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
A homeowner posted a detailed listing on a neighborhood website stating: "I will sell my riding lawnmower to the first person who comes to my house at 42 Elm Street and pays me $800 cash. Available this Saturday only, 9 AM to 5 PM." On Saturday at 10 AM, Garcia arrived at the homeowner's door with $800 in cash and said, "I'm here to buy the lawnmower." The homeowner replied, "Sorry, I changed my mind. I've decided to keep it." Garcia insists a contract was formed. Which of the following best describes the legal situation?
- No contract was formed because a posting on a website is merely an advertisement and constitutes an invitation to negotiate, not an offer.
- A contract was formed because the homeowner's posting constituted an offer for a unilateral contract, which Garcia accepted by performing the specified acts.
- No contract was formed because the homeowner effectively revoked the offer before Garcia completed the purchase by handing over the cash.
- A contract was formed because Garcia's statement 'I'm here to buy the lawnmower' constituted acceptance of a bilateral contract.
Show answer
Correct: A contract was formed because the homeowner's posting constituted an offer for a unilateral contract, which Garcia accepted by performing the specified acts.
Under Restatement (Second) of Contracts § 45 and § 50(2), when an offer invites acceptance by performance rather than by a promise, acceptance occurs upon completion of the invited performance. The homeowner's posting was clear, definite, and explicit—specifying the item, price, time, location, and precise manner of acceptance ('the first person who comes to my house and pays me $800 cash'). This is analogous to the rule in Lefkowitz v. Great Minneapolis Surplus Store, 86 N.W.2d 689 (Minn. 1957), where an advertisement that is definite and leaves nothing open for negotiation constitutes an offer. Garcia performed exactly as specified by arriving and tendering the cash. A binding contract was therefore formed upon Garcia's tender of performance, and the homeowner's attempted revocation was too late.
A wealthy uncle told his 25-year-old nephew, 'I promise to give you $200,000 so you can start your own restaurant.' In reliance on this promise, the nephew quit his well-paying job as a corporate accountant earning $95,000 per year, signed a five-year commercial lease at $4,000 per month, purchased $60,000 worth of kitchen equipment, and spent $15,000 on restaurant design plans. Two months later, the uncle informed the nephew that he had changed his mind and would not provide any money. The nephew sued the uncle. The jurisdiction follows the Restatement (Second) of Contracts. If the court finds that promissory estoppel applies, what is the most likely measure of damages the court will award?
- The full $200,000 promised by the uncle, because promissory estoppel serves as a substitute for consideration and enforces the promise according to its terms.
- Damages limited to the nephew's actual reliance losses, including lost wages, lease obligations, equipment costs, and design expenses, as justice requires.
- Only the $60,000 for kitchen equipment and $15,000 for design plans, because quitting a job and signing a lease are independent decisions not sufficiently caused by the uncle's promise.
- No damages, because a promise to make a gift is never enforceable, even under a promissory estoppel theory.
Show answer
Correct: Damages limited to the nephew's actual reliance losses, including lost wages, lease obligations, equipment costs, and design expenses, as justice requires.
Under Restatement (Second) of Contracts § 90(1), a promise that the promisor should reasonably expect to induce action or forbearance and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement, but 'the remedy granted for breach may be limited as justice requires.' Courts routinely interpret this limiting language to award reliance damages—out-of-pocket losses and opportunity costs incurred in reliance on the promise—rather than full expectation damages, particularly for gratuitous promises. The nephew's reliance losses (lost income, lease obligations, equipment, and design costs) represent the measure most likely to be awarded.
A wealthy uncle told his 25-year-old niece, 'I promise to give you $200,000 so you can open your own restaurant.' Relying on this promise, the niece quit her $85,000-per-year job as a sous chef, signed a five-year commercial lease at $4,000 per month, purchased $60,000 worth of kitchen equipment, and spent $15,000 on architectural plans for the restaurant buildout. Two months later, the uncle informed the niece he had changed his mind and would not be providing the money. The niece sued the uncle seeking enforcement of the promise. The jurisdiction follows the Restatement (Second) of Contracts. If the court finds that the uncle's promise is enforceable under promissory estoppel, which of the following most accurately describes the likely remedy?
- The court must award the full $200,000 promised because promissory estoppel serves as a complete substitute for consideration, entitling the promisee to the benefit of the bargain.
- The court may limit the remedy to the niece's reliance damages — such as lost wages, lease obligations incurred, equipment costs, and architectural fees — rather than awarding the full $200,000 promised.
- The court cannot award any monetary damages because promissory estoppel is available only as a defensive doctrine, not as an affirmative basis for recovering damages.
- The court must award restitution measured by the benefit the uncle received from the niece's reliance, because promissory estoppel limits recovery to preventing unjust enrichment of the promisor.
Show answer
Correct: The court may limit the remedy to the niece's reliance damages — such as lost wages, lease obligations incurred, equipment costs, and architectural fees — rather than awarding the full $200,000 promised.
Correct. Under Restatement (Second) of Contracts § 90(1), a promise that the promisor should reasonably expect to induce action or forbearance and that does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise, but 'the remedy granted for breach may be limited as justice requires.' Courts frequently exercise this discretion by awarding reliance damages (out-of-pocket losses suffered in reliance on the promise) rather than full expectation damages (the promised amount). This is a key distinction between contract claims supported by consideration and those enforced through promissory estoppel.
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