Contracts I - Sample Exam

Question 1

The sample exam discussed an options agreement: In return for $10 on this day in hand received, Mrs. Elizabeth Consort, agrees that Mr. Jack Carpenter will have an option to purchase my property for 30 days at a price of $242,000. - Jack Carpenter never paid these 10 USD. Was there consideration?

Answer 1

Here the option recites payment of $10 as the exchange (“in return for”) and if that money had in fact been paid it unquestionably would have been consideration and the option would be binding—it could not be withdrawn before the expiration date. Jack, however, gave nothing at all to Libby Carpenter in exchange for the option.

The majority view is that a false recital of consideration is void and any contract (here the option) that relies on consideration must fail for lack of consideration.

Some courts will construe the false recital as an implied promise to pay the recited money, and an implied promise could be a valid consideration. Some scholars and a few courts support the argument that the false recital signals that the parties intended to make a legally binding contract and that should be enough.

Question 2

Jack did rely in a definite and substantial way ($16,000) on Libby’s promise by employing an architect. Do definite and substantial still appear in the Resatements?

Answer 2

The language no longer appears in Restatement 2d. §90, it is implicit in the requirement that enforcement is necessary to avoid injustice.

Question 3

What do we need to claim disgorgement?

Answer 3

Evidence of ill-gotten gain.

Question 4

In a bilateral options contract, what are the two promises?

Answer 4

In a bilateral options contract, there are two key promises made by the parties involved:

Promise by the Option Holder (Buyer): The option holder, or buyer of the option, makes a promise to pay a premium to the option writer (seller) in exchange for the right to choose whether to exercise the option. This promise involves paying a specified amount of money upfront for the option contract.

Promise by the Option Writer (Seller): The option writer, or seller of the option, makes a promise to honor the terms of the option contract if the option holder chooses to exercise the option. This promise entails being obligated to buy (in the case of a call option) or sell (in the case of a put option) the underlying asset at the predetermined price (the strike price) upon the option holder’s request.

Question 5

What is the lost volume problem?

Answer 5

Assuming a seller has a continuous supply of the same items, the UCC allows sellers to claim lost profits not only on the first sale in case of a buyer’s breach but also on a second (“opportunity cost”).

Question 6

The standard measure of damages for quasi contracts is..?

Answer 6

Restitution (NOT reliance)
Reliance is for promissory estoppel

Question 7

Which case introduced the doctrine of good faith?

Answer 7

Wood v. Lucy