Contracts on the Bar Exam: Common Law, UCC, and the Rules You Need to Know

Contracts accounts for roughly 25 of the 175 scored MBE questions and is a regular MEE subject. It is one of the broadest bar exam subjects, spanning formation, performance, remedies, and third-party rights under two parallel legal frameworks.

The first thing you need to know about Contracts on the bar exam is the threshold question that governs everything else: does common law or the UCC apply?

Common Law vs. UCC Article 2

UCC Article 2 applies to transactions in goods. Goods are tangible, movable things. A car, a shipment of lumber, a painting.

Common law applies to everything else. Services, real estate, employment contracts, intellectual property licenses.

Mixed contracts (goods + services): Apply the predominant purpose test. If the contract is primarily for goods, apply the UCC. If primarily for services, apply common law.

This distinction matters because the rules differ on several key issues:

Issue	Common Law	UCC
Acceptance must mirror offer	Yes (mirror image rule)	No (battle of the forms, 2-207)
Consideration needed for modification	Yes	No (good faith is enough)
Statute of Frauds threshold	Varies by subject	$500+ for goods
Gap fillers for missing terms	Generally fatal	UCC fills reasonable terms
Perfect tender required	Substantial performance	Perfect tender rule

The MBE tests this distinction constantly. When you see a fact pattern, your first job is to classify the transaction. Get that wrong and you will apply the wrong rule to every question in the set.

Formation: The Rules That Get Tested

Offer and Acceptance

An offer creates a power of acceptance in the offeree. The MBE tests whether a communication is an offer or merely an invitation to deal (ads are generally invitations, not offers, unless specific enough).

Acceptance must be communicated. The mailbox rule applies to acceptances (effective on dispatch) but not to rejections or revocations (effective on receipt).

Irrevocable offers:

• Option contracts (supported by consideration)
• UCC firm offers (signed writing by a merchant, up to 3 months)
• Detrimental reliance making revocation unjust
• Start of performance on a unilateral contract (creates an option)

Consideration

A bargained-for exchange where each party incurs a legal detriment. The MBE tests the edges:

• Past consideration is not consideration
• Pre-existing duty rule: doing what you are already obligated to do is not consideration for a new promise (but modification under the UCC does not require consideration)
• Illusory promises: if one party retains unfettered discretion, the promise is illusory and there is no contract

Statute of Frauds

Contracts that must be in writing: marriage, year (cannot be performed within one year), land, executor promises, goods over $500 (UCC), surety.

The MBE tests the "one year" rule more than any other provision. The question is not whether the contract will take more than a year to perform. The question is whether it is possible to fully perform within one year from the date of formation. A contract to work "for life" can theoretically be performed within a year (if the person dies), so it does not fall within the Statute of Frauds.

Performance and Breach

Material Breach vs. Minor Breach

Under common law, a material breach excuses the non-breaching party from further performance. A minor breach does not. The non-breaching party must continue performing but can sue for damages caused by the minor breach.

Factors for materiality: the extent of the breach, likelihood of cure, adequacy of compensation, hardship to the breaching party, and whether the breach was willful.

UCC Perfect Tender Rule

Under the UCC, the buyer can reject goods if they fail to conform to the contract in any respect. This is stricter than common law's substantial performance standard.

Exceptions: installment contracts (can only reject if the non-conformity substantially impairs the value of that installment), and the seller's right to cure if time for performance has not yet expired.

Anticipatory Repudiation

If a party unequivocally indicates they will not perform before performance is due, the other party can: treat it as a breach and sue immediately, suspend their own performance, or wait a reasonable time for the repudiating party to retract.

Remedies

Expectation damages: Put the non-breaching party in the position they would have been in had the contract been performed. This is the default remedy.

Consequential damages: Losses caused by the breach that were foreseeable at the time of contracting (Hadley v. Baxendale).

Specific performance: Available when money damages are inadequate, typically for land contracts and unique goods. Not available for personal service contracts.

Liquidated damages: Enforceable if the amount is a reasonable forecast of anticipated harm and actual damages are difficult to calculate. If the clause is a penalty (unreasonably large and not tied to anticipated harm), it is unenforceable.

Third-Party Rights

Third-Party Beneficiaries

An intended beneficiary has enforceable rights once those rights vest (learns of and relies on the contract, assents to it, or sues on it). An incidental beneficiary has no enforceable rights.

Assignment and Delegation

Rights under a contract can be assigned unless the assignment materially changes the obligor's duty, risk, or burden. Duties can be delegated unless the contract is for personal services or the delegation materially alters the obligee's expectancy.

The obligor can raise any defense against the assignee that they could have raised against the assignor.

Study Strategy for Contracts

Always start by classifying: common law or UCC? Then identify the issue the question is testing: formation, performance, breach, or remedies. The MBE rarely tests obscure rules. It tests the core rules in fact patterns designed to make you confuse them with similar rules.

Drill the differences between common law and UCC rules. That single distinction is worth more points than any other concept in Contracts.