Multistate Bar Examination (MBE) Contracts Flashcards

24 sample cards from the Contracts deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. When a party has reasonable grounds for insecurity under the UCC, what may they do?

   Under UCC 2-609, demand adequate assurance of performance in writing and suspend their own performance. Failure to provide assurance within a reasonable time (max 30 days) is treated as a repudiation.

2. What is the goal of expectation damages and how are they measured?

   To put the non-breaching party in the position they would have occupied had the contract been performed (benefit of the bargain). Generally = loss in value + other/consequential + incidental losses − costs avoided − loss avoided.

3. Distinguish reliance damages from restitution damages.

   Reliance damages reimburse expenses incurred in reliance on the contract, restoring the plaintiff to their pre-contract position. Restitution damages recover the value of a benefit conferred on the defendant, preventing unjust enrichment (measured by benefit to defendant).

4. What are consequential damages and the limitation on recovering them (Hadley v. Baxendale)?

   Consequential damages are losses beyond the contract itself flowing from the breach (e.g., lost profits). They are recoverable only if they were foreseeable to the breaching party at the time of contracting—arising naturally or from special circumstances the breacher knew.

5. State the duty to mitigate damages.

   The non-breaching party cannot recover damages that could have been avoided with reasonable effort. Avoidable losses are not recoverable; reasonable mitigation expenses are recoverable. (Common law term—UCC uses cover.)

6. What is the buyer's measure of damages for a seller's breach under the UCC (non-delivery)?

   Buyer may recover cover damages (cost of cover − contract price) if buyer covers in good faith, OR market damages (market price at time buyer learned of breach − contract price), plus incidental and consequential damages, minus expenses saved.

7. What is the seller's measure of damages for a buyer's breach under the UCC?

   Generally contract price − market price (at time/place of tender) + incidental damages, OR contract price − resale price if seller resells in good faith. A lost-volume seller may instead recover lost profit. Seller may recover the price for accepted goods or goods that cannot be resold.

8. When is specific performance available as an equitable remedy?

   When the legal remedy (damages) is inadequate, the contract terms are definite, mutuality/feasibility of enforcement exists, and no defenses apply. It is presumed for land contracts and unique goods; it is NOT granted for personal-service contracts.

9. What are the equitable defenses to specific performance?

   Laches (unreasonable delay causing prejudice), unclean hands (plaintiff's own wrongdoing in the transaction), and the sale to a bona fide purchaser.

10. When is a liquidated damages clause enforceable?

    When (1) actual damages were difficult to estimate at formation, and (2) the stipulated amount is a reasonable forecast of probable harm. If it operates as a penalty (grossly disproportionate), it is unenforceable.

11. What is an intended third-party beneficiary versus an incidental beneficiary?

    An intended beneficiary is one the parties intended to benefit and who can enforce the contract (creditor or donee beneficiary). An incidental beneficiary benefits only by happenstance and has no enforcement rights.

12. When do a third-party beneficiary's rights 'vest,' and why does it matter?

    Rights vest when the beneficiary (1) manifests assent to the promise, (2) sues to enforce it, or (3) materially/justifiably relies on it. After vesting, the original parties cannot modify or rescind the contract without the beneficiary's consent.

13. Whom can an intended third-party beneficiary sue, and whom can the promisee sue?

    The beneficiary can sue the promisor on the contract (subject to the promisor's defenses). A creditor beneficiary may also sue the promisee on the underlying debt. The promisee can sue the promisor to enforce the promise.

14. What is an assignment of rights, and what is its effect?

    An assignment is the present transfer of a contract right to a third party (assignee). It extinguishes the assignor's right and gives the assignee the power to enforce it directly against the obligor.

15. What rights are NOT assignable?

    Assignments that would materially change the obligor's duty/risk (e.g., personal-service or requirements contracts changing quantity), assignments barred by law/public policy, and assignments validly prohibited by contract (though anti-assignment clauses are often read to bar only the right, not the power).

16. As between successive assignees of the same right, who prevails?

    Majority rule: the first assignee for value prevails (first in time). Minority/exceptions: a later assignee who first obtains payment, a judgment, a novation, or possession of a token/document, or who detrimentally relies in good faith without notice, may prevail.

17. What is delegation of duties, and which duties cannot be delegated?

    Delegation is appointing another to perform one's contractual duties. Non-delegable duties: those involving personal skill/judgment or special trust, where the contract prohibits delegation, or where delegation would materially alter the obligee's expectancy.

18. Does delegation relieve the delegating party of liability?

    No. The delegator remains liable for performance unless there is a novation. If the delegatee assumes the duty for consideration, the obligee becomes an intended beneficiary and can sue the delegatee as well.

19. What is an express warranty under UCC 2-313 and how is one created?

    An express warranty is created by any affirmation of fact or promise about the goods, any description of the goods, or any sample/model—each made part of the basis of the bargain. Mere opinion, puffery, or value statements do not create one.

20. What is the implied warranty of merchantability and when does it arise?

    Under UCC 2-314, a warranty that goods are fit for their ordinary purpose (pass without objection in the trade, adequately contained/labeled, of fair average quality). It is implied in every sale by a merchant who deals in goods of that kind.

21. What is the implied warranty of fitness for a particular purpose?

    Under UCC 2-315, when ANY seller has reason to know the buyer's particular purpose and that the buyer is relying on the seller's skill/judgment to select suitable goods, there is an implied warranty that the goods fit that particular purpose.

22. How can the implied warranty of merchantability be disclaimed?

    By mentioning 'merchantability' (must be conspicuous if written), or by using language like 'as is,' 'with all faults,' or expressions making plain there is no implied warranty, or by the buyer's examination/refusal to examine, or by course of dealing/usage of trade.

23. How is the implied warranty of fitness for a particular purpose disclaimed, and how do disclaimers interact with express warranties?

    A fitness disclaimer must be in writing and conspicuous (general language like 'there are no warranties beyond this writing' suffices). Express warranties generally cannot be disclaimed—a disclaimer inconsistent with an express warranty is inoperative.

24. What are the limits on contractually limiting remedies under the UCC?

    Parties may limit/modify remedies (e.g., repair-or-replace, exclude consequential damages), but a limited remedy that fails of its essential purpose allows resort to UCC remedies, and limiting consequential damages for personal injury in consumer goods is prima facie unconscionable.

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