute the performance of the finance
company for that of the sellers on the
contract.
© 2015 Pieper Bar Review 48
30. A snowmobile manufacturer contracted
with an engine company to purchase
100 engines for $250 each. The
contract of sale expressly required that
each engine would be able to generate
32 horsepower. The contract also
provided that the engines would be
delivered in lots of 25 and that payment
would be made within 24 hours after
delivery.
The first lot of 25 engines was
delivered on June 1, at which time the
snowmobile company forwarded
payment to the engine company in the
amount of $6,250. However, when
later tested, none of the 25 engines
delivered, or any of the 100
manufactured, could generate more
than 15 horsepower.
Despite the lack of sufficient
horsepower, the snowmobile company
installed five of the engines in
snowmobiles. On June 10, the
snowmobile company rejected all of the
engines that had been delivered, and
advised that it would reject all future
deliveries because of the insufficient
horsepower.
On the above facts, how many engines
did the snowmobile company accept?
(A) 0.
(B) 5.
(C) 25.
(D) 100.
30. (B) is correct. The installation of five
engines constitutes acceptance of those
engines because it is a use which is
inconsistent with the seller’s rights.
The phrase “Despite the lack of
sufficient horsepower” is a crucial clue
showing that the buyer was aware that
the goods were non–conforming yet
elected to use five of them with
knowledge of the non–conformity.
(A) is incorrect. The buyer used five of
the engines with knowledge of a defect
and that constituted acceptance.
(C) is incorrect. Each engine is a
distinct commercial unit separable from
the rest of the lot. A buyer may accept
part of a lot and reject the rest, provided
he does not break up a commercial unit.
Here, the buyer accepted five units and
properly rejected twenty. UCC § 2–
601.
(D) is incorrect. The buyer has the
right to accept part of the goods and
reject the rest; hence, acceptance of five
engines did not constitute acceptance of
the total number specified in the
contract.
© 2015 Pieper Bar Review 49
31. A manufacturer entered a contract to
sell a $20,000 printer to a publisher.
Just prior to the delivery date fixed in
the contract, the manufacturer notified
the publisher that it would be unable to
deliver the machine.
Six months thereafter, the publisher
purchased the same printer for $22,000.
The publisher then brought a claim
against the manufacturer for the
publisher’s lost profits of $1,500 per
month for the six months ($9,000) and
the additional $2,000 the publisher had
to pay to for the printer.
At the trial, the manufacturer
introduced unrefuted credible evidence
that if the publisher had purchased a
replacement printer when the
manufacturer breached the contract, the
publisher could have readily purchased
it for $20,000 and would have lost only
one month of profit.
What is the maximum amount the
printer is entitled to recover from the
manufacturer?
(A) $2,000.
(B) $11,000.
(C) $1,500.
(D) $3,500.
31. The traditional measure of damages for
a total breach of contract by a seller is
the difference between the market price
of the goods at the time of the breach
and the parties’ contract price. Under
these facts, there are no breach of
contract damages since the market price
at the time of the contract’s breach
($20,000) was the same as the $20,000
contract price. Thus, neither (A), (B),
nor (D) is correct.
The UCC also permits a buyer to
“cover”, i.e., make a good faith
purchase or enter a contract to purchase
substitute goods without unreasonable
delay. The buyer may then recover the
difference between the cost of cover
($22,000) and the contract price
($20,000).
Here, however, waiting six months to
cover is an unreasonable delay. The
publisher’s “damages are measured as
of the time the buyer could have
covered.... [D]amages cannot be
enhanced by the buyer’s remaining
idle....” Perillo, Calamari & Perillo on
Contracts §14.20 at 515–16 (6th ed.
2009).
Thus, the publisher can only recover
$1,500 in consequential damages, i.e,
up to the time the publisher could have
covered. The publisher cannot recover
for all six months of lost profit.
Therefore, (B) would not be correct.
(C) is the correct choice. “[A] buyer
who fails to cover may be denied
consequential damages that could have
been avoided by cover.” White &
Summers, Uniform Commercial Code §
7–4 at 304 n.43 (6th ed. 2010).
© 2015 Pieper Bar Review 50
32. A coat manufacturer purchased 100
bolts of first quality wool from a wool
producer. The sales contract provided
that the manufacturer would remit
payment prior to inspection. The wool
was shipped, and the manufacturer paid
the producer. Upon inspection, the
manufacturer discovered that the wool
was No. 2 quality. Thereupon, the
manufacturer tendered back the wool to
the producer and demanded return of
his payment. The producer refused,
contending there is no difference
between No. 1 quality wool and No. 2
quality wool.
