CLA/CP Exam Contract Formation and Enforcement 5 — Questions and Answers
Question 1: An employer promises a retiring employee a monthly pension. The employee retires in reliance on this promise. The promise is later revoked. Under promissory estoppel, the employee can recover:
- An amount necessary to prevent injustice, which may be limited to reliance damages (Correct answer)
- The full value of all promised pension payments as expectation damages
- Nothing, because pensions require a written ERISA plan
- Only nominal damages for the broken promise
Correct answer: An amount necessary to prevent injustice, which may be limited to reliance damages
Promissory estoppel may limit recovery to the extent necessary to avoid injustice, which courts often measure as reliance damages rather than full expectation damages.
Question 2: In which situation would the doctrine of impossibility most clearly excuse a party's performance?
- The subject matter of the contract is destroyed without fault of either party (Correct answer)
- Performance becomes more expensive due to market fluctuations
- A supplier fails to deliver materials to the promisor
- The promisor decides it is no longer profitable to perform
Correct answer: The subject matter of the contract is destroyed without fault of either party
Impossibility excuses performance when an unforeseen event destroys the subject matter or makes performance objectively impossible, not merely more difficult or unprofitable.
Question 3: A party who seeks to enforce a contract under the theory of quasi-contract (implied-in-law) must show:
- The other party received a benefit and allowing retention without payment would be unjust enrichment (Correct answer)
- A clear offer, acceptance, and consideration were present
- The parties intended to create a binding agreement
- A signed writing evidencing the parties' obligations
Correct answer: The other party received a benefit and allowing retention without payment would be unjust enrichment
Quasi-contract is an equitable remedy that requires proof that one party was unjustly enriched at the other's expense, regardless of any actual agreement between them.
Question 4: Which of the following most accurately describes the 'adequacy of consideration' standard under contract law?
- Courts generally do not inquire into the adequacy of consideration as long as something of legal value is exchanged (Correct answer)
- Consideration must be of at least equal economic value to be valid
- Courts require an independent appraisal of exchanged items to confirm fairness
- Consideration is adequate only if both parties are sophisticated commercial entities
Correct answer: Courts generally do not inquire into the adequacy of consideration as long as something of legal value is exchanged
Courts uphold the freedom of contract by not requiring equal value; as long as something of legal value (a legal detriment or benefit) is bargained for, consideration is sufficient.
Question 5: A professional services contract is silent on duration. A court will most likely:
- Imply a reasonable time for performance based on the circumstances (Correct answer)
- Declare the contract unenforceable for indefiniteness
- Allow either party to terminate immediately without notice
- Require the parties to renegotiate the duration term
Correct answer: Imply a reasonable time for performance based on the circumstances
Where a contract is silent on duration, courts supply a reasonable time term based on the nature of the services, industry custom, and surrounding circumstances.
Question 6: A contract provision that would require a consumer to waive all future tort claims arising from a company's negligence is most likely:
- Unenforceable as unconscionable or against public policy (Correct answer)
- Fully enforceable if clearly disclosed in the contract
- Enforceable only if the consumer received a discount in exchange
- Valid in commercial contracts but not consumer contracts
Correct answer: Unenforceable as unconscionable or against public policy
Provisions that attempt to exculpate a party from liability for its own negligence are frequently held void as against public policy, especially in consumer adhesion contracts.
Question 7: Under common law, the Statute of Frauds requires a writing for contracts that cannot be fully performed within one year. When does this one-year period begin?
- From the date the contract is made (Correct answer)
- From the date performance is scheduled to begin
- From the date the writing is signed
- From the date the parties first begin negotiations
Correct answer: From the date the contract is made
The one-year period under the Statute of Frauds is measured from the date the contract is formed, not from when performance commences.
CLA/CP Exam Contract Formation and Enforcement 5
An employer promises a retiring employee a monthly pension.
The employee retires in reliance on this promise.
The promise is later revoked.
Under promissory estoppel, the employee can recover: