I85PREP
⌘ K
NALA ACP Contracts study materials
NALA ACP Contracts study resources

NALA ACP Contracts practice questions

One question at a time. Build your NALA ACP Contracts understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Contracts

Under general contract law principles tested in the NALA ACP Contracts domain, which element is created when one party makes a promise and the other party responds with a return promise rather than by performing?

  1. A unilateral contract
  2. A quasi-contract
  3. A promissory estoppel claim
  4. A bilateral contract Correct answer.

Explanation

A bilateral contract arises when the parties exchange promises, so each is both promisor and promisee and each is bound to perform in the future. A unilateral contract instead requires acceptance by actual performance of the requested act. Quasi-contract and promissory estoppel are equitable remedies rather than consensual agreements formed by exchange of promises.

Question 2Contracts

A homeowner mails a signed offer to sell a parcel of land, stating that acceptance must be received by the homeowner by Friday. The buyer mails an acceptance on Wednesday that arrives Saturday. Under the mailbox rule as applied to this offer, what is the result?

  1. A contract was formed Saturday, because receipt always controls for land sales
  2. No contract was formed, because the offer limited acceptance to receipt by Friday Correct answer.
  3. A contract was formed Wednesday, because the mailbox rule makes dispatch effective
  4. No contract was formed, because land sales require delivery in person

Explanation

The mailbox rule generally makes acceptance effective on dispatch, but an offeror may control the manner and timing of acceptance. When the offer expressly requires receipt by a stated date, dispatch is not enough and a late-arriving acceptance operates as a counteroffer. The land subject matter does not change this timing analysis.

Question 3Contracts

Which of the following promises is enforceable without proof of consideration because of the doctrine of promissory estoppel?

  1. A promise to make a gift to a favorite charity
  2. A promise made in a jurisdiction that still enforces a seal without more
  3. A promise to pay a debt already discharged in bankruptcy
  4. A promise on which the promisor reasonably expected reliance, reliance occurred, and injustice can be avoided only by enforcement Correct answer.

Explanation

Promissory estoppel enforces a promise when the promisor reasonably expected the promisee to rely, reliance actually occurred, and enforcement is needed to prevent injustice. A bare charitable pledge or gift promise lacks that reliance showing, and a promise to pay a discharged debt requires a writing under a different rule.

Question 4Contracts

A tenant promises to pay a landlord $500 for repainting an apartment, and the landlord completes the painting. Later the tenant claims the promise was unenforceable because no consideration supported it. How should the paralegal analyze the tenant's position?

  1. The tenant is correct, because past performance can never serve as consideration
  2. The tenant is incorrect, because the painting was bargained-for consideration exchanged for the promise Correct answer.
  3. The tenant is incorrect, because repainting is a moral obligation that always binds
  4. The tenant is correct, because the promise was made before the work began

Explanation

Consideration requires a bargained-for exchange of legal detriment or benefit, and the landlord's performance of the requested painting is exactly that. The promise induced the work and the work induced the promise, so the exchange is enforceable. Moral obligation alone does not create a contract.

Question 5Contracts

A 16-year-old signs a contract to purchase a used car and later, while still a minor, disaffirms the agreement and returns the vehicle. What is the general effect of disaffirmance in most jurisdictions?

  1. The minor is bound because a motor vehicle is a necessary
  2. The minor must still pay the full contract price because the car was used
  3. The minor may avoid the contract and is generally entitled to recover consideration paid, subject to duties of restitution Correct answer.
  4. The minor's disaffirmance is ineffective until a parent also signs a disaffirmance

Explanation

Contracts made by minors are generally voidable at the minor's election, and disaffirmance entitles the minor to recover what was paid, subject to returning what remains and to restitution obligations. A car is ordinarily not a necessary, so the necessity exception does not apply. A parent's signature is not required to disaffirm.

Question 6Contracts

A contract states that a party's promise is not binding unless a condition precedent occurs, but the party who benefits from that condition wrongfully prevents it from occurring. How will a court most likely treat the condition?

  1. The condition is reformed to require a longer waiting period
  2. The condition remains absolute, and the duty never arises
  3. The condition is excused, and the duty to perform becomes enforceable Correct answer.
  4. The contract is void for indefiniteness

Explanation

The prevention doctrine provides that a party may not benefit from a condition it wrongfully prevents from occurring. Courts treat the condition as satisfied or excused so the other party's duty to perform is triggered. This prevents unfair forfeiture caused by the obstructing party's own conduct.

Question 7Contracts

Which writing satisfies the statute of frauds requirement for a contract for the sale of goods priced at $500 or more under UCC Article 2?

  1. A purchase order signed only by the buyer when the seller is the defendant
  2. An oral agreement confirmed by a witness's testimony
  3. A verbal price quotation recorded in the seller's internal notes
  4. A writing signed by the party against whom enforcement is sought that indicates a contract was made and states a quantity Correct answer.

Explanation

UCC 2-201 requires a writing sufficient to indicate a contract for sale, signed by the party against whom enforcement is sought, and stating a quantity. The quantity term may not be supplied by parol evidence. Testimony, unsigned notes, and quotations lack the required signature and content.

Question 8Contracts

A party seeks to introduce evidence that a written agreement's stated delivery date of June 1 was actually intended to be July 1. The writing appears complete and integrated. Under the parol evidence rule, how should the court rule?

  1. Exclude the evidence because it contradicts an integrated written term Correct answer.
  2. Admit the evidence because delivery dates are always collateral
  3. Exclude the evidence only if both parties object
  4. Admit the evidence to show the parties' true intent about the date

Explanation

The parol evidence rule bars prior or contemporaneous oral evidence that contradicts or varies an integrated writing. A delivery date is a material term, so evidence of a different date directly contradicts the document. Only evidence explaining ambiguity or showing a separate collateral agreement may be admitted.

Question 9Contracts

An assignee receives an assignment of a right to receive payment under a contract. Which statement best describes the assignee's position relative to the obligor?

  1. The assignee becomes personally liable for the assignor's duties
  2. The assignee takes the right subject to defenses the obligor had against the assignor Correct answer.
  3. The assignee takes free of all defenses because assignment extinguishes them
  4. The assignee's rights are inferior to any later assignee in all cases

Explanation

An assignee generally steps into the assignor's shoes and takes the assigned right subject to defenses and claims the obligor could have raised against the assignor. Assignment of rights does not delegate duties, so the assignee does not become liable for the assignor's performance obligations. Priority among assignees follows separate rules, not automatic inferiority.

Question 10Contracts

A seller agrees to deliver goods to a buyer, and the contract states that time is of the essence. The seller delivers five days late. What is the buyer's strongest contractual argument?

  1. The buyer has no remedy because delivery occurred
  2. The buyer must accept the goods but may withhold all payment permanently
  3. Late delivery is automatically excused under the perfect tender rule
  4. Because time is of the essence, the late delivery is a material breach justifying rejection and damages Correct answer.

Explanation

A time-is-of-the-essence clause makes timely performance a material element, so late delivery can constitute a material breach supporting rejection and damages. The perfect tender rule concerns conformity of the goods, not excusing delay. The buyer's remedy is rejection or damages, not indefinite withholding of all payment after acceptance.

Question 11Contracts

Which situation most clearly constitutes an anticipatory repudiation that the nonbreaching party may treat as a breach?

  1. A party asks for assurance of the other side's performance
  2. A party delivers goods that are slightly nonconforming
  3. A party states clearly and unequivocally that it will not perform when performance becomes due Correct answer.
  4. A party requests a minor change in the delivery location

Explanation

Anticipatory repudiation occurs when a party unmistakably indicates before the performance date that it will not perform. The nonbreaching party may then treat the repudiation as a breach and sue immediately or await performance. Requests for changes or assurances and minor nonconformity do not rise to repudiation.

Question 12Contracts

A contract contains a liquidated damages clause setting $10,000 for any breach regardless of the actual harm. At the time of contracting, damages from breach were expected to be nominal and difficult to estimate, and the amount is grossly disproportionate to any likely loss. How should a court treat the clause?

  1. Enforce it fully because the parties agreed to the amount
  2. Declare it an unenforceable penalty and award actual damages Correct answer.
  3. Reform it upward to reflect the actual loss
  4. Enforce it only if the breaching party was negligent

Explanation

A liquidated damages clause is enforceable only when damages were difficult to estimate at contracting and the amount is a reasonable forecast of probable loss. A sum grossly disproportionate to anticipated harm is a penalty and will not be enforced. The court then awards actual provable damages instead.

Question 13Contracts

Under the common law, when does the duty to perform become discharged by impossibility?

  1. When a party cannot afford to continue performance
  2. When an unforeseen event makes performance objectively impossible or impracticable in a way the parties did not assume Correct answer.
  3. When performance becomes more expensive than expected
  4. When one party simply decides not to perform

Explanation

Impossibility or impracticability discharges a duty when an unforeseen event destroys the basis of performance without the fault of the party seeking discharge. Subjective financial difficulty or increased cost alone is not enough. A party's mere unwillingness to perform is a breach, not a discharge.

Question 14Contracts

A paralegal is asked to identify which contract term is a condition subsequent. Which example fits that category?

  1. A clause stating the contract's effective date
  2. A clause promising to pay a bonus after five years of service
  3. A clause requiring a building inspection before closing
  4. A clause providing that a party's duty ends if a specified event occurs after the duty arises Correct answer.

Explanation

A condition subsequent terminates an existing duty when a specified event occurs. A condition precedent, by contrast, must occur before a duty arises, as with an inspection before closing. Promises of future bonuses and effective-date clauses are not conditions subsequent.

Question 15Contracts

Which of the following best describes the concept of substantial performance in a construction contract?

  1. The builder has performed all essential elements, with only minor deviations, allowing recovery of the contract price less the cost of completion Correct answer.
  2. The builder has performed half the work and may recover half the price
  3. The builder has abandoned the project after beginning work
  4. The builder has completed every detail exactly as specified

Explanation

Substantial performance exists when the essential purpose of the contract is fulfilled and any remaining defects are minor. The performing party may recover the contract price minus the cost of remedying the deficiencies. Perfect tender and partial performance are different standards.

Question 16Contracts

A contract between two merchants includes a clause requiring written notice of any claim within 30 days. One merchant gives oral notice within the period and later sues. What is the likely analysis?

  1. Oral notice satisfies the clause because notice is informal
  2. The clause is void unless a court approves it
  3. The written-notice clause is enforceable between merchants, and failure to comply may bar the claim Correct answer.
  4. The clause is automatically void because it shortens the limitations period

Explanation

Between merchants, reasonable contractual notice provisions are generally enforceable, and failing to follow the specified method can bar the claim. Such clauses are common and are not automatically void merely because they impose a deadline. Whether a clause is reasonable depends on its terms, but no court preapproval is required.

Question 17Contracts

Which contract is most likely to be held void as against public policy?

  1. An agreement between competitors to fix prices Correct answer.
  2. An agreement to sell a business's goodwill
  3. An agreement to arbitrate a commercial dispute
  4. An agreement containing a reasonable noncompete limited in time and territory

Explanation

Price-fixing agreements restrain trade and are void as against public policy, and they may also violate antitrust law. Sale-of-goodwill agreements, reasonably limited noncompetes, and arbitration clauses are generally enforceable. The restraint must be unreasonable or unlawful to render an agreement void.

Question 18Contracts

A party who has fully performed seeks to recover under a contract with an unlicensed contractor in a jurisdiction requiring a license for that type of work. What is the likely outcome?

  1. The unlicensed contractor may recover only if the other party also lacked a license
  2. The unlicensed contractor may enforce the contract because licensing is a technicality
  3. The unlicensed contractor may recover the full contract price because work was done
  4. The unlicensed contractor may recover in quasi-contract for the value conferred in some jurisdictions Correct answer.

Explanation

Contracts with unlicensed contractors are often unenforceable when a statute requires a license to protect the public. Some jurisdictions nonetheless allow restitution in quasi-contract for the value of the benefit conferred. Full enforcement of the contract price is generally unavailable.

Question 19Contracts

In a contract for the sale of specially manufactured goods that the seller cannot resell in the ordinary course, which exception to the UCC statute of frauds may apply?

  1. The goods were delivered and accepted
  2. The buyer made a partial payment of any amount
  3. The goods are specially manufactured and not suitable for sale to others, and the seller has made a substantial beginning Correct answer.
  4. The parties had a prior course of dealing

Explanation

UCC 2-201(3)(a) dispenses with the writing requirement when goods are specially manufactured for the buyer, are not suitable for sale to others, and the seller has made a substantial beginning or commitment. Partial payment alone does not satisfy the statute unless it is payment for the goods and the quantity is admitted. A prior course of dealing does not by itself remove the writing requirement.

Question 20Contracts

Which statement accurately describes the effect of a novation?

  1. It substitutes a new party for an original party with the consent of all parties, discharging the original party Correct answer.
  2. It modifies a payment term without changing the parties
  3. It adds a new party while the original party remains liable
  4. It is another term for an assignment of rights

Explanation

A novation replaces an original party with a new party and extinguishes the original party's obligations, and it requires the consent of all parties. A mere assignment transfers rights without releasing the assignor. A modification changes terms but leaves the parties in place.

Question 21Contracts

A contract provides that a party may terminate on 30 days' written notice. The party gives 10 days' notice and refuses to perform. What is the most accurate characterization?

  1. A valid termination because notice was given
  2. A breach, because the notice period was a condition of the termination right Correct answer.
  3. An anticipatory repudiation only if the other party agrees
  4. A valid termination because termination rights are absolute

Explanation

When a contract makes termination effective only after a specified notice period, terminating early without complying is a breach. The notice provision is a condition limiting how the termination right may be exercised. Termination rights are not absolute where the contract prescribes a procedure.

Question 22Contracts

Which remedy is equitable and discretionary rather than a matter of right?

  1. Specific performance Correct answer.
  2. Consequential damages
  3. Nominal damages
  4. Compensatory damages

Explanation

Specific performance is an equitable remedy that a court may grant or deny based on fairness and the adequacy of legal remedies. It is commonly ordered for unique goods or land when damages are inadequate. Damages remedies, by contrast, are generally available as of right upon proof of breach.

Question 23Contracts

A buyer and seller enter a contract, and the buyer later learns the seller misrepresented a material fact about the goods, reasonably relying on the misrepresentation. What is the buyer's most likely remedy?

  1. The buyer must sue for specific performance
  2. The buyer may only seek nominal damages
  3. The buyer must perform because the contract was signed
  4. The buyer may rescind the contract and seek restitution Correct answer.

Explanation

Fraudulent or material misrepresentation of fact that induces reasonable reliance makes a contract voidable at the innocent party's election. The buyer may rescind and seek restitution of benefits conferred. The buyer is not compelled to perform, and nominal damages or specific performance are not the primary remedies.

Question 24Contracts

Which of these contracts is within the statute of frauds because of its subject matter, rather than because of a UCC goods threshold?

  1. A contract for a one-year lease of an apartment
  2. A contract for the sale of goods priced at $400
  3. A contract that cannot be performed within one year from its making Correct answer.
  4. A contract to perform services for two months

Explanation

The statute of frauds classic categories include contracts that cannot be completed within one year of making, along with land sales, suretyship, and marriage-related promises. A lease of one year or less and a two-month service contract can be completed within a year. A $400 goods contract falls below the UCC threshold.

Question 25Contracts

A contract contains an integration clause stating that the writing is the complete agreement. A party later offers evidence of an earlier oral promise that adds a term not addressed in the writing. How should a court evaluate the evidence?

  1. The evidence may be admitted only if the additional term is consistent and would not naturally be included in a complete agreement Correct answer.
  2. The evidence is always admissible because oral promises are separately enforceable
  3. The evidence is admissible only if both parties testify to the oral promise
  4. The integration clause bars all evidence of prior agreements, including consistent additional terms

Explanation

A merger or integration clause strengthens the conclusion that the writing is fully integrated, which bars evidence of prior consistent additional terms. Courts may still admit consistent terms if they would not naturally be included in a complete agreement. The rule does not open the door to all oral promises or require duplicative testimony.

Question 26Contracts

A contract states that the buyer's obligation to pay arises only after the seller delivers a certificate of inspection. Which term best describes the seller's delivery of that certificate?

  1. A condition precedent Correct answer.
  2. A condition subsequent
  3. An express warranty
  4. A covenant of quiet enjoyment

Explanation

A condition precedent is an event that must occur before a party's duty to perform becomes enforceable. Because payment is withheld until the certificate is delivered, the certificate operates as a condition precedent to the buyer's duty.

Question 27Contracts

A court finds that a party materially breached a contract. Which consequence follows for the nonbreaching party?

  1. The nonbreaching party may suspend performance and sue for total breach Correct answer.
  2. Only nominal damages are available as a matter of law
  3. The nonbreaching party must continue performing until the contract term ends
  4. The contract automatically becomes void ab initio

Explanation

A material breach excuses the nonbreaching party's remaining duties and permits a suit for damages based on total breach. The nonbreaching party may also treat the contract as at an end.

Question 28Contracts

Which contract falls within the statute of frauds based on its subject matter rather than any UCC goods provision?

  1. An agreement to sell a used motorcycle for $3,000
  2. A promise to pay a debt owed by another person if that person defaults Correct answer.
  3. A lease of office space for nine months at a fixed rent
  4. An agreement to sell a painting for $700

Explanation

Suretyship promises, in which one person answers for another's debt, are within the statute of frauds because of their subject matter. The other choices concern goods or a short-term lease, which are governed by different rules.

Question 29Contracts

A contract clause states that neither party is liable for delay caused by 'acts of God, war, or government order.' Which contract concept does this clause address?

  1. Acceleration
  2. Liquidated damages
  3. Force majeure Correct answer.
  4. Indemnification

Explanation

A force majeure clause excuses performance when specified extraordinary events beyond a party's control prevent it. It allocates risk for events such as natural disasters, war, and governmental action.

Question 30Contracts

A party wants to enforce a promise made without consideration. Which doctrine most directly supports enforcement when the promisee reasonably and detrimentally relied on the promise?

  1. Promissory estoppel Correct answer.
  2. Anticipatory repudiation
  3. Commercial impracticability
  4. Substantial performance

Explanation

Promissory estoppel allows enforcement of a promise lacking consideration when the promisor should reasonably expect reliance and injustice can be avoided only by enforcement. Detrimental reliance is the core element.

Question 31Contracts

An offer states that it will remain open for 30 days, and the offeror receives nothing in return for that promise. Under common law, what is the effect of the stated period?

  1. The offer becomes a binding contract immediately upon dispatch
  2. The offer is irrevocable for 30 days because the term is in writing
  3. The offer may be revoked at any time before acceptance because no consideration supports the option Correct answer.
  4. The offer lapses automatically after 30 days and cannot be revoked sooner

Explanation

At common law, a promise to keep an offer open is enforceable only if supported by consideration or a substitute such as a firm offer under the UCC or a reliance theory. Without consideration, the offeror may revoke before acceptance.

Question 32Contracts

A creditor agrees to accept $5,000 from a debtor in full satisfaction of a $9,000 debt that is due and undisputed. The debtor pays the $5,000. Under common law, what is the result?

  1. The debtor is discharged because the accord is executed Correct answer.
  2. The debtor remains liable for the $4,000 balance because the debt was undisputed
  3. The debtor is discharged only if the creditor signs a written waiver
  4. The debtor is discharged because part payment of a due debt is valid consideration

Explanation

When a creditor accepts a lesser sum in full satisfaction of an undisputed, due debt and the debtor performs, the resulting accord and satisfaction discharges the debt. The performance of the accord (the executed accord) ends the obligation.

Question 33Contracts

A contract contains an exculpatory clause releasing a party from all liability for its own intentional misconduct. How is such a clause generally treated by courts?

  1. It is enforced because parties may allocate risk freely
  2. It is converted into a liquidated damages provision
  3. It is enforced only if both parties are merchants
  4. It is unenforceable as contrary to public policy Correct answer.

Explanation

Courts generally refuse to enforce exculpatory clauses that excuse intentional wrongdoing or gross negligence because doing so would undermine public policy. Clauses limited to ordinary negligence are more likely to be enforced.

Question 34Contracts

A buyer and seller sign a written contract for the sale of goods. Later, the buyer claims that during negotiations the seller orally promised free installation. The writing contains a merger clause and says nothing about installation. Which rule governs whether the oral promise is admissible?

  1. The parol evidence rule Correct answer.
  2. The perfect tender rule
  3. The best evidence rule
  4. The mailbox rule

Explanation

The parol evidence rule determines whether prior or contemporaneous agreements may be used to vary a fully integrated writing. A merger clause supports a finding of full integration.

Question 35Contracts

A party assigns its right to receive payment under a contract to a third party. The obligor was not notified of the assignment and pays the original creditor. What is the obligor's position?

  1. The obligor must pay twice as a penalty
  2. The obligor is discharged because payment to the original creditor was made in good faith before notice Correct answer.
  3. The obligor remains liable to the assignee because assignment is effective without notice
  4. The assignment is void because notice was not given

Explanation

An assignment is generally effective against the obligor only after the obligor receives notice. Payment to the assignor before notice discharges the obligor, though the assignee may then pursue the assignor.

Question 36Contracts

A contract provides that either party may terminate on 60 days' written notice. One party gives notice on day one and states that it will stop performing on day ten. What is the likely result?

  1. The notice is void because termination clauses require mutual consent
  2. The termination is effective on day ten because notice was given
  3. The termination is effective only after the 60-day period runs, so stopping early is a breach Correct answer.
  4. The other party must accept the shortened period or waive all remedies

Explanation

A termination clause must be exercised according to its terms. Notice given on day one does not shorten the 60-day period, and ceasing performance on day ten is a breach of the contract.

Question 37Contracts

A contractor substantially performs a building contract, and the owner refuses to pay anything because of minor cosmetic defects. What is the contractor's best claim?

  1. Only reliance damages measured by expenses incurred
  2. Nothing, because complete performance is required
  3. The full contract price with no deduction
  4. The contract price minus the cost to cure the defects Correct answer.

Explanation

Under the substantial performance doctrine, a party that has substantially performed may recover the contract price less the cost of remedying the defects. The owner keeps the benefit of the work and offsets the deficiency.

Question 38Contracts

A seller agrees to sell widgets to a buyer, and the buyer wrongfully refuses to accept delivery. The seller resells the widgets to another buyer at the market price. Which measure best describes the seller's recovery?

  1. The buyer's expected profits from reselling the widgets
  2. The seller's incidental costs only
  3. The full contract price with no offset
  4. The difference between the contract price and the resale price Correct answer.

Explanation

When a buyer breaches by refusing goods, the seller may resell and recover the difference between the contract price and the resale price, plus incidental damages. This measure protects the seller's expectation interest.

Question 39Contracts

A contract requires delivery of 1,000 units by March 1. On February 1, the seller tells the buyer in writing that it will not deliver any units. The buyer has not yet performed. What may the buyer do?

  1. Treat the statement as an anticipatory repudiation and pursue remedies immediately Correct answer.
  2. Force the seller to perform by obtaining specific performance as of right
  3. Wait until March 2 and then sue for breach
  4. Do nothing until the seller fails to deliver on March 1

Explanation

A clear and unequivocal refusal to perform before the due date is an anticipatory repudiation. The nonbreaching party may treat it as a breach and sue immediately or await performance.

Question 40Contracts

A party seeks to avoid a contract claiming it was unconscionable. Which facts would most strongly support that claim?

  1. The contract contained complex technical terms
  2. The contract was offered on a take-it-or-leave-it basis with terms that shock the conscience Correct answer.
  3. The contract price was higher than the market average
  4. The contract was negotiated over several weeks by sophisticated parties

Explanation

Unconscionability generally requires both procedural unfairness, such as oppressive bargaining, and substantively unfair terms that shock the conscience. A take-it-or-leave-it term with shocking substance fits that pattern.

Question 41Contracts

A contract states that a party's duty to perform is discharged if a specified event occurs. The event occurs after performance was due. What is the effect?

  1. The duty is not discharged because the condition occurred too late Correct answer.
  2. The contract is void from the beginning
  3. The duty is discharged because the condition occurred
  4. The condition is treated as a condition precedent

Explanation

A condition subsequent discharges a duty only if it occurs before the duty is due to be performed. Once performance is already due, a later event does not retroactively excuse the obligation.

Question 42Contracts

A seller delivers goods that conform in all respects except that the packaging is slightly scuffed. The buyer rejects the entire shipment. Under the UCC, what is the likely outcome?

  1. The seller may cure only after the buyer resells the goods
  2. The rejection may be wrongful if the defect is minor and the buyer must accept with an offset Correct answer.
  3. The buyer must accept the goods and has no remedy
  4. The rejection is valid because any nonconformity permits rejection

Explanation

Although the perfect tender rule allows rejection for any nonconformity, a buyer's rejection can be wrongful when the defect is trivial and the buyer acts in bad faith. The buyer may instead accept with a price offset.

Question 43Contracts

A party breaches a contract, and the nonbreaching party seeks damages for lost profits that depend on a speculative new venture. What limits the recovery?

  1. The foreseeability rule of Hadley v. Baxendale Correct answer.
  2. The doctrine of laches
  3. The parol evidence rule
  4. The statute of limitations

Explanation

Consequential damages are recoverable only if they were foreseeable at the time of contracting. Lost profits from a speculative venture often fail this test.

Question 44Contracts

A party to a contract wants to delegate its duty to perform to another party. The contract states that the duties are personal and may not be delegated. What is the effect?

  1. The delegation converts the contract into a novation
  2. The delegation is effective but the delegator is released from all liability
  3. The delegation is effective because duties are freely delegable
  4. The delegation is ineffective because the contract prohibits it Correct answer.

Explanation

Parties may agree to prohibit delegation, and a clear anti-delegation clause makes an attempted delegation ineffective. Even without such a clause, duties involving personal skill or trust cannot be delegated.

Question 45Contracts

A contract is formed between a merchant and a consumer. The merchant sends a confirmation with an additional term. Under the UCC, what happens to the additional term?

  1. It voids the entire contract
  2. It does not become part of the contract if it materially alters the deal or the consumer objects Correct answer.
  3. It becomes part of the contract because the merchant sent it
  4. It becomes part of the contract only if the consumer signs it

Explanation

Between a merchant and a nonmerchant, additional terms in a confirmation do not become part of the contract if they materially alter it or the other party objects. The UCC protects consumers from surprise terms.

Question 46Contracts

A party seeks rescission of a contract based on fraudulent misrepresentation. Which element is essential to the claim?

  1. The misrepresentation was made by a merchant
  2. The misrepresentation was made in writing
  3. The misrepresentation concerned a future promise only
  4. The misrepresentation was material and induced reliance Correct answer.

Explanation

Rescission for fraud requires a material misrepresentation of fact that induced the other party to enter the contract. Reliance on the misrepresentation is essential.

Question 47Contracts

A contract contains a clause stating that the writing is the complete and final agreement. A party later offers evidence of a prior oral term that contradicts the writing. How is the evidence treated?

  1. It is inadmissible because the merger clause establishes full integration Correct answer.
  2. It is admissible only if the oral term is favorable to the drafter
  3. It is admissible because oral terms always survive a merger clause
  4. It is admissible to explain ambiguity in the writing

Explanation

A merger or integration clause supports a finding that the writing is fully integrated. Contradictory prior oral terms are then barred by the parol evidence rule.

Question 48Contracts

A court must decide whether a liquidated damages clause is an enforceable forecast of loss or an unenforceable penalty. Which factor is most important?

  1. Whether the stipulated amount was a reasonable estimate of anticipated loss at the time of contracting Correct answer.
  2. Whether the clause was printed in bold type
  3. Whether the clause was negotiated by attorneys
  4. Whether the actual loss turned out to be higher than the stipulated amount

Explanation

The validity of a liquidated damages clause is judged at the time of contracting. The stipulated sum must be a reasonable forecast of anticipated harm and actual damages must be difficult to estimate.

Question 49Contracts

A party claims impossibility of performance because the cost of performance has doubled due to market shifts. Under common law, what is the likely result?

  1. The duty is not discharged because increased cost alone does not make performance impossible Correct answer.
  2. The duty is discharged because the other party bears the risk of market shifts
  3. The duty is discharged only if the contract is silent on price
  4. The duty is discharged because increased cost is always an excuse

Explanation

Mere increase in cost or difficulty does not excuse performance under the impossibility doctrine. Discharge requires that performance be objectively impossible or impracticable due to an unforeseen event that fundamentally alters the bargain.

Question 50Contracts

A third party who is not a party to a contract seeks to enforce a promise made for its benefit. What determines whether the third party may enforce the promise?

  1. Whether the contracting parties intended to confer enforceable rights on the third party Correct answer.
  2. Whether the third party gave consideration to the promisor
  3. Whether the promise was made in writing
  4. Whether the third party knew of the contract at formation

Explanation

In most jurisdictions, a third-party beneficiary may enforce a promise only if the contracting parties intended to benefit that third party. An incidental beneficiary lacks standing to enforce.