NC Bar Contracts 2 — Questions and Answers
Question 1: A contractor builds a house but installs the wrong brand of pipe, though the pipe is of equal quality and value. The homeowner demands the contractor tear out all the walls and reinstall the correct brand. Which remedy concept best limits the homeowner's recovery?
- Expectation damages
- The economic waste doctrine (Correct answer)
- Restitutionary damages
- Consequential damages
Correct answer: The economic waste doctrine
The economic waste doctrine (applied in cases like Jacob & Youngs v. Kent) limits a non-breaching party to diminution in value damages rather than cost of completion when completion would involve unreasonable economic waste with no real benefit.
Question 2: Which of the following is the best example of a valid requirements contract under the UCC?
- Buyer agrees to purchase 100 widgets per month for one year.
- Buyer agrees to purchase all the widgets Buyer requires from Seller for one year. (Correct answer)
- Buyer agrees to purchase widgets at market price whenever Buyer wants.
- Buyer agrees to purchase as many widgets as Seller can produce.
Correct answer: Buyer agrees to purchase all the widgets Buyer requires from Seller for one year.
A requirements contract under UCC § 2-306 is one in which the buyer agrees to purchase all of a particular good that the buyer requires from the seller, which provides sufficient consideration through the implied obligation of good faith.
Question 3: Under the parol evidence rule, which of the following extrinsic evidence is admissible to interpret a fully integrated written contract?
- Prior written agreements that contradict the final contract's terms
- Oral agreements made before signing that add new consistent terms
- Course of dealing evidence to explain an ambiguous term (Correct answer)
- Subsequent oral modifications that alter the contract price
Correct answer: Course of dealing evidence to explain an ambiguous term
Course of dealing, course of performance, and trade usage are always admissible to explain or supplement a contract's terms, even when the contract is fully integrated, as long as such evidence explains rather than contradicts the written terms.
Question 4: A party seeks rescission of a contract based on mutual mistake. Which element is NOT required to establish mutual mistake?
- The mistake concerned a basic assumption on which the contract was made.
- The mistake was made by both parties at the time the contract was formed.
- The mistake materially affected the agreed exchange.
- The party seeking rescission bore the risk of the mistake under the contract. (Correct answer)
Correct answer: The party seeking rescission bore the risk of the mistake under the contract.
For mutual mistake, the party seeking rescission must show a basic assumption, mutual mistake, and material effect, but if the party bore the risk of the mistake, rescission is not available—bearing the risk defeats, rather than supports, the claim.
Question 5: In a breach of contract action, which of the following damages is LEAST likely to be recoverable under the Hadley v. Baxendale foreseeability rule?
- Lost profits the breaching party knew the non-breaching party would lose
- Costs the non-breaching party incurred in reasonable reliance on the contract
- Highly unusual consequential damages unknown to the breaching party at contract formation (Correct answer)
- General damages directly flowing from the breach
Correct answer: Highly unusual consequential damages unknown to the breaching party at contract formation
Under Hadley v. Baxendale, consequential damages are recoverable only if they were foreseeable at the time of contracting; highly unusual losses unknown to the breaching party at formation are not recoverable.
Question 6: A homebuilder contracts to build a house for $300,000. After the homebuilder completes 80% of the work, the owner wrongfully refuses to let the builder finish. What measure of damages can the builder recover?
- Only the reasonable value of work performed under quantum meruit
- The contract price less the cost of completing the remaining 20% of the work (Correct answer)
- The full contract price with no deduction
- The fair market value of the completed house
Correct answer: The contract price less the cost of completing the remaining 20% of the work
When an owner wrongfully prevents a contractor from completing performance, the contractor may recover the full contract price less the cost the contractor would have incurred to complete the remaining work.
Question 7: Under the UCC, when does risk of loss pass from seller to buyer in a shipment contract (F.O.B. shipping point)?
- When the buyer receives the goods at the destination
- When the seller delivers the goods to the carrier (Correct answer)
- When the seller ships the invoice to the buyer
- When the contract is formed
Correct answer: When the seller delivers the goods to the carrier
Under UCC § 2-509, in a shipment contract (F.O.B. point of origin), risk of loss passes to the buyer when the seller duly delivers the goods to the carrier.
NC Bar Contracts 2
A contractor builds a house but installs the wrong brand of pipe, though the pipe is of equal quality and value.
The homeowner demands the contractor tear out all the walls and reinstall the correct brand.
Which remedy concept best limits the homeowner's recovery?