2. As between the retailer and the wholesaler, which of the following is an accurate statement?

A mutual mistake is when the contract is based upon a mistake made by both parties. There are three requirements that must be satisfied before the adversely-affected party may avoid the contract on the account of a mutual mistake: (i) the mistake must concern a basic assumption on which the contract was made; (ii) the mistake must have a material effect on the agreed exchange of performances; and (iii) the party seeking avoidance did not assume the risk of the mistake.

The test for whether the mutual mistake relates to a basic assumption on which the contract is founded is if one party will get an unexpected, unbargained-for gain, and the other party will suffer an unexpected loss. Market conditions and financial ability are not considered assumptions that are basic to the contract, and a mutual mistake on those terms will NOT void the contract. As to the second element, the person seeking to avoid the contract for mutual mistake must show that the mistake has a material effect on the agreed exchange of performances. This party must also show that the resulting imbalance in the agreed exchange is so severe that he cannot fairly be required to carry it out. If the party seeking to avoid enforcement of the contract on the basis of mutual mistake is the one who originally took on the risk that there might be a mistake, he will not be able to raise a mutual mistake defense. This commonly occurs where one party is in a better position to know the risks than the other party (e.g., contractor vs. homeowner) or where the parties knew their assumption was doubtful (i.e., the parties were consciously aware of their ignorance). In other words, to be a defense, it must truly be a mistake, not uncertainty.

The occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract. Where the non-occurrence of the event was a basic assumption of the parties in making the contract and neither party expressly or impliedly assumed the risk of the event occurring, the bar exam will use the term «impracticability» to encompass both impossibility and impracticability.

Remember: The promisor's duty to perform serves as a condition precedent to the other party's duty to perform. In other words, if these duties are excused by impossibility, impracticability, or frustration, the other party's contractual duties will also be discharged.

Modern courts will discharge contractual duties where performance has become impracticable. The test for impracticability is that the party who is supposed to perform has encountered: (i) extreme and unreasonable difficulty and/or expense; and (ii) its non-occurrence was a basic assumption of the parties when they entered into the contract. In effect, courts allow a party to avoid performance where subjective impossibility is found.

Article 2 generally follows these rules, which means if the sale of goods has become impossible or commercially impracticable, the seller will be discharged to the extent of the impossibility or impracticability. UCC §2-615. Generally, the seller assumes the risk of the possibility that unforeseen events may occur. However, where it is fair to say that the parties would not have placed the risk of such an extraordinary occurrence on the seller, he will be discharged.

The power of acceptance created by an offer ends when the offer is terminated. The mutual assent requirement obviously cannot be met where the termination occurs before acceptance is effective. One type of offer termination is revocation, which is the retraction of an offer by the offeror. A revocation terminates the offeree's power of acceptance if it is communicated to her before she accepts. Revocation directly communicated to the offeree by the offeror terminates the offer. A revocation is generally effective when received by the offeree.

An express rejection is a statement by the offeree that she does not intend to accept the offer. Such a rejection will terminate the offer.

EXAM TIP: Although rare, on a few occasions the NCBE has released two correct answers for one question. For this question, when it was scored, either answer B or C was accepted as correct and given credit. However, moving forward, examinees should still approach each question as if only one answer is correct.

B is correct. This answer choice poses a hypothetical: IF a valid contract was formed, THEN it is voidable on the ground of mutual mistake. This is a true statement because the elements of mutual mistake are satisfied here. First, the mistake related to a basic assumption of the contract — that it was legal for the wholesaler to sell the rifles to the retailer. Second, the mistake had a material effect on the exchange because if it was illegal to sell the rifles, then the entire contract is unenforceable. Finally, the party seeking discharge (the wholesaler) did not originally bear the risk of the mistake (nor did the retailer) because there was no reason to believe that such a federal statute would be enacted. Because all of the elements of mutual mistake are satisfied, IF there was a valid contract, then it is voidable on this basis.

C is also correct. This answer choice also poses a hypothetical: IF a valid contract was formed, it is unenforceable because of supervening impracticability. As stated above, a party's obligation under a contract may be discharged on grounds of supervening impracticability if the impracticability is due to an extraordinary event, the non-occurrence of which is a basic assumption of the contract, without the fault of either party and where the party seeking discharge did not bear the risk of the event. Here, because the federal statute criminalizes the performance required under the contract (the interstate sale of assault rifles), it renders performance impracticable for both the retailer and the wholesaler, and neither party bore the risk of the event happening.

A is incorrect. This is incorrect because, in order for the revocation to be effective, a notice of it must be received by the offeree. As such, the wholesaler's June 10 sale of the rifles to the other merchant would have had to have been communicated to the retailer for it to be a valid revocation.

D is incorrect. This answer choice applies the mailbox rule, a doctrine that only applies to acceptance. A rejection is only effective when the offeror receives notice of it. Thus, the retailer's mailing of the rejection alone was not enough to constitute a rejection absent notice to the wholesaler.