CLA/CP Exam Contract Law and Formation 3 — Questions and Answers
Question 1: In contract law, 'past consideration' is generally:
- Valid if the parties expressly agree it applies
- Insufficient to support a new promise (Correct answer)
- Sufficient when the benefited party is a merchant
- Enforceable under the UCC
Correct answer: Insufficient to support a new promise
Past consideration—something already given before the new promise—cannot serve as consideration because it was not bargained for in exchange.
Question 2: When an offeree makes a counteroffer, the legal effect on the original offer is that it:
- Remains open for a reasonable time
- Is immediately terminated (Correct answer)
- Becomes irrevocable for 30 days
- Is suspended until the counteroffer is rejected
Correct answer: Is immediately terminated
Under the mirror-image rule, a counteroffer operates as a rejection of the original offer and simultaneously creates a new offer.
Question 3: Mutual assent in contract law is determined by which standard?
- Subjective intent of each party individually
- The purely objective standard of what a reasonable person would understand (Correct answer)
- A combination of subjective and objective tests chosen by the court
- Only the written terms of the document
Correct answer: The purely objective standard of what a reasonable person would understand
Courts apply an objective standard, examining what a reasonable person in the position of each party would have understood, not the parties' hidden intent.
Question 4: A contract that is impossible to perform due to a law enacted after formation is typically discharged under the doctrine of:
- Frustration of purpose
- Supervening illegality (Correct answer)
- Commercial impracticability
- Anticipatory repudiation
Correct answer: Supervening illegality
When a contract becomes illegal due to a subsequent change in law, it is discharged under supervening illegality, relieving both parties of their obligations.
Question 5: Which of the following best describes a 'firm offer' under UCC Article 2?
- Any written offer that remains open for 30 days regardless of who makes it
- A written, signed offer by a merchant that assures it will be held open, enforceable without consideration (Correct answer)
- An oral offer that cannot be revoked because the offeree has relied on it
- A written offer accepted by both parties but not yet delivered
Correct answer: A written, signed offer by a merchant that assures it will be held open, enforceable without consideration
UCC § 2-205 provides that a signed, written offer by a merchant to buy or sell goods, with an assurance it will be held open, is irrevocable without consideration for up to three months.
Question 6: Under the doctrine of misrepresentation, a contract induced by an innocent but material misrepresentation is generally:
- Void from the beginning
- Voidable at the option of the innocent party (Correct answer)
- Unaffected because there was no fraudulent intent
- Valid because the misrepresenting party acted in good faith
Correct answer: Voidable at the option of the innocent party
Even innocent misrepresentation renders a contract voidable if it was material and the other party justifiably relied on it.
Question 7: A promise to refrain from filing a lawsuit constitutes valid consideration only if:
- The claim being surrendered was certain to succeed
- The party surrendering the claim had a good-faith, reasonable belief the claim was valid (Correct answer)
- The claim is formally dismissed by a court
- The other party requests the forbearance in writing
Correct answer: The party surrendering the claim had a good-faith, reasonable belief the claim was valid
Forbearance from asserting a claim is valid consideration when the claim is not frivolous and is surrendered in good faith, even if ultimately meritless.
CLA/CP Exam Contract Law and Formation 3
In contract law, 'past consideration' is generally: