NALA Contracts and Commercial Law 3 — Questions and Answers
Question 1: What is the effect of a 'condition precedent' in a contract?
- It terminates a party's existing duty to perform
- It must occur before a party's duty to perform arises (Correct answer)
- It allows a party to modify the contract unilaterally
- It makes the contract void from its inception
Correct answer: It must occur before a party's duty to perform arises
A condition precedent is an event that must occur before a contractual duty to perform is triggered; if the condition does not occur, no duty arises.
Question 2: Under the UCC, which warranty is implied in every contract for the sale of goods by a merchant who deals in goods of that kind?
- Warranty of fitness for a particular purpose
- Warranty of title
- Warranty of merchantability (Correct answer)
- Express warranty based on description
Correct answer: Warranty of merchantability
UCC 2-314 implies a warranty of merchantability in every sale of goods by a merchant, meaning the goods must be fit for the ordinary purposes for which they are used.
Question 3: A legal assistant discovers that a contract was induced by fraudulent misrepresentation. The remedy available to the innocent party is typically:
- Specific performance only
- Rescission and restitution (Correct answer)
- Punitive damages as a matter of right
- Modification of the contract terms
Correct answer: Rescission and restitution
Fraudulent misrepresentation renders a contract voidable, entitling the innocent party to rescind the contract and seek restitution to be restored to their pre-contract position.
Question 4: What is 'anticipatory repudiation' in contract law?
- A party's refusal to sign the written contract before performance begins
- A clear statement or conduct before the performance date showing a party will not perform (Correct answer)
- A court order preventing a party from performing
- A mutual agreement to cancel the contract before the due date
Correct answer: A clear statement or conduct before the performance date showing a party will not perform
Anticipatory repudiation occurs when a party clearly communicates before performance is due that they will not fulfill their contractual obligations, allowing the non-breaching party to treat the contract as immediately breached.
Question 5: Under the parol evidence rule, extrinsic evidence of prior or contemporaneous agreements is generally inadmissible to:
- Prove a condition precedent to formation
- Interpret an ambiguous contract term
- Contradict or vary the terms of a fully integrated written contract (Correct answer)
- Show that a contract is void for illegality
Correct answer: Contradict or vary the terms of a fully integrated written contract
The parol evidence rule bars admission of extrinsic evidence to contradict, vary, or add to the terms of a fully integrated written agreement, though exceptions exist for ambiguity, fraud, and conditions precedent.
Question 6: When a court awards 'expectation damages' for breach of contract, the goal is to:
- Punish the breaching party for their misconduct
- Place the non-breaching party in the position they would have been in had the contract been performed (Correct answer)
- Restore the non-breaching party to their pre-contract position
- Compensate only for out-of-pocket expenses
Correct answer: Place the non-breaching party in the position they would have been in had the contract been performed
Expectation damages aim to give the non-breaching party the benefit of the bargain by placing them in the economic position they would have occupied if the contract had been fully performed.
Question 7: Which of the following contract provisions specifies in advance the amount of damages to be paid upon a breach?
- Indemnification clause
- Force majeure clause
- Liquidated damages clause (Correct answer)
- Arbitration clause
Correct answer: Liquidated damages clause
A liquidated damages clause pre-establishes the amount of damages parties agree to pay for breach, enforceable when actual damages would be difficult to calculate and the amount is a reasonable estimate.
NALA Contracts and Commercial Law 3
What is the effect of a 'condition precedent' in a contract?