Bar Review: Law of Contracts

Contract law is tested on both the MBE and the MEE. A general outline of the subject matter can be found at the NCBE website. You are to assume that Article 2 and Revised Article 1 of the Uniform Commercial Code have been adopted and are applicable when appropriate.

The basic topics within Contracts are the same for both the MBE and MEE. However, on the MBE some topics within Contracts are tested more heavily. On the MBE approximately half of the questions are on contract formation and performance, breach, and discharge. The other half of the questions are divided among the topics of defenses to enforceability, parole evidence and interpretation, remedies, and third party rights. About a fourth of the questions in Contracts on the MBE are based on the UCC, Article 2 and Revised Article 1.

For the MEE, the topics are not so predictable, so you must have a firm grasp of the overall subject. This is a complex area of law, so get your hands on a great outline. We don’t have space here to address everything you need to know, but here are some basics.

Contract Formation

bar review law of contracts, contract formation, contracts
 
Wow. How well do you remember the first semester of law school?

Well, here it is. Contract formation. Offer, acceptance, and consideration. Oh my! Even though it was three years ago (or longer for part-timers), once you take a glance at the basic contract outline I think your memory will kick in nicely.

Mutual Assent = Offer and Acceptance

Your basic contract formation involves a definitive offer that specifies the identity of the parties, the subject matter of the contract, the quantity of goods or services, the price, and the timebar review, contracts, perfect world within which the contract is to be performed. It will convey the power of acceptance to the offeree, who expresses mutual consent to the terms by agreeing and signing the contract. That’s in a perfect world.

As I’m sure you recall from this lovely 1L class, the perfect world rarely exists! All of the confusion and ambiguity of most contracts (not written by YOU of course, because you would write it with no holes) is what causes all the hoopla. People who write their own contracts often leave gaping holes that you could drive a truck through, and often end up in court. Ambiguity or absence of terms is a biggee.

First we have the offer, then we have acceptance of the offer. Acceptance must be stated in unequivocal terms. Know the details of what constitutes acceptance, the mirror image rule, and how merchants might be held to a slightly higher standard regarding what constitutes acceptance.

Consideration

In legalese, consideration is that thing of value that is given in exchange for a promise. This thing of value is typically another promise. Consideration makes the promise enforceable.

When determining if a contract is enforceable, courts will look at the adequacy of consideration. A bargained-for exchange is likely to be enforceable. If a party can show a benefit to the promisor or detriment to the promisee, there is likely an enforceable contract. When looking at adequacy of consideration, remember to take into account sham consideration, pre-existing duty, implied promises and disproportionate exchanges.

Be familiar with substitutes for consideration. Substitutes for consideration include promissory estoppel, moral obligations and statutory substitutes.

Defenses to Formation

These include incapacity, illegality, unconscionability as of date of formation, mistake, and everybody’s favorite…the Statute of Frauds.

In instances of misunderstanding, lack of capacity, and mistake courts may not enforce a contract either.

Contract Performance

In the event of a dispute, the courts must interpret the contract in question. This is a vast area, but generally courts prefer express terms over general language. They will consider implied terms, whether it was a contract of adhesion, good faith, implied warranty of merchantability, and whether gap fillers are required.

Here is where you must also know the parole evidence rule, the different types of conditions and promises, and how they affect performance.

Breach and Defenses to Enforceability

bar review, contracts, contract law, breachYou must be able to tell the difference between a minor breach, a material breach, a total breach, and the corresponding remedies for each. Also know the defenses for breach. These include:

  • Impossibility
  • Impracticability
  • Frustration of Purpose
  • Modification, and
  • Discharge of duties

Remedies

Remedies to breach of contract are many. The court will look to what remedy will make the aggrieved party whole. They include damages, quasi-contractual relief, reformation, rescission, and specific performance. There is also a duty to mitigate damages on the part of the breaching party.

UCC

All contracts involving the sale of goods are governed by Article 2 of the Uniform Commercial Code. When given a fact pattern on the exam that involves Contract Law, ask yourself whether or not the question involves the sale of goods. If it does, you need to look to the UCC for the law.

Remember that ‘goods’ does not include real estate, intellectual law or services. However, in some cases, the sale involves both the sale of goods and services. This is where most courts will use common law to interpret the UCC. They will use either the predominant purpose test, or the gravamen test to resolve cases that involve both the sale of goods and services. You should be familiar with both tests.

The Predominant Purpose test is most often used. In this test, the court will look to whether the contract was predominantly the sale of goods or services etc. If the contract was predominantly for the painting of your house, then the UCC will not be used.

For the Gravamen Test the court will look to what the issue of the case is. If the issue of the lawsuit revolves around the sale of a good, then regardless of the main purpose of the contract, the UCC will be used. Let’s look at our house painting example again. If the contract was for house painting, then the main purpose was the act or service of painting the house. However, say that the paint used peeled within 2 months. The Gravamen Test would then use the UCC to resolve the dispute over the paint.

This was a very brief overview of Contract Law. I hope that it helped put things in perspective a bit. Since Contracts shows up on both the MBE and the MEE, it is worth extensive review. So get your hands on a great outline, memorize that baby, and then condense it down to a manageable size for review right before the exam.

You’ll be glad you did come exam day. Good luck!

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