PSI Contracts and Business Law 2 — Questions and Answers
Question 1: Which doctrine allows a court to refuse enforcement of a contract that is grossly unfair or oppressive to one party?
- Promissory estoppel
- Unconscionability (Correct answer)
- Mutual mistake
- Frustration of purpose
Correct answer: Unconscionability
Unconscionability allows courts to refuse to enforce contracts that are shockingly unfair or oppressive, typically where there was unequal bargaining power.
Question 2: A contractor promises to complete work by a specific date and the owner relies on this promise by scheduling a grand opening. The contractor fails to perform. Under what theory may the owner recover?
- Accord and satisfaction
- Promissory estoppel (Correct answer)
- Unjust enrichment
- Novation
Correct answer: Promissory estoppel
Promissory estoppel allows recovery when a party reasonably relies on a promise to their detriment, even without a formal contract.
Question 3: Under the Uniform Commercial Code (UCC), what is the 'battle of the forms' rule regarding additional terms in acceptances between merchants?
- Additional terms automatically void the acceptance
- Additional terms become part of the contract unless they materially alter it or the offer expressly limits acceptance (Correct answer)
- The offeror's terms always control
- Additional terms require a written amendment
Correct answer: Additional terms become part of the contract unless they materially alter it or the offer expressly limits acceptance
UCC §2-207 provides that between merchants, additional terms in an acceptance become part of the contract unless they materially alter the deal, the offer limits acceptance to its terms, or the offeror objects within a reasonable time.
Question 4: What is the legal effect of a 'time is of the essence' clause in a real estate contract?
- Deadlines become approximate guidelines
- Missing the deadline is a material breach (Correct answer)
- The contract is automatically void if the deadline is missed
- Courts have discretion to extend the deadline
Correct answer: Missing the deadline is a material breach
A 'time is of the essence' clause makes strict compliance with deadlines a material term, so missing the deadline constitutes a material breach allowing the other party to terminate.
Question 5: Which of the following is an example of a valid liquidated damages clause?
- A clause awarding double damages regardless of actual loss
- A clause setting damages at $500/day for delay where actual damages are difficult to estimate (Correct answer)
- A clause waiving all damages for breach
- A clause awarding punitive damages automatically
Correct answer: A clause setting damages at $500/day for delay where actual damages are difficult to estimate
A valid liquidated damages clause must be a reasonable pre-estimate of damages that would be difficult to calculate, not a penalty.
Question 6: An agency relationship can be terminated by operation of law in which of the following circumstances?
- The principal decides to hire a different agent
- The agent requests additional compensation
- The death of either the principal or agent (Correct answer)
- The contract term expires
Correct answer: The death of either the principal or agent
Death of either the principal or agent automatically terminates the agency relationship by operation of law, without any notice required.
Question 7: What distinguishes an independent contractor from an employee for purposes of business law?
- Independent contractors are always paid more
- The hiring party controls only the result of work, not the manner of performance (Correct answer)
- Independent contractors cannot enter into contracts
- Employees cannot be held liable for their own negligence
Correct answer: The hiring party controls only the result of work, not the manner of performance
The key distinction is behavioral control: an employee is controlled in both what to do and how to do it, while an independent contractor is only controlled as to the result.
PSI Contracts and Business Law 2
Which doctrine allows a court to refuse enforcement of a contract that is grossly unfair or oppressive to one party?