First-Year Law Students' Examination (FYLSX / Baby Bar) Contracts (Common Law) Syllabus

When does a mistake NOT allow rescission because a party bears the risk?

A party bears the risk of mistake when (1) the contract allocates the risk to that party, (2) the party was consciously ignorant (aware of limited knowledge but treated it as sufficient), or (3) the court allocates the risk because it is reasonable to do so.

What are the elements of misrepresentation that make a contract voidable?

(1) A misrepresentation of a material fact (or any fraudulent misrepresentation), (2) made fraudulently (scienter) or innocently, (3) that induces the recipient to enter the contract, and (4) justifiable reliance by the recipient. Remedy is rescission (and damages if fraudulent).

Distinguish fraud in the factum from fraud in the inducement.

Fraud in the factum (execution) deceives a party about the very nature/character of the document being signed, rendering the contract VOID. Fraud in the inducement deceives a party about facts inducing assent to a known contract, rendering it VOIDABLE by the defrauded party.

Compare duress and undue influence.

Duress is an improper threat (including economic duress) that leaves the victim no reasonable alternative but to assent, making the contract voidable (or void if physical compulsion). Undue influence is unfair persuasion by a party who dominates or has a confidential/special relationship with a susceptible victim, making the contract voidable.

How does a court treat an illegal contract versus a contract with an illegal purpose?

If the consideration or subject matter is illegal, the contract is void and unenforceable. If only the purpose is illegal, it is voidable by the party who did not know of the illegal purpose; a party who knew or had an illegal purpose cannot enforce it.

What is unconscionability and its two components?

Unconscionability is unfairness so extreme that a court will refuse to enforce a contract or clause, judged at the time of formation. It has (1) procedural unconscionability (unfair bargaining process, e.g., hidden terms, adhesion, no meaningful choice) and (2) substantive unconscionability (oppressive, one-sided terms).

State the parol evidence rule.

When parties reduce an agreement to a writing intended as the final expression of their agreement (an integration), the parol evidence rule bars admission of prior or contemporaneous oral statements and prior written statements that contradict or vary the terms of the writing.

What is the difference between a complete (total) and partial integration under the parol evidence rule?

A complete integration is intended as the final and exclusive statement of all terms; no consistent additional terms may be added. A partial integration is final as to the terms it contains but not exclusive; consistent additional terms may be admitted to supplement (but not contradict) it.

List the major exceptions to the parol evidence rule (evidence always admissible).

Extrinsic evidence is admissible to: (1) explain/interpret ambiguous terms, (2) prove a defense to formation (fraud, duress, mistake, illegality, lack of consideration), (3) show a condition precedent to effectiveness, (4) prove a separate collateral agreement, and (5) prove a subsequent modification.

Define a condition and distinguish a condition precedent from a condition subsequent.

A condition is an event (other than passage of time) that must occur before a duty becomes due, or that discharges a duty. A condition precedent must occur before a performance duty arises; a condition subsequent is an event whose occurrence discharges an already-existing duty.

Distinguish an express condition from a constructive (implied-in-law) condition, and the standard governing each.

An express condition is stated by the parties and requires STRICT compliance (full satisfaction). A constructive condition is imposed by the court to do justice (e.g., one party's performance is constructively conditioned on the other's) and requires only SUBSTANTIAL compliance.

How can a condition be excused?

A condition may be excused by: (1) waiver, (2) estoppel, (3) the obligor's wrongful prevention or hindrance of the condition, (4) the obligor's anticipatory repudiation, (5) failure to cooperate, or (6) to avoid forfeiture (for non-material conditions).

Under the rules of construction, how are ambiguities and conflicting terms generally interpreted?

Courts: read the contract as a whole; give ordinary meaning to words; prefer specific/handwritten over general/typed/printed terms; construe ambiguities against the drafter (contra proferentem); and interpret to make the contract valid and the agreement enforceable when possible.

What is the substantial performance doctrine and when does it apply?

Substantial performance allows a party who has rendered nearly complete performance (only a minor, non-willful deviation) on a constructive condition to recover the contract price minus the cost to remedy the defect. It applies to constructive conditions, NOT to express conditions, and is unavailable to willful breachers.

How do you distinguish a material breach from a minor breach, and what are the consequences of each?

A material breach deprives the non-breaching party of the substantial benefit of the bargain, excusing that party's counter-performance and allowing suit for total breach. A minor breach (substantial performance occurred) does not excuse counter-performance; the aggrieved party must perform but may sue for damages caused by the defect.

What factors determine whether a breach is material?

(1) Extent the injured party is deprived of expected benefit, (2) adequacy of compensation by damages, (3) extent of part performance/forfeiture by breaching party, (4) likelihood the breaching party will cure, and (5) good faith of the breaching party. Time is generally not of the essence unless stated.

What is anticipatory repudiation and what options does it give the non-repudiating party?

Anticipatory repudiation is an unequivocal statement or conduct by a party, before performance is due, that it will not perform. The non-repudiating party may: (1) sue immediately for breach, (2) suspend performance and await the time for performance, (3) treat the contract as discharged, or (4) urge retraction/performance.

Can a repudiating party retract an anticipatory repudiation?

Yes. A repudiation may be retracted until the other party (1) materially changes position in reliance on it, (2) indicates it considers the repudiation final, or (3) sues for breach. Retraction reinstates the repudiating party's rights and obligations.

What is the right to demand adequate assurance of performance?

When a party has reasonable grounds to believe the other will not perform, it may demand adequate assurance of due performance in writing and may suspend its own performance until receiving it. Failure to provide adequate assurance within a reasonable time (UCC: 30 days max) is treated as a repudiation.

List the principal ways contractual duties are discharged.

Performance, accord and satisfaction, novation, rescission, modification, release, account stated, impossibility, impracticability, frustration of purpose, condition subsequent, occurrence/non-occurrence of conditions, and operation of law (e.g., bankruptcy, statute of limitations).

Compare impossibility, impracticability, and frustration of purpose.

Impossibility: performance is objectively impossible (death of essential person, destruction of subject matter, supervening illegality). Impracticability: an unforeseen event makes performance excessively/unreasonably burdensome (basic-assumption risk not assumed). Frustration of purpose: an unforeseen event destroys the value/purpose of the contract though performance is still possible.

Distinguish novation from an accord and satisfaction.

A novation substitutes a NEW PARTY for an original party with all parties' consent, immediately discharging the original party. An accord is an agreement to accept a different/substituted performance to satisfy an existing duty; the original duty is discharged only upon satisfaction (actual performance of the accord).

What is the goal of expectation damages and the standard formula?

Expectation damages put the non-breaching party in the position it would have occupied had the contract been fully performed (benefit of the bargain). Formula: loss in value (expected value minus what was received) + incidental and consequential damages - costs avoided and loss avoided due to the breach.

What are incidental and consequential damages?

Incidental damages are reasonable costs incurred in dealing with the breach (e.g., expenses to find substitute performance, inspection, transport). Consequential damages are losses beyond the contract itself arising from the non-breaching party's particular circumstances (e.g., lost profits).

State the three principal limitations on contract damages.

(1) Foreseeability (Hadley v. Baxendale): consequential damages recoverable only if arising naturally or reasonably contemplated by the parties at formation; (2) Certainty: damages must be proven with reasonable certainty (not speculative); (3) Mitigation (avoidable consequences): no recovery for losses the plaintiff could have reasonably avoided.

What is the rule of Hadley v. Baxendale on foreseeability?

A breaching party is liable only for those losses that were (1) a natural and probable consequence of the breach (general damages), or (2) reasonably foreseeable as a consequence of breach because of special circumstances the breaching party had reason to know at the time of contracting (special/consequential damages).

What is the duty to mitigate, and what is the effect of failing to mitigate?

The non-breaching party must take reasonable steps to avoid/reduce damages and cannot recover losses that could have been reasonably avoided. Failure to mitigate does not bar all recovery but reduces damages by the amount that could have been avoided. The party need not take unreasonable risks or undue burden.

Compare reliance damages and restitution damages.

Reliance damages reimburse expenses the non-breaching party incurred in reliance on the contract, restoring it to its pre-contract position (used when expectation is too uncertain). Restitution damages award the reasonable value of any benefit conferred on the other party, preventing unjust enrichment (available even to a breaching party for net benefit conferred).

When are the equitable remedies of specific performance and injunction available?

Specific performance is available when (1) the contract is valid with definite terms, (2) the legal remedy (damages) is inadequate (e.g., unique goods, land), (3) enforcement is feasible, and (4) no defenses (laches, unclean hands, hardship). Personal service contracts are not specifically enforced, but a negative injunction may bar competing service.

What requirements make a liquidated damages clause enforceable rather than an unenforceable penalty?

A liquidated damages clause is valid if (1) actual damages were difficult to estimate at the time of contracting, and (2) the stipulated amount is a reasonable forecast of the anticipated/actual harm. If the amount is a penalty (grossly disproportionate, intended to coerce), it is void and the party recovers only actual damages.

What is an intended third-party beneficiary and when do its rights vest?

An intended beneficiary is a non-party the contracting parties intended to benefit (creditor or donee beneficiary), who may enforce the contract. Rights vest when the beneficiary (1) manifests assent, (2) sues to enforce, or (3) materially/justifiably relies on the contract; after vesting, the original parties cannot modify/rescind without the beneficiary's consent.

Distinguish an assignment of rights from a delegation of duties, and the assignor's/delegator's continuing liability.

An assignment transfers contractual RIGHTS to a third party (assignee), extinguishing the assignor's right. A delegation transfers performance of DUTIES to a third party (delegatee); the delegating party remains liable unless a novation releases it. Rights are generally assignable and duties delegable unless materially altering risk, prohibited by contract, or involving personal/unique services.