Bar Exam (Next Generation) Quiz: Expectation Interest

12 questions · exam conditions

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Expectation InterestQuestion 1 of 12

A seller of custom bicycles agreed to sell a bicycle to a buyer for $2,000. The buyer repudiated before the seller began work. The seller had the capacity to produce and sell one additional bicycle beyond its anticipated orders for the season, and it had a ready market for every bicycle it could produce. It later sold an identical bicycle to another customer for $2,000. The seller's marginal cost of producing the bicycle would have been $1,200. In an action against the buyer, what is the seller's expectation damages?

$800

$1,200

$2,000

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Bar Exam (Next Generation) Quiz

Bar Exam (Next Generation) Quiz: Expectation Interest

Practice Expectation Interest in Bar Exam (Next Generation) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Expectation Interest, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Next Generation).

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

$0
$800 (correct answer)
$1,200
$2,000

Explanation: This question tests expectation damages after anticipatory repudiation, with a special twist: the seller is a "lost volume" seller. Always ask: could the seller have made both the original sale and the replacement sale? If yes, the replacement does not reduce damages. Here, the buyer repudiated before the seller began work, so the seller saved its $1,200 marginal cost. But because the seller had capacity to produce one additional bicycle and a ready market for every bicycle it could produce, the later sale to another customer for $2,000 was not a substitute for the buyer's deal. The seller expected $2,000 in revenue and $1,200 in costs, for an expected profit of $800. The later sale would have happened anyway, so expectation damages are the lost profit on the original contract: $2,000 − $1,200 = $800. The "

0” answer is wrong because it treats the replacement sale as mitigation, but a lost-volume seller did not lose a sale—it lost an additional profitable sale. The “

1,200" answer confuses cost with damages; the seller never pays that cost now, so it is subtracted, not awarded. The "$2,000" answer would overcompensate by giving the seller the full contract price without subtracting the costs it saved by not producing. On exam day, when you see a repudiation plus "capacity" and "ready market," think lost volume: damages equal the profit that would have been earned on the repudiated contract.

Question 2

A contractor agreed to build a custom shed for a homeowner for $12,000. The contractor's anticipated cost of performance was $8,000, of which $2,000 was for special-order materials that it purchased before the homeowner repudiated. The contractor had not yet begun construction. After the repudiation, the contractor stopped work and could not use or return the special-order materials, which had no salvage value. The contractor saved all other anticipated costs. How much can the contractor recover in expectation damages?

$2,000
$4,000
$6,000 (correct answer)
$12,000

Explanation: Whenever a contract is repudiated before performance begins, expectation damages aim to put you in the same financial position as if the contract had been performed. Here, performance would have given you $12,000 in revenue against $8,000 in costs—a $4,000 profit. But you already spent $2,000 on non-returnable materials, and you saved the other $6,000 of costs. So your actual net position after repudiation is a $2,000 loss. To reach the $4,000 profit you would have earned, you need to recover $6,000: the $4,000 lost profit plus the $2,000 wasted materials. That makes $6,000 the correct recovery. The $2,000 choice incorrectly counts only the wasted materials, ignoring the lost profit. The $4,000 choice counts only the profit, ignoring that you also lost the sunk materials. The $12,000 choice mistakenly treats the full contract price as damages—that would give you a windfall because you avoided $6,000 in costs. Expectation damages never give you more than the benefit of the bargain. On the bar exam, when a party repudiates before performance, compute damages as: (contract price – costs saved) + wasted costs already incurred. Or equivalently: lost profit + reliance expenditures. Watch for materials with no salvage value—they are recoverable as part of your expectation, not just as reliance.

Question 3

A buyer contracted to buy 1,000 units of a standardized part from a seller for $10 per unit, delivery on June 1. The seller failed to deliver on June 1, and the buyer learned of the breach that day. The buyer chose not to cover. The market price of the parts was $15 per unit on June 1 and $18 per unit on July 1. What is the buyer's expectation damages?

$3,000
$5,000 (correct answer)
$8,000
$15,000

Explanation: This is a UCC contract-damages question about a seller's non-delivery and a buyer who chooses not to cover. When the buyer does not cover, the basic expectation measure is the difference between the contract price and the market price at the time the buyer learned of the breach, multiplied by the number of units. Here, the buyer learned of the breach on June 1, when the market price was $15 per unit. The contract price was $10 per unit, so the buyer's loss per unit is $15 − $10 = $5. Multiply that by 1,000 units:

5 \times 1{,}000 = \$5{,}000

That is the buyer's expectation damages. The July 1 market price of $18 is not relevant because the UCC fixes the market price at the time the buyer learned of the breach, not at some later date. The $8,000 choice incorrectly uses the July 1 market price: $18 − $10 = $8 per unit. The $15,000 choice mistakenly treats the full market price as damages, ignoring that the buyer still has the benefit of the $10 contract price. The $3,000 choice uses only the change in market price between June 1 and July 1 ($18 − $15), which is not the measure of the seller's breach. Study tip: on a non-delivery damages question, first identify the date the buyer learned of the breach, then find the market price on that date. Ignore later price changes unless the buyer actually covered.

Question 4

A company with no operating history contracted to buy 1,000 custom devices from a manufacturer for $15 each, intending to resell them at $25 each. The manufacturer breached. The company had never sold any product and had no purchase orders from customers. It seeks lost profits of $10,000 based on a market study. The company did not buy replacement devices. What is the company's expectation damages?

$0, because the claimed lost profits are too speculative and no other loss is shown. (correct answer)
$10,000, if the market study shows the devices would have sold.
$15,000, the contract price for the devices.
$25,000, the expected resale price of the devices.

Explanation: Whenever you see a breach-of-contract question asking for expectation damages, your first move is to separate the benefit of the bargain from mere speculation. This question tests the certainty requirement for lost profits, a hurdle that is particularly high for new businesses. Because the company has no operating history, no purchase orders, and did not buy replacement devices, its claimed $10,000 in lost profits is entirely speculative. A market study is not the same as a binding commitment or a track record, so it fails to establish loss with reasonable certainty. Since the company never paid the $15,000 contract price and shows no other reliance or cover damages, its recovery is $0. The $10,000 claim based on the market study is a trap—it misleads you into thinking a study proves causation, but courts require actual evidence of likely sales for an unestablished business. The $15,000 contract price is also incorrect because that is the cost of the goods, not a loss incurred; expectation damages put the non-breaching party in the position it would have been in, not merely refund the deal price. Similarly, the $25,000 expected resale price represents gross revenue, not net profit, and is doubly speculative without any real buyers. On the exam, remember the "new business rule": if the plaintiff has no history and no firm orders, lost profits are almost always too uncertain—so look for reliance damages or restitution instead, but if none are shown, the answer is zero.

Question 5

A buyer ordered 10,000 labels from a seller for $0.50 each. The seller knew the buyer needed the labels to fill a contract with a brewery and would lose $12,000 in profit if the labels were not delivered on time. The seller breached. Identical labels were readily available from another printer at $0.60 each, but the buyer did not buy them and lost the brewery contract. How much can the buyer recover from the seller?

$0, because the buyer failed to mitigate.
$13,000, because the buyer lost the brewery profit and can recover the cost of cover it should have obtained.
$12,000, because the seller knew of the brewery contract.
$1,000, because the buyer could have covered for that amount. (correct answer)

Explanation: Whenever a buyer faces a seller's breach and identical goods are readily available from another source, your first instinct should be mitigation. The buyer must take reasonable steps to limit damages, usually by obtaining replacement goods ("cover"). Here, the buyer could have bought identical labels from the other printer for $0.60 each, so the recoverable loss is simply the extra $0.10 per label: 10,000 × $0.10 = $1,000. That $1,000 is the correct recovery, even though the buyer never actually bought the labels, because the law measures damages by the cost of cover the buyer reasonably should have obtained. Now the wrong answers. The “

0, because the buyer failed to mitigate" choice reflects a misunderstanding: failure to mitigate does not wipe out all damages; it only caps them at what mitigation would have cost. The "

13,000” choice improperly adds the $12,000 lost brewery profit to the

1,000 cover differential, but the lost profit is consequential damage that was avoidable through cover, so it is not recoverable. The “

12,000, because the seller knew of the brewery contract" choice mixes foreseeability with mitigation: the seller's knowledge makes the profit a foreseeable consequential loss, but foreseeable losses still must be mitigated if replacement goods are available. The right measure here is the bargain difference, not the lost downstream profit. Study tip: On contract-damages questions, always ask two things — could the non-breaching party reasonably cover, and if so, what would that cover have cost? That usually caps the recovery.

Question 6

A manufacturer agreed to build a machine to a buyer's exact specifications for $100,000. The manufacturer completed the machine and identified it to the contract. The buyer repudiated. The machine has no resale market because of its unique specifications. The manufacturer made reasonable efforts to resell it but could not. What is the manufacturer's expectation damages?

$0, because the manufacturer still owns the machine.
The profit the manufacturer would have made on the contract.
$100,000 minus the machine's scrap value.
$100,000, the contract price. (correct answer)

Explanation: When a buyer repudiates after the seller has manufactured goods to the buyer's exact specifications and identified them to the contract, the UCC gives the seller a special remedy: an action for the price. This question tests your ability to distinguish between the seller's damages measures under UCC § 2-708 (lost profits) and § 2-709 (price). Here, the machine is unique and has no resale market, and the seller made reasonable resale efforts. Because the goods are identified to the contract and cannot be resold, the seller may recover the full contract price of $100,000. That price puts the seller in the same economic position as if the buyer had performed—the seller gets the agreed price, and the buyer gets (or must accept) the specially made machine. The $0 choice is wrong because the seller retains ownership but still has a claim for the price; it's not a matter of giving the machine back. The profit‑only measure would undercompensate the seller, because the machine has no resale value, so recovering only profit would leave the seller out of pocket for the cost of production. The contract‑minus‑scrap‑value choice incorrectly treats the machine as if it could be scrapped, but the seller is not required to mitigate by scrapping when the contract price is recoverable. Remember: when goods are specially manufactured and identified, and no reasonable resale market exists, the seller's expectation damages are the contract price—not lost profits, not net scrap value.

Question 7

A buyer contracted to purchase 1,000 widgets from a seller for $10 per widget. The seller did not deliver. The buyer promptly and in good faith bought replacement widgets from another supplier for $14 per widget, paying $200 in freight to obtain them. Because the original widgets were never delivered, the buyer saved $150 in storage charges that it would have paid under the original contract. What is the buyer's expectation damages?

$3,850
$4,000
$4,050 (correct answer)
$4,150

Explanation: When a seller breaches by failing to deliver, the Uniform Commercial Code's cover remedy gives the buyer expectation damages measured by the difference between the cover price and the contract price, plus incidental damages, minus any expenses saved. Your goal is to put the buyer in the same economic position performance would have, no better and no worse. Here, the buyer paid

14 per widget—$4 more than the $10 contract price—so the replacement premium is

1{,}000 \times $4 = $4{,}000

. The

200

freight was necessary to obtain replacement widgets, so it is an incidental damage and should be added. The

150

storage charge saved is a true expense saving caused by nonsdelivery, so it must be subtracted to prevent a windfall. Thus:

$4{,}000 + $200 - $150 = $4{,}050$$. The distractor

\$3{,}850

results from subtracting the

150

saved storage from the price differential but forgetting to add the freight. The choice

\$4{,}000

captures only the raw price gap and ignores both the incidental freight cost and the storage saving. The choice

\$4{,}150

incorrectly adds the saved storage charge as though it were an additional loss, when in fact it reduces the buyer's damages. All three miss the full statutory formula.ur On remedies questions, write the formula down first: cover price − contract price + incidental damages − expenses saved. Then classify every fact: is it an extra cost the buyer incurred because of the breach, or a cost saved because preservation was no longer needed? That classification drives the math.

Question 8

A seller contracted to sell 500 units of a good to a buyer for $20 per unit. The buyer repudiated before delivery. The seller resold the units in good faith to another buyer for $18 per unit, incurring $300 in reasonable resale expenses. Because it did not have to deliver to the first buyer, the seller saved $200 in shipping costs. What is the seller's expectation damages?

$800
$1,000
$1,100 (correct answer)
$1,300

Explanation: When you see a seller seeking damages after a buyer's repudiation, you're in UCC Article 2 territory. The seller's expectation damages are calculated as the difference between the contract price and the resale price, plus any reasonable incidental damages (like resale expenses), minus any costs the seller saved by not having to perform (like shipping). Here, the contract price is $10,000 (500 × $20) and the resale price is $9,000 (500 × $18), leaving a $1,000 loss on the resale. You then add the $300 in reasonable resale expenses, bringing the total to $1,300. Critically, you must subtract the $200 saved in shipping costs because the seller no longer has to incur that expense. So the calculation is $1,000 + $300 −

200 = **

1,100**. The

800 option traps you if you subtract the saved shipping from the price difference but forget to add the resale expenses (

1,000 − $200). The $1,000 option only reflects the gross price difference, ignoring both the incidental expenses and the savings—a tempting but incomplete shortcut. The $1,300 option correctly adds the expenses but fails to deduct the $200 saved, which is a common oversight when you focus solely on the resale loss. Your takeaway: always break the formula into three distinct steps—price difference, plus incidental damages, minus saved costs. Expectation damages aim to put you in the same economic position as if the contract were performed; you wouldn't have paid resale expenses, but you also wouldn't have saved on shipping.

Question 9

A seller agreed to build and deliver a custom machine to a buyer for $100,000. The buyer did not tell the seller what the machine would be used for or that it had accepted a time-sensitive order from a customer. The seller delivered the machine one month late; the machine functioned perfectly. Because of the delay, the buyer lost a customer contract and $25,000 in profit. What is the buyer's expectation damages?

$25,000, because the loss was caused by the seller's breach and was reasonably certain.
$25,000, because a seller should foresee that a late machine will disrupt a buyer's operations.
No damages beyond nominal damages, because the lost profit was not within the seller's contemplation at the time of contracting. (correct answer)
$25,000, but only if the buyer tried to rent a substitute machine after the delay became apparent.

Explanation: Whenever you see a contract damages question, separate ordinary expectation damages from consequential damages. A nonbreaching party can recover losses that arise naturally from the breach, but special losses such as lost profits are recoverable only if they were foreseeable—that is, within the seller's contemplation at the time of contracting. That is the rule of Hadley v. Baxendale. Here, the buyer never told the seller about the customer contract or the time-sensitive order. The machine functioned perfectly; the only loss was $25,000 in profit from the resale contract. Because that special circumstance was not disclosed, the seller could not have contemplated that loss when the parties made the deal. The buyer therefore recovers no consequential damages, only nominal damages for the delay. The answer claiming $25,000 because the loss was caused and reasonably certain misses the separate requirement of foreseeability. The answer saying a seller should foresee that a late machine will disrupt a buyer's operations is too broad: ordinary disruption might be foreseeable, but this specific lost customer contract was not. And the answer suggesting recovery only if the buyer tried to rent a substitute machine confuses mitigation with the basic rule: the duty to mitigate only limits damages that are otherwise recoverable; it cannot create recovery for an unforeseeable consequential loss, especially where a custom machine may have no substitute. On lost-profits questions, always ask: did the breaching party know the special circumstances that made this loss possible? If not, the loss is real but not recoverable.

Question 10

A contractor agreed to renovate a restaurant for $200,000. The contractor had not yet begun work when the restaurant owner repudiated the contract. By that time, the contractor had already spent $90,000 on nonrefundable custom materials specially ordered for the job. Those materials had a salvage value of $10,000, and the contractor would have needed to spend $70,000 more to complete the renovation. The contractor took no further steps to perform and salvaged the materials.

In an action for breach of contract, what is the amount of the contractor's expectation damages?

$120,000, because the contractor is entitled to the benefit of the bargain—the profit it would have earned plus its unrecovered preparation costs (correct answer)
$40,000, because the contractor is limited to the profit it would have earned and cannot recover costs that would have been incurred in performing the contract
$200,000, because the owner's repudiation entitles the contractor to recover the full contract price as damages
$130,000, because the contractor is entitled to the contract price minus the amount it saved by not completing the work

Explanation: Whenever you see expectation damages after a repudiation before performance, think about the benefit-of-the-bargain rule: put the nonbreaching party in the same economic position as if the contract had been performed. That often means lost profit plus unrecovered preparation expenses, not the full contract price. Here, if the contract had been performed, the contractor would have spent its already-incurred $90,000 plus the $70,000 more needed, for total costs of $160,000, and received $200,000. Its expected profit was therefore: $$ $200,000 - ($90,000 + $70,000) = $40,000.

But because the owner repudiated, the contractor also has unrecovered preparation costs: it spent $90,000 on materials but salvaged them for $10,000, so its net wasted preparation cost was: $$ \$90,000 - \$10,000 = \$80,000.

Combining lost profit and unrecovered preparation costs gives: $$ $40,000 + $80,000 = $120,000.

Equivalently, start with the contract price and subtract the future work saved ($70,000) and the salvage recovered ($10,000): \[ \$200,000 - \$70,000 - \$10,000 = \$120,000. The $40,000 option is wrong because profit alone ignores the wasted preparation costs; the $200,000 full-price option is wrong because the contractor no longer performs, so awarding full price would ignore saved costs and salvage and overcompensate. The $130,000 option is close but wrong: it subtracts the $70,000 avoidable future costs from contract price but fails to subtract the $10,000 salvage value recovered, overstating damages by $10,000. Study tip: for construction-breach damages, either compute lost profit plus unrecovered reliance costs, or use contract price minus costs avoided minus salvage. Both avoid double counting and yield the correct expectation amount.

Question 11

A buyer contracted to buy a parcel of land from a seller for $200,000. The seller later refused to convey, in breach. At the time of the breach, the parcel's fair market value was $250,000. The buyer then bought a comparable parcel from another seller for $260,000; that parcel was worth $260,000. The buyer sues for expectation damages. How much can the buyer recover?

$10,000
$50,000 (correct answer)
$60,000
$250,000

Explanation: Expectation damages aim to put you where you would have been had the contract been performed. In a real-estate breach, the central measure is the benefit of the bargain: the difference between the promised land's fair market value and the contract price. Here, the seller promised land worth $250,000 for $200,000. If the contract had been performed, you would have gained $50,000 in value. The substitute purchase does not change that loss. You paid $260,000 for a parcel worth $260,000, so you received full value for what you paid. The breach still left you worse off by exactly the lost $50,000 bargain. Thus, your recovery is $50,000. The $60,000 figure represents the difference between the substitute price and the original contract price. That is the classic "cover" calculation, but it overcompensates here because you received a $260,000 asset; subtracting its value means your true loss from the breach is $50,000. The $10,000 figure compares the substitute price to the promised land’s market value, but that extra $10,000 was matched by extra value you received, so it is not a loss. The $250,000 figure confuses the land's value with your damages; you never owned that value, you merely had the right to buy it at a discount. On similar questions, first identify the promised position, then compare it to your actual position after any replacement. Damages should never give you a windfall.

Question 12

An employer hired an employee for a one-year term at a salary of $100,000, payable monthly. Four months into the term, the employer discharged the employee without cause. The employee immediately found a comparable job at an $80,000 annual salary and began work the next day, holding it for the rest of the original term. The employee did not incur any expenses in finding the new job. How much can the employee recover from the employer?

$13,333 (correct answer)
$20,000
$53,333
$66,667

Explanation: This question tests the mitigation of damages doctrine in employment contracts. When an employee is wrongfully discharged, they are entitled to recover the contract price for the remaining term, minus any amounts they earned (or reasonably could have earned) in a comparable job. The employee's duty to mitigate is satisfied here because they immediately found a comparable job. Here's the math. The original contract was for 12 months at $100,000, which is $8,333.33 per month. The discharge occurred after 4 months, leaving 8 months remaining on the term. The contract damages for those 8 months would be

66,667 (

8,333.33 × 8). However, the employee earned $80,000 per year at the new job, which is $6,666.67 per month. Over the 8-month remaining period, the employee earned $53,333. You subtract that mitigation income from the contract damages: $66,667 –

53,333 = **

13,333** (or, more directly, the difference in monthly pay is $1,666.67, multiplied by 8 months). The other choices reflect common traps. $20,000** is simply the difference in annual salaries, but it ignores the fact that only 8 months remain on the contract—you must prorate to the remaining term. **$ 53,333 is the amount the employee actually earned at the new job; it is the mitigation amount, not the recoverable loss. $66,667 is the total remaining contract salary but fails to subtract the new job earnings, effectively ignoring the mitigation doctrine entirely. Study tip: On bar exam questions, always identify the remaining term and then subtract any actual or potential mitigation income. If the new job pays less, the employer is liable only for the shortfall over the remaining period.