Which of the following statements
regarding the contract provision
concerning pre–inspection payment is
correct?
(A) It constituted acceptance of the
goods.
(B) It constituted a waiver of the
buyer’s remedy of private sale in
the case of nonconforming goods.
(C) It did not impair the buyer’s right
to inspect the goods prior to
accepting or rejecting.
(D) It required the buyer to “accept”
the goods without inspecting them,
but did not affect the buyer’s right
to revoke acceptance.
32. The basic rule is that a buyer always
has the right to inspect goods before
accepting them. This is true even if the
buyer has agreed to pay for the goods
prior to inspection. Remember to
separate the buyer’s payment from the
right of inspection.
(A) is incorrect because the mere
agreement to pay before inspection in
no way constitutes an acceptance of the
goods. An acceptance, remember,
occurs only when: (1) the buyer
signifies that he or she is accepting; (2)
the buyer uses the goods in some way
inconsistent with the seller’s rights; or
(3) the buyer fails to give timely notice
of rejection. Therefore, (C) is the
correct answer.
(B) is an absurd answer that is clearly
incorrect. There is simply no
connection between the promise to pay
prior to inspection and the buyer’s
remedy of selling the goods in a private
sale.
(D) is also incorrect, as the clause does
not require acceptance before
inspection; it only requires payment.
© 2015 Pieper Bar Review 51
33. A publisher purchased 100 cases of
white 24 lb. paper from a paper
company. The publisher paid for the
paper prior to receipt and the paper
company sent 20 lb. paper instead of 24
lb. The publisher promptly tendered the
paper back to the company and
demanded return of its payment. The
paper company refused, contending the
papers to be identical.
Assuming that the 20 lb. paper is
nonconforming, which of the following
remedies is available to the publisher?
(A) Specific performance.
(B) Damages, measured by the
difference between the value of the
goods delivered and the value of
conforming goods.
(C) Damages, measured by the price
paid plus the difference between
the contract price and the cost of
buying substitute goods.
(D) None, since the publisher waived
his remedies by agreeing to pay
before inspection.
33. (A) is incorrect because specific
performance is only allowed in sale of
goods cases where the property is
unique or in “other proper
circumstances.” There is nothing
unusual about these goods and nothing
to indicate that damages would not
afford a full remedy.
(B) is incorrect because this is the
measure of damages to be used when
the buyer accepts the goods. Here,
however, the buyer rejected them.
(C) states the correct measure of
damages because the publisher already
paid for the goods and then rejected
them as nonconforming. Thus, the
publisher can recover restitution
damages for the price paid plus the
increased cost of cover.
(D) is incorrect because remedies are
never waived by agreeing to pay for the
goods.
© 2015 Pieper Bar Review 52
34. A shoe wholesaler received a catalogue
from a shoe manufacturer which
described all of the manufacturer’s
shoes as “all leather except
ornamentation” and “of the highest
quality.”
Thereafter, the wholesaler and the
manufacturer entered into an agreement
whereby the manufacturer agreed to sell
10,000 pairs of shoes to the wholesaler.
The parties’ contract conspicuously
stated:
“There are no warranties expressly
or impliedly made by seller in
connection with this sale beyond the
description of the goods contained in
the seller’s contract.”
Did the disclaimer in the contract
negate any of the seller’s warranties?
(A) Yes, all express warranties.
(B) Yes, the implied warranty of
fitness for a particular purpose.
(C) Yes, the implied warranty of
merchantability.
(D) No, the disclaimer was ineffective.
34. Choice (A) is incorrect because the
catalogue clearly contains a description
of the goods (“of the highest quality” is
an express warranty). Where an
express written warranty is given, a
clause in the sales contract or the bill of
sale purportedly disclaiming that
warranty must fail.
(C) is incorrect because the magic
words “merchantability”, “as is,” or
“with all faults” do not appear in the
disclaimer clause, and hence the clause
in the contract could not operate as a
disclaimer of that warranty.
The disclaimer clause, however, will
operate to negate any implied
warranties of fitness, as a disclaimer of
that warranty can be made by the use of
general terminology. Therefore (B) is
correct and (D) is incorrect.