NYLE Contract Law Principles 3 — Questions and Answers
Question 1: Which remedy places the non-breaching party in the position they would have been in had the contract never been formed?
- Expectation damages
- Consequential damages
- Restitution / reliance damages (Correct answer)
- Liquidated damages
Correct answer: Restitution / reliance damages
Reliance damages restore the non-breaching party to their pre-contract position by reimbursing expenditures made in reliance on the contract.
Question 2: Under the Restatement (Second) of Contracts, a contract may be voidable for unilateral mistake when:
- Both parties were mistaken about a basic assumption
- One party was mistaken and enforcement would be unconscionable (Correct answer)
- The mistaken party assumed the risk of the error
- The mistake related only to the contract's value
Correct answer: One party was mistaken and enforcement would be unconscionable
Restatement §153 allows avoidance for unilateral mistake when enforcement would be unconscionable or the other party knew of the mistake.
Question 3: An agreement between two parties to release a third party from liability under the original contract is called a:
- Novation (Correct answer)
- Assignment
- Delegation
- Accord and satisfaction
Correct answer: Novation
A novation substitutes a new party for an original party, releasing the original party from liability with the obligee's consent.
Question 4: Which of the following best describes the concept of 'efficient breach'?
- A court-ordered breach to prevent economic waste
- A deliberate breach because the breaching party will profit even after paying damages (Correct answer)
- A breach excused by force majeure
- A breach where both parties mutually agree to terminate
Correct answer: A deliberate breach because the breaching party will profit even after paying damages
Efficient breach theory holds that a party may rationally breach if their gain exceeds the cost of damages owed to the non-breaching party.
Question 5: In New York, a contract clause that fixes damages in the event of breach is enforceable only if:
- It is labeled 'penalty clause' by the parties
- Actual damages would be difficult to estimate and the amount is a reasonable forecast of harm (Correct answer)
- The breaching party consented to the clause at time of breach
- The amount exceeds actual damages to deter breach
Correct answer: Actual damages would be difficult to estimate and the amount is a reasonable forecast of harm
New York enforces liquidated damages clauses only when actual damages are difficult to ascertain and the stipulated amount is a reasonable pre-estimate of harm.
Question 6: Promissory estoppel requires all of the following EXCEPT:
- A clear and definite promise
- Reasonable and foreseeable reliance by the promisee
- Consideration paid by the promisee (Correct answer)
- Injustice can only be avoided by enforcement
Correct answer: Consideration paid by the promisee
Promissory estoppel (Restatement §90) substitutes for consideration; it does not require the promisee to have paid consideration.
Question 7: When a party to a contract dies before performance, which type of contractual duty is automatically discharged?
- Any contractual duty involving payment of money
- A duty requiring the personal services of the deceased (Correct answer)
- A duty to deliver goods already manufactured
- All contractual duties without exception
Correct answer: A duty requiring the personal services of the deceased
Personal services contracts are discharged by the death or incapacity of the person whose unique skills are required for performance.
NYLE Contract Law Principles 3
Which remedy places the non-breaching party in the position they would have been in had the contract never been formed?