IL Bar Contracts 2 — Questions and Answers
Question 1: An anticipatory repudiation occurs when a party:
- Fails to perform on the due date
- Unequivocally indicates before the due date that they will not perform (Correct answer)
- Requests a modification to the contract
- Performs defectively
Correct answer: Unequivocally indicates before the due date that they will not perform
Anticipatory repudiation is an unequivocal statement or action before the performance date that the party will not perform, entitling the non-breaching party to treat it as a present breach.
Question 2: The parol evidence rule prevents admission of prior or contemporaneous oral agreements to:
- Supplement an incomplete written contract
- Contradict or vary the terms of a final integrated written contract (Correct answer)
- Explain ambiguous terms in a writing
- Establish that a condition precedent was not fulfilled
Correct answer: Contradict or vary the terms of a final integrated written contract
The parol evidence rule bars extrinsic evidence offered to contradict or vary the terms of a fully integrated written agreement, though exceptions exist for ambiguity, fraud, and conditions precedent.
Question 3: Expectation damages in contract law are designed to put the non-breaching party:
- In the position they were in before the contract
- In the position they would have been in had the contract been performed (Correct answer)
- In a better position than performance would have provided
- Only in a position to recover out-of-pocket losses
Correct answer: In the position they would have been in had the contract been performed
Expectation damages — the standard contract remedy — protect the benefit of the bargain by placing the non-breaching party where full performance would have put them.
Question 4: In Illinois, the implied covenant of good faith and fair dealing in contracts:
- Creates independent causes of action in all commercial contracts
- Is implied in every contract and governs the exercise of discretion within contract terms (Correct answer)
- Overrides express contract terms when inequitable
- Applies only to insurance contracts
Correct answer: Is implied in every contract and governs the exercise of discretion within contract terms
Illinois recognizes the implied covenant of good faith and fair dealing as governing discretionary conduct within the scope of a contract, but it does not create independent obligations beyond contract terms.
Question 5: Under the doctrine of frustration of purpose, a contract may be discharged when:
- Performance becomes physically impossible
- The principal purpose of the contract has been substantially frustrated by an unforeseeable event (Correct answer)
- One party changes their mind about the value of the deal
- Costs of performance increase dramatically
Correct answer: The principal purpose of the contract has been substantially frustrated by an unforeseeable event
Frustration of purpose discharges a contract when an unforeseeable supervening event destroys the principal purpose, even though performance remains technically possible.
Question 6: A liquidated damages clause is enforceable in Illinois if:
- It is labeled as liquidated damages in the contract
- Damages were difficult to estimate at the time of contracting and the amount is a reasonable forecast of actual harm (Correct answer)
- It exceeds actual damages
- Both parties are sophisticated commercial entities
Correct answer: Damages were difficult to estimate at the time of contracting and the amount is a reasonable forecast of actual harm
Illinois courts enforce liquidated damages clauses when actual damages are difficult to ascertain at contracting and the stipulated amount is a reasonable estimate of probable loss, not a penalty.
IL Bar Contracts 2
An anticipatory repudiation occurs when a party: