LLM Contract Law & Commercial Transactions 3 — Questions and Answers
Question 1: What distinguishes an 'option contract' from a standard offer?
- The offeror is bound not to revoke the offer for a specified period in exchange for consideration (Correct answer)
- It is automatically accepted upon signature
- It requires no consideration to be valid
- It can only be used in real estate transactions
Correct answer: The offeror is bound not to revoke the offer for a specified period in exchange for consideration
An option contract is a binding promise to keep an offer open for a specified time, supported by separate consideration from the offeree.
Question 2: Under the UCC, the 'implied warranty of merchantability' is breached when goods:
- Are not fit for the ordinary purposes for which such goods are used (Correct answer)
- Are not delivered on time
- Do not conform to the buyer's specific needs
- Are priced above market value
Correct answer: Are not fit for the ordinary purposes for which such goods are used
UCC § 2-314 provides that a warranty of merchantability is implied in any sale of goods by a merchant, requiring the goods to be fit for their ordinary purpose.
Question 3: What is the legal significance of a 'liquidated damages' clause in a contract?
- It pre-specifies the damages payable upon breach, enforceable if it represents a reasonable estimate of actual harm (Correct answer)
- It limits damages to the contract price
- It automatically terminates the contract upon any breach
- It requires arbitration before litigation
Correct answer: It pre-specifies the damages payable upon breach, enforceable if it represents a reasonable estimate of actual harm
A liquidated damages clause is enforceable if it represents a reasonable forecast of actual damages and actual damages are difficult to estimate; it is void as a penalty if it is grossly disproportionate.
Question 4: Which of the following best describes a 'requirements contract' under the UCC?
- A buyer agrees to purchase all of their needs of a commodity exclusively from one seller (Correct answer)
- A seller agrees to supply a fixed quantity at a set price
- Parties agree to renegotiate price annually
- Either party may terminate with 30 days notice
Correct answer: A buyer agrees to purchase all of their needs of a commodity exclusively from one seller
A requirements contract obligates the buyer to purchase all of their requirements of a specified good from the seller, with quantity determined by the buyer's actual needs.
Question 5: The doctrine of 'unconscionability' under UCC § 2-302 allows a court to do what?
- Refuse to enforce all or part of a contract that is oppressively one-sided (Correct answer)
- Rewrite a contract to make it fair to both parties
- Award punitive damages for unfair bargaining
- Void any contract with unequal bargaining power
Correct answer: Refuse to enforce all or part of a contract that is oppressively one-sided
UCC § 2-302 empowers courts to refuse enforcement of a contract or clause that was unconscionable at the time of contract formation.
Question 6: Under contract law, what is 'novation'?
- A substitution of a new party or obligation that discharges the original contract (Correct answer)
- A unilateral modification of contract terms
- The assignment of contractual rights to a third party
- Cancellation of a contract without replacement
Correct answer: A substitution of a new party or obligation that discharges the original contract
Novation substitutes a new party or obligation for an existing one with the consent of all parties, completely discharging the original obligor.
LLM Contract Law & Commercial Transactions 3
What distinguishes an 'option contract' from a standard offer?