Contracts on the NextGen Bar Exam
Contracts is the subject where candidates lose points on the first sentence of their analysis. The single most important move on any Contracts question is identifying whether common law or UCC Article 2 governs — and getting it wrong poisons everything that follows. Service contracts, real estate, employment? Common law. Sale of goods? UCC. Mixed contracts (installing custom software, for example)? Predominant purpose test. Nail this threshold and the rest flows logically. Miss it and you're applying the wrong rules to every sub-issue.
Formation follows a predictable sequence: offer → acceptance → consideration. Under common law, the mirror-image rule is absolute — any deviation in acceptance creates a counteroffer. Under the UCC, § 2-207 (the "battle of the forms") changes everything: a definite acceptance with different or additional terms can still form a contract. Between merchants, additional terms become part of the contract unless they materially alter it, the offer limits acceptance, or the offeror objects. This is tested constantly because it's counterintuitive — most students expect the common-law rule to apply everywhere.
The consideration trap that catches people: pre-existing duty rule. A promise to do what you're already contractually obligated to do isn't fresh consideration under common law. But here's the split — UCC modifications require no consideration at all. A seller calling to say "the price went up 10%" is enforceable under the UCC if made in good faith. Under common law, that same modification fails without new consideration.
Statute of Frauds is tested as a checklist problem: goods $500+ (UCC), land, contracts not performable within one year, suretyship, marriage. The "one year" rule trips students up because it's narrower than it sounds — if there's any possible way the contract could be performed within one year (even if unlikely), the Statute doesn't apply. Under the UCC, the writing only needs to state the quantity term. Everything else can be oral.
Breach analysis is where the exam separates good answers from great ones. The key distinction: material vs. immaterial breach. A material breach excuses the other party's performance entirely and triggers an immediate suit for total breach. An immaterial breach only suspends the other party's performance temporarily. Most exam questions present a breach that falls in the gray area — and the answer depends on how substantially the breach impaired the value of the contract to the non-breaching party.
Remedies default to expectation damages: put the plaintiff in the position they'd be in if the contract had been performed. The Hadley v. Baxendale limitation (foreseeable at time of formation) cuts off consequential damages that the breaching party couldn't have anticipated. Specific performance is the exception, not the rule — available when damages are inadequate, typically for unique goods or real property.
Exam Tips
- First sentence of every Contracts answer: "This is governed by [common law / UCC Article 2] because..." Get this wrong and every subsequent point is potentially wrong.
- UCC § 2-207 is the most tested Contracts rule. Between merchants, additional terms in acceptance become part of the contract unless materially altering. Different terms? Knockout rule in most jurisdictions.
- Pre-existing duty trap: under common law, a promise to perform an existing obligation isn't consideration. Under UCC, modifications need no consideration if made in good faith.
- The "one year" Statute of Frauds rule is narrower than it sounds: if there's ANY possibility the contract could be performed within one year, the Statute doesn't apply.
- On remedies, always calculate expectation damages first — it's the default. Only reach for specific performance if you can articulate why money damages are inadequate.
Key Rules to Know
- UCC § 2-207: definite acceptance forms contract even with additional/different terms; additional merchant terms become part unless material alteration
- Common-law mirror-image rule: any deviation = counteroffer that terminates the original offer
- Material breach: substantially impairs contract value → non-breaching party excused from performance + immediate suit for total breach
- Hadley v. Baxendale: consequential damages limited to those reasonably foreseeable at time of contract formation
- Statute of Frauds: goods $500+ (UCC, quantity term required), land, one-year impossibility, suretyship, marriage
Sample Practice Questions
GreenLeaf Nursery contracted with Riverside Hotel to supply and install 500 mature Japanese maple trees of a specific cultivar along the hotel's new entrance boulevard for $200,000, with installation to be completed by October 1. After the contract was signed but before any trees were delivered, an unexpected outbreak of a previously unknown fungal blight destroyed virtually all mature specimens of that cultivar throughout North America. GreenLeaf located a European supplier that could provide the same cultivar, but importing them with the required USDA phytosanitary inspections and quarantine periods would cost $475,000 and delay installation until December 15. GreenLeaf seeks to be excused from its obligation. Riverside Hotel argues that performance is not impossible because the European supply exists and insists on performance. Which of the following best states the likely outcome?
- GreenLeaf will be excused because the destruction of the domestic supply makes performance impossible.
- GreenLeaf will be excused under the doctrine of commercial impracticability because the cost increase of more than 135% and the inability to meet the delivery date constitute an extreme and unreasonable difficulty not contemplated by the parties.
- GreenLeaf will not be excused because a cost increase alone, regardless of magnitude, never constitutes impracticability under the UCC.
- GreenLeaf will be excused under the doctrine of frustration of purpose because the blight frustrated the purpose of the contract.
Show answer
Correct: GreenLeaf will be excused under the doctrine of commercial impracticability because the cost increase of more than 135% and the inability to meet the delivery date constitute an extreme and unreasonable difficulty not contemplated by the parties.
Under UCC § 2-615(a) and Restatement (Second) of Contracts § 261, a party's performance is excused when a supervening event, the non-occurrence of which was a basic assumption of the contract, renders performance impracticable. The destruction of the domestic supply by an unforeseen blight qualifies as such an event. A cost increase of more than 135% (from $200,000 to $475,000), combined with the inability to meet the contractual completion date, goes well beyond ordinary commercial risk and constitutes the kind of extreme and unreasonable difficulty that courts have recognized as impracticable. See also Comment 4 to UCC § 2-615 (noting that a severe shortage due to unforeseen causes may excuse performance); Mineral Park Land Co. v. Howard (1916) (recognizing impracticability where cost of performance would be unreasonably disproportionate). GreenLeaf did not assume the risk of a continent-wide blight destroying the specific cultivar.
A homeowner entered into a written contract with a contractor for a kitchen renovation at a fixed price of $50,000. The contract contained a clause stating: "No modification of this agreement shall be effective unless in writing and signed by both parties." Midway through the project, the contractor discovered that the subfloor had extensive water damage requiring additional labor and materials costing $8,000. The homeowner orally agreed to pay the additional $8,000. The contractor completed all work, including the subfloor repair. When the homeowner received the final invoice for $58,000, she refused to pay more than $50,000, pointing to the no-oral-modification clause. In a jurisdiction that has adopted UCC Article 2 but applies common law to construction contracts, which of the following best describes the contractor's likely recovery?
- The contractor can recover only $50,000 because the oral modification is unenforceable under the no-oral-modification clause.
- The contractor can recover $58,000 because the oral modification is enforceable, and the homeowner's subsequent conduct waived the no-oral-modification clause.
- The contractor can recover only $50,000 because the oral modification fails for lack of consideration, as the contractor had a preexisting duty to complete the renovation.
- The contractor can recover $58,000 only if the oral modification satisfies the statute of frauds, since the total contract price now exceeds $50,000.
Show answer
Correct: The contractor can recover $58,000 because the oral modification is enforceable, and the homeowner's subsequent conduct waived the no-oral-modification clause.
Under common law, a no-oral-modification clause can itself be modified or waived by the parties' subsequent agreement or conduct. See Restatement (Second) of Contracts § 283. Here, the homeowner orally agreed to the additional $8,000, and the contractor relied on that agreement by performing the extra work. The homeowner's oral assent and acceptance of the completed work constitute a waiver of the NOM clause. Additionally, the contractor's reliance on the oral promise may give rise to enforcement under the doctrine of promissory estoppel (Restatement (Second) of Contracts § 90) or waiver by conduct. The oral modification was also supported by consideration, since the unforeseen subfloor damage constitutes a legitimate, unanticipated circumstance justifying additional compensation. See Restatement (Second) of Contracts § 89(a).
Builder contracted with Owner to construct a custom home for $500,000, with a completion date of September 1. The written contract contained a clause stating: "No modification of this agreement shall be effective unless made in writing and signed by both parties." In June, Builder encountered unexpected subsurface rock formations that substantially increased excavation costs. Builder informed Owner that it would need an additional $40,000 to complete the project. Owner orally agreed to pay the additional $40,000, stating, "That sounds fair—go ahead and keep working." Builder completed the project on time, and Owner paid the original $500,000 but refused to pay the additional $40,000, citing the no-oral-modification clause. In a jurisdiction that follows the common law of contracts, which of the following best states Builder's right to recover the additional $40,000?
- Builder cannot recover, because the oral modification is unenforceable due to the no-oral-modification clause and the Statute of Frauds.
- Builder can recover, because at common law a no-oral-modification clause can be waived by the parties' subsequent oral agreement and conduct, and Owner's promise was supported by consideration due to the unforeseen subsurface conditions.
- Builder can recover under promissory estoppel, but not under the oral modification, because the no-oral-modification clause bars enforcement of the modification itself.
- Builder cannot recover, because the pre-existing duty rule bars enforcement of Owner's promise to pay more for work Builder was already obligated to perform.
Show answer
Correct: Builder can recover, because at common law a no-oral-modification clause can be waived by the parties' subsequent oral agreement and conduct, and Owner's promise was supported by consideration due to the unforeseen subsurface conditions.
Under common law, unlike UCC § 2-209(2), no-oral-modification (NOM) clauses are generally not given conclusive effect. Courts reason that parties who have the power to create a contract have the power to modify it, including by waiving the NOM clause itself through subsequent oral agreement or conduct. See Restatement (Second) of Contracts § 149, comment a (a term requiring modifications to be in writing may be waived). Additionally, the oral modification is supported by fresh consideration: the unforeseen subsurface rock formations were not contemplated by the original agreement and imposed a genuine, substantial burden beyond the original scope, satisfying the modern approach that treats such circumstances as valid consideration for a modification. See Restatement (Second) of Contracts § 89(a) (a modification is binding if it is fair and equitable in view of circumstances not anticipated when the contract was made).
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