Bar Exam Contracts & Sales 2 — Questions and Answers

Question 1: Under the common law mirror image rule, what effect does an acceptance with additional or different terms have on the formation of a contract?

It operates as a valid acceptance of the original offer terms
It operates as a rejection and counteroffer (Correct answer)
It creates a contract on the terms of the acceptance, not the offer
It is void and neither party is bound

Correct answer: It operates as a rejection and counteroffer

Under common law, the mirror image rule requires that an acceptance must match the offer exactly. An acceptance that adds or changes terms is treated as a rejection of the original offer and a counteroffer, which the original offeror is then free to accept or reject.

The common law mirror image rule is a strict rule: any deviation in the acceptance from the terms of the offer, no matter how small, constitutes a counteroffer rather than an acceptance. This has significant practical implications — the original offeror becomes the offeree on the counteroffer and may accept or reject on the new terms. Note the contrast with UCC § 2-207 (the 'battle of the forms' provision), which applies to contracts for the sale of goods and allows a definite expression of acceptance to operate as an acceptance even if it states additional or different terms, with rules for whether those terms become part of the contract. On the MBE, it is critical to determine whether the common law or UCC applies.

Question 2: Under UCC Article 2, what is the effect of a merchant's firm offer?

It creates a binding option contract enforceable for up to three months without consideration
It is not enforceable unless supported by consideration
It binds the merchant for a reasonable time not to exceed six months even without consideration (Correct answer)
It expires after 30 days regardless of the stated period

Correct answer: It binds the merchant for a reasonable time not to exceed six months even without consideration

Under UCC § 2-205, a merchant's written, signed offer that by its terms gives assurance it will be held open is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time — but in no event may such period exceed three months.

UCC § 2-205 creates an exception to the general consideration requirement for option contracts. A firm offer requires: (1) an offer to buy or sell goods; (2) by a merchant; (3) in a signed writing; (4) that gives assurance that the offer will be held open. If these requirements are met, the offer is irrevocable for the period stated, or if no period is stated, for a reasonable time — but the maximum irrevocability period is three months. If the firm offer is on the offeree's form, the merchant must separately sign the assurance of irrevocability. Note that if the stated period exceeds three months, the offer is only firm for three months; additional consideration would be needed to extend irrevocability beyond that.

Question 3: Under the doctrine of promissory estoppel, which element is NOT required to enforce a promise that lacks consideration?

A clear and definite promise
Reasonable and foreseeable reliance by the promisee
Detriment to the promisee as a result of reliance
A writing signed by the promisor (Correct answer)

Correct answer: A writing signed by the promisor

Promissory estoppel under Restatement (Second) of Contracts § 90 requires: (1) a promise; (2) that the promisor should reasonably expect to induce action or forbearance; (3) which does induce such action or forbearance; and (4) injustice can be avoided only by enforcement. No writing is required.

Promissory estoppel is a substitute for consideration, allowing courts to enforce otherwise unenforceable promises. Under Restatement (Second) § 90: (1) The promisor must make a clear and definite promise; (2) The promisor must know or reasonably expect that the promisee will rely on it; (3) The promisee must actually and reasonably rely; (4) Enforcement must be necessary to avoid injustice. Importantly, no writing is required — and in many jurisdictions, promissory estoppel can even be used to satisfy the Statute of Frauds requirement or provide a remedy for failure to comply with it. The remedy 'may be limited as justice requires,' which means courts may award reliance damages rather than full expectation damages.

Question 4: Seller contracts to deliver 500 widgets to Buyer by March 1. On February 20, Seller unequivocally states it will not deliver the widgets. Under the doctrine of anticipatory repudiation, what may Buyer do?

Wait until March 1 to see if Seller changes its mind, then sue if Seller fails to deliver
Treat the repudiation as an immediate breach, cancel the contract, and immediately seek damages or a substitute (Correct answer)
Only seek specific performance because the breach has not yet occurred
Wait a reasonable time, but may not sue until the contract's performance date has passed

Correct answer: Treat the repudiation as an immediate breach, cancel the contract, and immediately seek damages or a substitute

Under anticipatory repudiation (Restatement (Second) § 250 and UCC § 2-610), when a party unequivocally indicates it will not perform before the performance date, the non-breaching party may immediately treat it as a total breach, cancel, seek damages, and cover through substitute performance.

Anticipatory repudiation occurs when a party clearly and unequivocally indicates, before performance is due, that it will not perform. The key word is 'unequivocal' — vague statements of concern or requests for modifications are not repudiations. Upon anticipatory repudiation: (1) The non-breaching party may immediately treat it as a material breach; (2) The non-breaching party may suspend its own performance; (3) The non-breaching party may seek cover (substitute performance) and recover the difference; (4) The non-breaching party may await performance for a commercially reasonable time. Under UCC § 2-611, the repudiating party may retract the repudiation at any time before the next performance is due, unless the non-breaching party has materially changed position in reliance on the repudiation.

Question 5: Which of the following contracts must be in writing under the Statute of Frauds?

A contract for services to be performed within two weeks
A contract for the sale of goods valued at $600 (Correct answer)
A real estate lease for a term of six months
A contract to modify an existing written agreement for the sale of land

Correct answer: A contract for the sale of goods valued at $600

Under UCC § 2-201, contracts for the sale of goods priced at $500 or more must be evidenced by a writing signed by the party to be charged. A contract for goods at $600 falls within this requirement.

The Statute of Frauds requires written evidence for: (1) Contracts for the sale of goods at $500 or more (UCC § 2-201 — note: the revised UCC raises this to $5,000, but most states still use $500); (2) Contracts for the sale of land or interests in land; (3) Contracts that cannot be performed within one year of making; (4) Contracts to answer for another's debt (suretyship); (5) Contracts in consideration of marriage (prenuptial agreements). A six-month real estate lease is typically exempt because most statutes require leases over one year (often defined as one year or more) to be in writing. A modification of a contract for sale of land would also need to be in writing, but that is not the answer choice here. Services contracts performable within a short period generally do not require writing.

Question 6: Under the objective theory of contracts, how is the intent of the parties determined?

By examining the subjective, actual intent of each party at the time of contracting
By what a reasonable person in the position of the other party would understand the words and conduct to mean (Correct answer)
By the good faith belief of the party seeking enforcement of the contract
By the testimony of the parties at trial regarding what they intended

Correct answer: By what a reasonable person in the position of the other party would understand the words and conduct to mean

The objective theory of contracts, as opposed to the subjective (will) theory, asks not what a party actually meant but what a reasonable person in the position of the other party would have understood the words and conduct to mean. This promotes certainty and protects reasonable reliance.

The objective theory of contracts is foundational to American contract law. Under this theory, contractual intent is determined by the objective manifestations of the parties — their words and conduct — as understood by a reasonable person, not by their undisclosed subjective intentions. This means: (1) A party can be bound to a contract even if they did not subjectively intend to form one, if their outward conduct reasonably suggested agreement; (2) If a party makes an offer as a joke but a reasonable person would take it seriously, a valid contract can be formed upon acceptance; (3) Secret reservations do not affect contract formation. The classic case is Lucy v. Zehmer (Va. 1954), where the court held a land sale contract enforceable even though one party claimed he was joking, because his outward conduct indicated a serious intent to sell.

Bar Exam Contracts & Sales 2

Under the common law mirror image rule, what effect does an acceptance with additional or different terms have on the formation of a contract?