Multistate Bar Exam Contracts 4 — Questions and Answers
Question 1: A buyer orders 500 widgets under a UCC contract. The seller ships 500 defective widgets. Under the perfect tender rule, the buyer may:
- Only reject if the defect substantially impairs the value of the goods
- Reject all goods, accept all goods, or accept any commercial unit and reject the rest (Correct answer)
- Only reject after giving the seller a reasonable opportunity to cure
- Only seek damages but must accept non-conforming goods
Correct answer: Reject all goods, accept all goods, or accept any commercial unit and reject the rest
UCC § 2-601 (perfect tender rule) gives the buyer the right to reject all, accept all, or accept any commercial unit and reject the rest upon delivery of non-conforming goods.
Question 2: A famous singer contracts to perform at a concert. She dies before the event. The promoter sues her estate. The most likely outcome is:
- The estate is liable for expectation damages
- The contract is discharged due to impossibility caused by death (Correct answer)
- The estate must provide a substitute performer of equal caliber
- The promoter may recover restitution from the estate
Correct answer: The contract is discharged due to impossibility caused by death
Death of a party whose personal performance is essential discharges the contract under the doctrine of impossibility — the duty cannot survive the person.
Question 3: Alpha Corp. contracts with Beta Corp. for Beta to build a factory by year-end for $1 million. The contract expressly states Alpha's payment obligation is 'conditioned upon Beta completing construction by December 31.' Beta completes on January 5. Alpha refuses to pay. The result is:
- Alpha must pay because late performance was only a minor breach
- Alpha is excused from payment because the express condition was not satisfied (Correct answer)
- Alpha must pay but may deduct for the few days' delay
- The condition is waived if Alpha knew about the delay
Correct answer: Alpha is excused from payment because the express condition was not satisfied
An express condition must be strictly satisfied; because Beta failed to complete by December 31, the condition precedent to Alpha's payment duty was not met and Alpha's obligation does not arise.
Question 4: A real estate contract obligates Buyer to purchase 'contingent upon obtaining mortgage financing at 5% or below.' Buyer makes no effort to apply for a mortgage and then claims the condition failed. The likely result is:
- Buyer is excused because the condition genuinely failed
- Buyer cannot invoke the failed condition because he prevented its occurrence (Correct answer)
- Seller must accept a higher mortgage rate as an equivalent
- The condition is excused as impracticable
Correct answer: Buyer cannot invoke the failed condition because he prevented its occurrence
A party cannot benefit from the failure of a condition that he caused — prevention of condition satisfaction excuses the condition and renders the party liable.
Question 5: A buyer of real estate discovers after closing that the seller failed to disclose a known, latent structural defect. The buyer's strongest theory for relief is:
- Mutual mistake because both parties were wrong about the property
- Fraudulent misrepresentation by omission (concealment) (Correct answer)
- Breach of warranty because real estate is sold 'as is'
- Impossibility because the buyer cannot use the building as intended
Correct answer: Fraudulent misrepresentation by omission (concealment)
Active concealment of a known, latent material defect by the seller constitutes fraudulent misrepresentation by omission, entitling the buyer to rescission and/or damages.
Question 6: Two parties enter a contract with a liquidated damages clause of $10,000 for breach. At the time of breach, the non-breaching party's actual damages are $500. The court will likely:
- Enforce the $10,000 clause as agreed by the parties
- Void the clause as a penalty and award only $500 in actual damages (Correct answer)
- Award $10,000 as a penalty to deter future breach
- Enforce the clause only if both parties are merchants
Correct answer: Void the clause as a penalty and award only $500 in actual damages
A liquidated damages clause is enforceable only if the amount was a reasonable estimate of probable damages at contracting — when the clause is grossly disproportionate to actual harm, courts void it as an unenforceable penalty.
Question 7: A third-party beneficiary contract is formed where Alpha promises Beta to pay $5,000 to Gamma. Before Gamma learns of the contract, Alpha and Beta agree to modify it to eliminate Gamma's benefit. This modification is:
- Invalid because Gamma's rights vested at contract formation
- Valid because Gamma had not yet learned of or relied on the contract (Correct answer)
- Invalid because third-party rights can never be modified without consent
- Valid only if Gamma is an incidental beneficiary
Correct answer: Valid because Gamma had not yet learned of or relied on the contract
A third-party beneficiary's rights vest (and cannot be modified without consent) only when the beneficiary learns of the contract and relies on it, or assents to it — prior to vesting, the promisor and promisee may freely modify.
Multistate Bar Exam Contracts 4
A buyer orders 500 widgets under a UCC contract.
The seller ships 500 defective widgets.
Under the perfect tender rule, the buyer may: