Contracts MBE Practice Test 2017

Question 1

An offeror offers to sell a parcel of land to an offeree for $10,000, stating that the offer shall remain open for 30 days.
The offeree replies that she will keep the offeror’s offer under advisement but says, “We can wrap this up immediately if you’ll take $9,000.” The offeror does not reply, but within the 30-day period the offeree accepts the original offer.
The offeror, however, replies that he now wants $12,500.
Was a contract formed when the offeree accepted the $10,000 offer?

Accepted Answer

Yes, because the offeree was able to keep the original offer with the 30-day window open by stating that he was keeping it under advisement.

Answer

No, because once the offeree made a counter-offer she could not go back and later accept the original offer.

Answer

No, because when a counter-offer was made the offeror was then free to change the offer to $12,500 and the original offer became rescinded.

Answer

Yes, because the original offer must always legally remain in effect for the remainder of the specified 30 days, even after a counter-offer has been communicated.

Question 2

A roofer offers to completely refurbish a homeowner’s roof for $1,000. The next day the roofer realizes he’s not going to make much, and he sends a revocation of the offer in the mail to customer. On the third day the homeowner puts a letter in the mailbox accepting the offer. On the fourth day the homeowner receives the roofer’s revocation letter. Was a contract formed between the homeowner and the roofer or was the revocation effective?

Accepted Answer

The acceptance was effective on posting but the revocation does not become effective until received; thus, a contract was formed when the acceptance was placed in the mailbox.

Answer

The revocation letter was posted prior to the acceptance so that no contract was formed.

Answer

No, there was no contract because there was no mutual meeting of the minds at any time.

Answer

Yes, there was a contract because the revocation letter was invalid due to being based on reasons that violate public policy.

Question 3

A 16-year-old minor went to a used car dealer with his aunt and grandmother. The minor purchased a used car in “as is” condition. The purchaser was listed as the minor; his relatives were not on the agreements. The boy discovered later that the drive shaft was bent and he returned the car with a demand for a refund of the $2,000 purchase price. The dealer refused to give a refund, citing the assistance and verbal assurances by the aunt and grandmother. They also gave him funds to make the purchase. Is the contract still voidable by the minor so that he can get a refund of the purchase price?

Accepted Answer

The participation in this case by the adults did not change the rule that a contract entered into by a minor is voidable by that minor – he’s entitled to a refund.

Answer

The aunt and grandmother actually own the vehicle because they were the real parties in interest, and the dealer must return the money to them based on restitution.

Answer

There is no refund and the contract was not voidable because the presence of the aunt and grandmother constituted an implied warranty of title.

Answer

He’s entitled to a refund because the dealer committed fraud by not telling him about the defective drive shaft.

Question 4

A retail store runs an advertisement in the local newspaper stating: “Only 3 cashmere sweaters remaining; highest quality; real Polo; one grey, one maroon and one beige; on closeout, starting 9 a.m. Saturday, $5.00 each, first-come, first-served.” A store customer was the first to arrive on Saturday morning. He located the three advertised sweaters, picked them up, handed $15.00 to the clerk, and demanded all three sweaters at $5 each. The clerk stated that the store’s price on each sweater was actually $50 each. The customer demanded the advertised price. Who has the superior legal position?

Accepted Answer

The customer, because the terms of the advertisement were definite enough to constitute an offer and the offer was duly accepted.

Answer

The retail store, because the terms of the advertisement were merely an invitation to make an offer, and the offer made was duly rejected by the store.

Answer

The customer, because this was a contract of adhesion favoring one party only, and as such, the store could not enforce it.

Answer

The store, in that a contract was made at $50 each, which was the store’s actual intended price for the sweaters.

Question 5

An auto retailer started a marketing promotion on a new hybrid model sedan. It advertised that anyone who purchased the car in 2013 and did not get at least 50 miles per gallon average gas mileage during the first 60 days, would receive a payment of $10,000 cash from the company. Record-keeping and inspection procedures were required to assure accurate reporting by the vehicle owner. The promotion was widely publicized. A female customer purchased a hybrid model during the promotion period, followed all the rules, and recorded only 42 mpg in the first 60 days. She demanded the rebate but the company stalled for months and then stopped responding to her inquiries. Does she have a contractual right to collect the $10,000?

Accepted Answer

Yes, this was a unilateral contract in which the offeree acted upon the offer by performing the terms of the offer, thus creating a binding contract.

Answer

Yes, because this is a classic bilateral contract, making it necessary that the company live up to its set of promises made to her.

Answer

No, this was merely puffing, was not an offer to contract with any particular person and was without consideration.

Answer

No, because she did not formally notify the company that she was accepting the offer before she started performing.

Question 6

A small business sued an insurance company in federal court for failing to pay certain claims made. After completion of discovery, the insurer filed a motion for summary judgment, requesting dismissal of the lawsuit. In the meantime, the parties went to a scheduled settlement conference with the federal magistrate judge and agreed to settle for $75,000. The district court judge had, however, granted the pending summary judgment motion and issued an order of dismissal a day earlier. The dismissal order, however, had not been docketed and no judgment was entered of record. When the district judge learned of the settlement, she rescinded the order of dismissal and instead ordered the settlement agreement to be docketed. The insurer’s attorney then moved to have the settlement rescinded on the basis of mutual mistake. What is the best and most likely decision of the United States Court of Appeals when it hears the case on appeal?

Accepted Answer

The settlement contract is binding because the insurer knew it had a pending motion when it agreed on a settlement, thus it assumed the risk of these developments and cannot now complain.

Answer

The contract is binding because by accepting responsibility for at least $75,000, the insurance company admitted that its claims in the summary judgment motion were false and unsupportable.

Answer

There is no settlement because both parties were mutually mistaken in believing that a motion for summary judgment had not yet been decided.

Answer

The settlement contract is void because the district court did not have the authority to rescind the summary judgment order and enter instead the settlement agreement on the docket.

Question 7

A man purchased a pickup truck from a used car dealer. He made it clear to the salesperson that he needed a vehicle powerful enough to be used in his timber hauling business. The agent represented that the truck would last for hauling timber, because the engine was totally rebuilt and like new. Based on such assurances, the man purchased the truck. The sales contract papers did not mention any warranties nor did it exclude any. After hauling timber for three months with the pickup, it stopped running one day while carrying a full load. The engine had cracked and was rendered useless. The purchaser sued the seller of the truck asking for damages, including what it cost to purchase and install a new engine. The purchaser claimed a breach of implied warranties. The court held a bench trial. Which of the following is the most likely and most applicable decision, considering applicable U.C.C. principles?

Accepted Answer

In this case, there was an implied warranty of merchantability and an implied warranty of fitness for a particular purpose.

Answer

An implied warranty of merchantability cannot apply to a used vehicle because its intended use cannot be guaranteed.

Answer

There are no warranties if they are not specifically stated in the sales contract because oral statements are always excluded.

Answer

The seller breached an express warranty of merchantability by not living up to the express promises made.

Question 8

A drywall subcontractor submitted an offer to a general contractor for proposed drywall work on a small office building being constructed. The bid was for $20,000 for all drywall supplies and labor. The contractor factored the experienced subcontractor’s bid into its final bid and was awarded the contract. A few days later the subcontractor informed the contractor that it had worked on the figures and realized that it underestimated the cost of the project. The subcontractor refused to do the job for less than $35,000. The contractor hired another subcontractor to do the work for $30,000 and sued the first subcontractor for the $10,000 difference over the original bid of $20,000. Will the court likely award the $10,000 to the contractor and against the first subcontractor?

Accepted Answer

Yes, because the contractor had reasonably relied on the subcontractor’s offer when making its bid, and it suffered a detriment that can only be avoided by enforcement of that offer.

Answer

No, because the contractor had no right to rely on an initial bid of a subcontractor in computing general contractor bid because it knew that such bids would be subject to change with time.

Answer

No, because in the law of contracts an offer can be revoked or modified at any time that substantial changes are required by circumstances and prior to the acceptance of the offer.

Answer

Yes, because the contractor accepted the offer of $20,000 before it was revoked, making the subcontractor legally bound to his offer.

Question 9

A candy manufacturer used pre-printed purchase order forms to purchase separate orders of baking sugar from a supplier. The supplier responded to each order by sending the shipment along with its own printed form confirming the shipment and the terms. According to the manufacturer, the last shipment contained spoiled sugar. The manufacturer filed a complaint in state court alleging breach of contract and damages. The supplier filed a motion to have the dispute transferred to arbitration. The manufacturer’s purchase order forms were silent as to the mode of settling disputes, but the supplier’s form contained a clause calling for “any controversy or claim” to be settled by arbitration. The manufacturer was silent as to the arbitration clause. What is the likely decision of the court?

Accepted Answer

The clause did not automatically become a part of the contract because it materially altered the offer, thus there is no transfer to arbitration.

Answer

The case must be transferred to arbitration because a clause in the acceptance form always becomes a part of the contract if the offeror does not reject it.

Answer

The case must be transferred to arbitration because the additional term did not materially alter the offer and therefore became incorporated into the contract.

Answer

The clause did not become a part of the contract because the offer in this case expressly limited acceptance to the strict terms of the offer, and thus there is no transfer to arbitration.

Question 10

A professional hockey player was traded from one team to another, with his existing contract being assigned to the new team. The contract had an option to require the four-time all-star player to sign a new three-year contract at a newly negotiated amount. The new team exercised the option. After successful negotiations, they agreed on and signed a three-year contract. However, that team later discovered that the player also signed a one-year contract with another team. Despite demands, the player has failed to assure his new team that he is going to honor the three-year contract. For that reason, the team filed an action requesting injunctive relief. What will the court most likely decide?

Accepted Answer

There is an anticipatory repudiation of the valid three-year contract, and an injunction will issue because money damages are inadequate to replace the players highly unique and special services.

Answer

The one-year document was an anticipatory repudiation of the valid three-year contract, but injunctive relief was denied because the team can sue for money damages.

Answer

Although there was an anticipatory repudiation of a valid contract, money damages will suffice because the court can never attempt to enforce a contract for personal services.

Answer

There was no valid contract because it’s illegal for two teams to trade and negotiate the freedom of choice and freedom of movement of a player.