CLA/CP Exam Contract Law and Formation 5 — Questions and Answers
Question 1: A contract that violates a licensing statute designed primarily to protect the public is generally held to be:
- Enforceable if the unlicensed party substantially performed
- Void and unenforceable as against public policy (Correct answer)
- Voidable only at the option of the licensed party
- Valid unless the other party was also unlicensed
Correct answer: Void and unenforceable as against public policy
When a licensing requirement is designed to protect the public (not merely raise revenue), a contract by an unlicensed party is void as against public policy.
Question 2: Which statement best describes the difference between a void contract and a voidable contract?
- A void contract can be ratified; a voidable contract cannot
- A void contract has no legal effect from inception; a voidable contract is valid until a party elects to rescind it (Correct answer)
- A voidable contract cannot be enforced by either party; a void contract can be enforced by the innocent party
- There is no practical difference; courts use the terms interchangeably
Correct answer: A void contract has no legal effect from inception; a voidable contract is valid until a party elects to rescind it
A void contract is a legal nullity and cannot be ratified or enforced by anyone, while a voidable contract is effective unless the aggrieved party chooses to avoid it.
Question 3: Under contract law, 'adequacy of consideration' means courts will:
- Ensure both parties receive fair market value
- Generally not inquire into whether consideration was of equal value (Correct answer)
- Void contracts where consideration is grossly inadequate
- Require economic equivalence as a condition of enforcement
Correct answer: Generally not inquire into whether consideration was of equal value
Courts do not examine whether consideration was economically equivalent; even nominal consideration (e.g., $1) is sufficient if it was actually bargained for.
Question 4: An agreement to pay a debt already barred by the statute of limitations is generally:
- Void because there is no consideration
- Enforceable as a new promise without requiring new consideration in most jurisdictions (Correct answer)
- Unenforceable because the debt is legally extinguished
- Valid only if the new promise is made before the original limitation period expires
Correct answer: Enforceable as a new promise without requiring new consideration in most jurisdictions
Most jurisdictions hold that a new promise to pay a time-barred debt is enforceable without new consideration because the moral obligation serves as a substitute.
Question 5: Which of the following scenarios best illustrates the concept of 'promissory estoppel'?
- A merchant refuses to honor an advertised price
- A contractor moves across the country and quits a job in reliance on an employer's oral promise of employment (Correct answer)
- Two parties enter a written contract that turns out to be impossible
- A buyer pays above market value for goods in a competitive market
Correct answer: A contractor moves across the country and quits a job in reliance on an employer's oral promise of employment
Promissory estoppel applies when a party makes a clear promise that foreseeably induces detrimental reliance by another, and injustice can only be avoided by enforcement.
Question 6: Under the objective theory of contracts, a party's 'outward manifestation of assent' is evaluated from the perspective of:
- A judge with full knowledge of both parties' hidden intentions
- A reasonable person in the position of the other contracting party (Correct answer)
- The party whose conduct is being evaluated
- An expert in the relevant industry
Correct answer: A reasonable person in the position of the other contracting party
The objective theory asks what a reasonable person in the offeree's or offeror's position would have understood the conduct or words to mean.
Question 7: Which of the following is a recognized exception to the rule that an offer may be revoked at any time before acceptance?
- The offer was made in writing
- The offeree has begun substantial performance of a unilateral contract (Correct answer)
- The offer was communicated by email rather than mail
- The offer contains a fixed price for goods
Correct answer: The offeree has begun substantial performance of a unilateral contract
Once the offeree begins substantial performance of a unilateral contract, the offeror's power to revoke is suspended to allow completion of the requested act.
CLA/CP Exam Contract Law and Formation 5
A contract that violates a licensing statute designed primarily to protect the public is generally held to be: