In this lecture, I want to go over the most frequently tested and most important topics in contract law for the MEE. I'm going to quickly cover nine contracts topics.

1. The UCC

First, the UCC. I said this before, but with every MEE contracts question, start by explaining whether the contract in question is governed by the UCC or by common law principles.

If it involves the sale of goods, that is, movable objects, then it's a UCC case. If not, not. This is incredibly important. It comes up a lot, and a lot of points are often at stake. I mentioned this earlier, but in one contracts MEE question, 20% of the points came from just explaining that a lawn mower was a good, and thus the UCC applied to the contract for the sale of a lawn mower.

Also remember the UCC has different rules than the common law on several subjects. The UCC modifies the common law mirror image rule, for example, in Sections 2-206 and 2-207. The UCC adopts a variation of the perfect tender rule rather than the material breach rules that apply under the common law.

The UCC allows contract modification without consideration, while the common law only allows one-sided contractual modifications when they're fair and equitable in light of unanticipated circumstances. And then, finally, the statute of frauds. The UCC has a special statute of frauds provision that gets tested a lot.

2. The Statute of Frauds

And that brings us to topic number two, the statute of frauds. As I just said a second ago, the statute of frauds gets tested a lot, both the UCC statute of frauds and the statute of frauds in general.

Because it's just so easy to miss it, with every MEE contracts question, I always ask myself, "Is there a statute of frauds issue here?" When I'm reading contracts MEE questions, I'll note it anytime I see the word "oral" or "telephone" or "conversation." In the back of my mind, I'm thinking, "Hmm. Is there a statute of frauds issue here?"

3. Chronology of Formation

Number three, approach contract formation issues chronologically. When the problem has a bunch of events with dates and is asking you whether there's a contract, handle it chronologically. Go through the things in order and label them. Start with the first communication between the parties. Ask yourself, what is this? Is this an offer? Is this a request for an offer?

Then turn to the second communication. What is this? Is this an acceptance? Is this a rejection? Is this an acceptance with a request? Is this a counteroffer? Do that with each thing that happens. Things become more clear if you handle them chronologically.

4. Modification

Number four, contract modification. When you have a question about contract modification not involving the UCC, remember the test is whether the modification is "fair and equitable in light of unanticipated circumstances." If party A has to do more under the contract because of some surprising development or discovery, and party B agrees to pay party A more for that, party B's promise to pay more will be legally binding.

But for the same reasons, if there's no new development or discovery and party A still gets party B to agree to pay more, that's not binding. Even if party B promises to pay more now, party B can take it back later on. But when you have a question about contract modification involving the UCC, remember the UCC allows contracts to be modified without any consideration at all.

5. Accord and Satisfaction

Number five, accord and satisfaction. Accord and satisfaction is an issue that comes up frequently. Say we have a dispute. You say, "I owe you $1,000." I say, "I owe you nothing." If I give you a check for $100 marked "paid in full" and you cash it, then you might not be able to sue me for the remaining $900.

Let me be precise. As long as I believe, in good faith, that I don't owe you $1,000, that maybe I think I owe you less, or maybe I think I owe you nothing, but if I believe in good faith that I don't owe you $1,000, then our $100 settlement will be legally binding, and that settlement is called an accord and satisfaction.

But if the amount I owe you is liquidated, that is, reduced to a number, and undisputed, then the doctrine of accord and satisfaction does not apply. So if we both agree that I owe you $1,000, but I send you that check for a hundred dollars and you cash it, well, you can still successfully sue me for the remaining $900.

6. Material v. Nonmaterial Breach

Number six, material versus nonmaterial breaches. There are two kinds of breach of contract: material breaches and nonmaterial breaches. The difference between the two is important. A material breach essentially dissolves the contract and frees the victim from having to perform further. So if party A commits a material breach, then party B can essentially walk away.

By contrast, if party A commits a nonmaterial breach, then party B cannot walk away. Party B has to continue on and perform, although party B can sue party A for damages because of the nonmaterial breach. How do you tell whether a breach is material or not material?

It's tricky, but there are five criteria in the Second Restatement of Contracts Section 241 that will guide your answer: the extent to which the injured party will be deprived of the benefit they reasonably expected; the extent to which the injured party can be adequately compensated for that deprivation; the extent to which the party failing to perform will suffer forfeiture; the likelihood that the party failing to perform will cure the failure; and the extent to which the behavior of the party failing to perform comports with standards of good faith and fair dealing.

You need to know these criteria, but the principal one is the first one. How much did the breach hurt the victim of the breach? The more the victim is hurt, the more likely we are to call the breach material. A very common fact pattern is when party A is a few days late in doing something for party B. Unless there's some big reason why party B needed it then, unless there's some reason why time was of the essence, then party A's breach is not material.

And finally, also remember the UCC does not have this doctrine of material breach. Instead, the UCC has a modified version of the perfect tender rule.

7. Damage Questions

Number seven, damage questions. Often the MEE will ask you what the victim of a breach can recover. Remember the general rule and the three limitations. The general rule is the expectation interest. The expectation interest is the amount of money necessary to put the victim of the breach in the position they would have been in had there been no breach.

And the three limitations are certainty, foreseeability, and mitigation of damages. You need to remember them because the bar loves to test them without mentioning them or doing much to flag them. Oftentimes, a damage will not be recoverable because it wasn't foreseeable to the party in breach at the time the contract was formed. You have to spot the foreseeability issues without anything in the fact pattern really giving them away.

8. Third-Party Beneficiaries

Number eight, third-party issues. When you see three parties in the problem, it's often a question about third-party beneficiaries, assignment of rights, or delegation of duties.

The most commonly tested bar issue with third-party beneficiaries is the difference between intended third-party beneficiaries who can sue, and incidental third-party beneficiaries who cannot sue. The most commonly tested issue with delegation of duties is the idea that a delegation only delegates duties, not responsibilities.

Let me put it this way. Say party A is in a contract with party B, and party A delegates his duties to party C. If party C breaches, party B can certainly sue party C for breach. But the surprising thing is that if party C breaches, party B can also sue party A for breach as well.

Finally, the most commonly tested issue with assignment of rights is this: say party A is in a contract with party B, and party A assigns the rights to receive party B's payment to party C. If party B does not know about the assignment and pays party A, then party B does not have to pay party C. But if party B knows about the assignment and pays party A anyway, then party B does have to pay party C.

9. Things That Don't Mean Anything

Finally, number nine, things that don't mean anything. Certain clauses seem like they should be meaningful, but they're not.

Say you have a clause in a written contract that says, "This contract can only be amended by a writing," or "This contract cannot be modified orally." Those clauses are known as "no oral modification" clauses, but the thing is, they're generally not enforceable. It's odd, but "no oral modification" clauses are themselves considered subject to oral modification. So they end up not generally having legal effect.

Similarly, the bar examiners love to give you a situation involving an offer that says it's irrevocable. But the general rule is that such an offer is still revocable, even though the party making it said it was irrevocable. That's just the rule, although there are two important exceptions to this: the UCC's firm offer provision and option contracts.

In any event, those are my nine tips about the contract law you should know for the contracts questions on the MEE.