Contracts MBE Prep
Contracts is typically the highest-weighted MBE subject. The exam tests both common law contract principles and UCC Article 2 (sales of goods). You must quickly identify which body of law applies: if the transaction involves goods, the UCC governs; for services, real estate, and employment, the common law applies. Mixed contracts (goods and services) are governed by the predominant purpose test.
The MBE heavily tests formation issues (offer, acceptance, consideration), defenses to formation (statute of frauds, unconscionability, mistake), performance and breach, and remedies. Within remedies, expect questions on expectation damages, consequential damages, mitigation, liquidated damages, and specific performance.
Third-party issues (third-party beneficiaries, assignment, delegation) and conditions (express, constructive, precedent, subsequent, concurrent) are tested with moderate frequency but are areas where many students lose points because the rules are technical and counterintuitive.
High-Yield Topics
| Topic | Frequency | Tips |
|---|---|---|
| Formation: Offer, Acceptance, Consideration | Very High | Under common law, the mirror image rule applies: an acceptance that changes terms is a counteroffer. Under UCC 2-207, additional terms in an acceptance do not prevent contract formation. Between merchants, additional terms become part of the contract unless they materially alter it, the offer limited acceptance to its terms, or the offeror objects within a reasonable time. |
| Statute of Frauds | Very High | Remember MY LEGS: Marriage, contracts not performable within one Year, Land interests, Executor promises to pay estate debts, Goods over $500 (UCC), and Surety agreements. The writing must identify the parties, subject matter, and essential terms. Part performance and promissory estoppel can take a contract outside the statute of frauds. |
| Breach and Remedies | Very High | The standard remedy is expectation damages: put the non-breaching party where they would have been had the contract been performed. Consequential damages (Hadley v. Baxendale) require foreseeability at the time of contracting. The non-breaching party has a duty to mitigate. Specific performance is available when legal damages are inadequate (unique goods, real property). |
| Parol Evidence Rule | High | When the parties have a final written agreement, prior or contemporaneous oral agreements that contradict the writing are excluded. But the parol evidence rule does NOT exclude evidence offered to show fraud, mistake, duress, illegality, conditions precedent to the contract taking effect, or subsequent modifications. |
| Conditions | High | Distinguish express conditions (strictly enforced) from constructive conditions (substantial performance suffices). Express conditions must be exactly satisfied; failure to satisfy is not a breach but discharges the other party's duty. Know excuse of conditions: waiver, estoppel, prevention, and impossibility. |
| UCC Article 2 Special Rules | High | The UCC has different rules for merchants vs. non-merchants. Key merchant rules: firm offer rule (written, signed offer by a merchant stays open up to 3 months), battle of the forms (2-207), implied warranty of merchantability. The perfect tender rule applies to single-delivery contracts; substantial performance governs installment contracts. |
| Promissory Estoppel | Moderate-High | When there is no consideration, a promise may still be enforceable if there was (1) a clear and definite promise, (2) the promisor expected reliance, (3) the promisee actually relied, and (4) injustice can only be avoided by enforcement. Damages may be limited to reliance rather than expectation. |
| Third-Party Beneficiaries | Moderate | Intended beneficiaries can enforce the contract once their rights vest (knowledge + reliance, assent, or lawsuit). Incidental beneficiaries have no enforcement rights. To determine whether someone is an intended beneficiary, ask: would the promisee intend to give this person the benefit of the performance? |
| Impossibility, Impracticability, Frustration of Purpose | Moderate | Impossibility: performance is objectively impossible (subject matter destroyed, supervening illegality). Impracticability (UCC and Restatement): performance is possible but would involve extreme and unreasonable difficulty. Frustration of purpose: performance is possible but the principal purpose of the contract has been destroyed by an unforeseeable event. |
| Assignment and Delegation | Moderate | Generally, contract rights are assignable and duties are delegable unless the contract prohibits it, the assignment would materially change the obligor's duty, or the duty involves personal services. An anti-assignment clause bars delegation of duties but may not bar assignment of rights to receive payment. |
Common MBE Traps
Applying the mirror image rule to UCC contracts
Under the common law, any variance in the acceptance makes it a counteroffer. Under UCC 2-207, a definite expression of acceptance that includes additional or different terms still forms a contract. Many MBE questions test this distinction by giving you a sale of goods with slightly different terms in the offer and acceptance.
Confusing conditions precedent with promises
If a term is a condition, failure to meet it discharges the other party's duty but is not itself a breach. If a term is a promise, failure to perform is a breach. The MBE loves this distinction. Look for conditional language like 'if,' 'provided that,' 'on condition that,' and 'subject to.'
Forgetting the duty to mitigate
Even when one party clearly breaches, the non-breaching party must take reasonable steps to minimize damages. If a seller breaches a goods contract, the buyer must cover (purchase substitute goods) if reasonable. If an employer breaches, the employee must seek comparable employment. Failure to mitigate reduces recoverable damages.
Treating moral obligation as valid consideration
Past consideration is not consideration. A promise to pay for services already rendered is generally unenforceable for lack of consideration. Some jurisdictions recognize a material benefit exception under the Restatement, but on the MBE, the default rule is that past acts do not constitute consideration.
Overlooking the mailbox rule
Under common law, an acceptance is effective upon dispatch (when mailed), not upon receipt. But a rejection is effective upon receipt. If an offeree mails a rejection and then dispatches an acceptance, whichever is received first controls. Revocations are effective upon receipt. Option contracts are an exception: acceptance must be received.
Applying specific performance as the default remedy
Money damages are the default contract remedy. Specific performance is an extraordinary equitable remedy available only when legal damages are inadequate: typically for unique goods, real property, or when damages cannot be calculated. For ordinary goods with available market substitutes, specific performance is not available.
Confusing UCC and common law statute of frauds thresholds
The UCC statute of frauds applies to sales of goods priced at $500 or more. The common law statute of frauds applies to contracts that cannot be performed within one year, contracts for the sale of land, and other categories. A contract for services worth $5,000 does not trigger the UCC statute of frauds because it is not a sale of goods.
Study Strategy
Start every Contracts question by determining whether the UCC or common law applies. This threshold determination changes the analysis for formation, terms, breach, and remedies. Make a two-column chart comparing UCC and common law rules for each major topic area.
Focus your study time on the rules that appear most frequently: formation, statute of frauds, parol evidence, conditions, breach, and expectation damages. For each rule, know the basic rule, the exceptions, and how the MBE typically tests it. Most MBE Contracts questions can be answered correctly by applying the majority rule and its most common exception.
Practice spotting the issue before reading the answer choices. Many Contracts questions have a complicated fact pattern that tests one narrow rule. If you identify the issue (e.g., this is a parol evidence question), you can often eliminate two answer choices immediately.
Mnemonics & Memory Aids
Statute of Frauds Categories
MY LEGS: Marriage, Year (cannot be performed within one year), Land, Executor, Goods ($500+), Surety.
Elements of Promissory Estoppel
PRIJ: Promise (clear and definite), Reliance (foreseeable), Inducement (actual reliance), Justice (injustice without enforcement).
UCC 2-207 (Battle of the Forms)
DAM: Definite acceptance + additional terms = contract formed. Between Merchants, Additional terms are part of the contract unless they Materially alter it.
Expectation Damages Formula
Loss of value + Other loss - Cost avoided - Loss avoided. Remember: put the non-breaching party where they would have been had the contract been performed.
Defenses to Formation
MUFFDI: Mistake (mutual or unilateral), Unconscionability, Fraud, Failure of consideration, Duress, Illegality.
Time Management Tips
- Quickly classify each question as UCC or common law in the first 10 seconds. If goods are involved, think UCC. This immediately narrows the applicable rules.
- For damages questions, start with expectation damages and only consider alternative measures (reliance, restitution) if expectation damages are not available or not claimed.
- When a question involves a written contract and prior oral statements, immediately think parol evidence rule. Determine if the writing is fully or partially integrated before analyzing the oral evidence.
Related Legal Rules
Consideration is the bargained-for exchange of legal value that makes a promise enforceable. Without it, a promise is generally a mere gift and unenforceable at law.
Promissory estoppel enforces a promise lacking consideration when the promisor should reasonably expect reliance, the promisee actually relies to their detriment, and injustice can only be avoided by enforcement.
The Statute of Frauds requires certain categories of contracts to be evidenced by a writing signed by the party to be charged in order to be enforceable.
The parol evidence rule bars the introduction of prior or contemporaneous agreements that contradict or supplement the terms of a fully integrated written contract.
Under the mailbox rule, an acceptance is effective upon dispatch (when sent), while rejections and revocations are effective only upon receipt by the other party.
Under common law, an acceptance must exactly match the terms of the offer. Any variation in terms constitutes a counteroffer rather than an acceptance, and no contract is formed.
UCC section 2-207 modifies the mirror image rule for goods, allowing a definite acceptance with additional or different terms to form a contract, with special rules for how those extra terms are treated.
Under UCC 2-314, a merchant who sells goods impliedly warrants that they are fit for their ordinary purpose, pass without objection in the trade, and conform to any promises on the label.
Under UCC 2-315, when a seller knows of a buyer's particular purpose and the buyer relies on the seller's expertise to select suitable goods, a warranty arises that the goods will be fit for that purpose.
Under UCC 2-601, if goods or their tender fail to conform to the contract in any respect, the buyer may reject the whole, accept the whole, or accept some units and reject the rest.
Under common law, a party who substantially performs a contract in good faith, with only minor deviations, can recover on the contract minus damages for the deficiencies, rather than being treated as having breached entirely.
When a party unequivocally communicates before performance is due that they will not perform, the other party may immediately treat the contract as breached and pursue remedies without waiting for the performance date.
A party's contractual duty is discharged when performance becomes objectively impossible due to an unforeseen event that was not the fault of the promisor and not a risk they assumed.
Commercial impracticability excuses performance when an unforeseen supervening event makes performance extremely and unreasonably difficult or expensive, beyond the risks the promisor assumed.
A party's duty is discharged when an unforeseen supervening event substantially destroys the principal purpose of the contract, even though performance remains possible.
A court may refuse to enforce a contract or clause that is so unfair and one-sided that it shocks the conscience, considering both procedural unfairness in the bargaining process and substantive unfairness in the terms.
A non-breaching party has a duty to take reasonable steps to minimize the losses resulting from a breach of contract and cannot recover damages that could have been reasonably avoided.
Expectation damages are the standard remedy for breach of contract, designed to put the non-breaching party in the position they would have been in had the contract been fully performed.
Reliance damages compensate the non-breaching party for expenditures made in reasonable reliance on the contract, restoring them to the position they occupied before the contract was formed.
Restitution requires the breaching party to return the value of any benefit conferred by the non-breaching party, preventing unjust enrichment even in the absence of an enforceable contract.
A liquidated damages clause sets an agreed-upon amount of damages payable upon breach. It is enforceable if the amount is a reasonable forecast of harm and actual damages are difficult to estimate; otherwise, it is an unenforceable penalty.
Specific performance is an equitable remedy ordering a breaching party to perform their contractual obligations, available when money damages are inadequate to compensate the non-breaching party.
An accord is a new agreement to accept different performance in satisfaction of an existing obligation, and satisfaction occurs when the new performance is completed, discharging the original duty.
A novation substitutes a new party or a new contract for an existing obligation, immediately extinguishing the original duty. All parties must consent to the substitution.
Assignment transfers a party's contract rights to a third party, while delegation transfers contractual duties. The original party generally remains liable after delegation unless a novation occurs.