IA Bar Contracts 3 — Questions and Answers
Question 1: The parol evidence rule bars extrinsic evidence offered to:
- Establish a condition precedent to the contract's effectiveness
- Contradict or vary the terms of a fully integrated written agreement (Correct answer)
- Show that fraud induced the written contract
- Demonstrate that a term is ambiguous
Correct answer: Contradict or vary the terms of a fully integrated written agreement
The parol evidence rule prevents prior or contemporaneous extrinsic evidence from contradicting or varying the final, fully integrated written agreement.
Question 2: A contract entered into because of mutual mistake of fact may be voidable if the mistake concerns:
- The future market value of the subject matter
- A basic assumption on which the contract was made (Correct answer)
- One party's subjective purpose for entering the contract
- The adequacy of the consideration exchanged
Correct answer: A basic assumption on which the contract was made
Mutual mistake doctrine requires the shared mistaken belief to concern a basic assumption of the contract that materially affects the agreed exchange.
Question 3: Which element distinguishes an illusory promise from a valid contractual promise?
- The promise is made orally rather than in writing
- The promisor retains the unlimited right to cancel or not perform (Correct answer)
- The promise is conditioned on an uncertain future event
- The promise involves a pre-existing legal duty
Correct answer: The promisor retains the unlimited right to cancel or not perform
An illusory promise lacks mutuality of obligation because the promisor is not actually bound to do anything, making it insufficient consideration.
Question 4: Under the UCC battle of the forms rule (§ 2-207), additional terms in an acceptance between merchants become part of the contract unless:
- The original offer was made orally
- The offer expressly limits acceptance to its terms, the new terms materially alter the contract, or timely objection is made (Correct answer)
- The goods involved are worth more than $500
- The additional terms are proposed more than 30 days after the offer
Correct answer: The offer expressly limits acceptance to its terms, the new terms materially alter the contract, or timely objection is made
UCC § 2-207(2) lists three conditions — limitation in the offer, material alteration, or timely objection — any of which knocks out additional merchant terms.
Question 5: Which of the following best describes the concept of promissory estoppel?
- A court's refusal to enforce an unconscionable term
- Enforcement of a promise that induced reasonable, detrimental reliance even without consideration (Correct answer)
- Rescission of a contract based on fraudulent inducement
- Modification of a contract without additional consideration under the UCC
Correct answer: Enforcement of a promise that induced reasonable, detrimental reliance even without consideration
Promissory estoppel (Restatement § 90) enforces a promise lacking consideration when the promisee reasonably relied on it to their detriment and injustice can only be avoided by enforcement.
Question 6: When is a non-compete covenant in an employment contract most likely enforceable in Iowa?
- When it has no geographic or time limitation
- When it is reasonable in scope, duration, and geographic area and protects a legitimate business interest (Correct answer)
- When it is signed at any time during employment
- When the employee earns above a statutory wage threshold
Correct answer: When it is reasonable in scope, duration, and geographic area and protects a legitimate business interest
Iowa courts apply a reasonableness standard: the covenant must protect a legitimate interest and not impose an undue burden on the employee or the public.
Question 7: A condition precedent in a contract must occur before:
- The contract is validly formed
- A party's duty to perform becomes absolute (Correct answer)
- Either party can seek damages for breach
- The statute of limitations begins to run
Correct answer: A party's duty to perform becomes absolute
A condition precedent is an event that must occur before a contractual duty to perform is triggered; if the condition fails, the duty never arises.
IA Bar Contracts 3
The parol evidence rule bars extrinsic evidence offered to: