Business Law Ch. 11 - Consideration and Promissory Estoppel
What is a best-efforts contract?
A best-efforts contract is a contract which contains a clause that requires one or both of the parties to use their best efforts to achieve the objective of the contract. The courts generally have held that the imposition of the best-efforts duty provides sufficient consideration to make a contract enforceable. Real estate listing contracts often require a real estate broker to use his or her best efforts to find a buyer for the listed real estate. Contracts often require underwriters to use their best efforts to sell securities on behalf of their corporate clients. Both of these contracts would be enforceable. Of course, a party can sue another company for failing to use its promised best efforts.
Toughones, a car part manufacturer, entered into a contract to license computer software from a Vizera Inc. for $250,000. This software is to be used to keep track of inventory, accounts receivable, and other financial data. After the software was installed, the computer system worked but it had a few glitches. Toughones refused to pay the full amount in the contract. To settle the dispute, the parties agree that $180,000 is to be paid as full and final payment for the software. Toughones paid the $180,000 as agreed. What kind of agreement did Toughones and Vizera reach in the end? A) accord and satisfaction B) preexisting duty C) counteroffer D) mirror image acceptance
A) accord and satisfaction
Which of the following lacks consideration? A) bargained-for exchange B) gift promise C) illusory promise D) preexisting duty
A) bargained-for exchange
Which of the following can convert a gift promise into an enforceable promise? A) if the promisee offers a consideration B) if the promisor offers a consideration C) if the promisee receives a legal benefit D) if the promisor suffers a legal detriment
A) if the promisee offers a consideration
A contract into which both parties enter but in which one or both of the parties can choose not to perform their contractual obligations is known as ________. A) illusory promise B) gift promise C) preexisting duty D) illegal consideration
A) illusory promise
Dean Campenella is a detective with the California state police. During the investigation of a missing child, Campenella found new clues that led to the capture of a serial killer involved in another case. Since Campenella was not involved in the serial killer case, and found the clues while investigating another case, Campenella demanded a special reward from the state police department for helping catch the killer. But his demand was declined citing lack of consideration. Campenella's demand lacks consideration under which of the following? A) preexisting duty B) illegal consideration C) gift promise D) illusory promise
A) preexisting duty
AtlasNow Construction Company, a general contractor, requests bids from subcontractors for work to be done on a hospital building that AtlasNow plans to submit a bid to build. Catapipes Plumbing Company, a plumbing subcontractor, submits the lowest bid for the plumbing work, and AtlasNow incorporates Catapipes's low bid in its own bid for the general contract. Based on all of the subcontractors' bids, AtlasNow submits the lowest overall bid to build the hospital and is awarded the contract. If Catapipes Plumbing plans to withdraw its bid, what legal doctrine can help AtlasNow from being meted out injustice due to lack of consideration? A) promissory estoppel B) freedom of contract C) acquiescence D) exclusionary rule
A) promissory estoppel
Poweroxi Inc. produces rocket propellant fuel that is used in space shuttles. NASA is an agency that requires rocket propellant fuel to send its rockets to space. NASA enters into a contract with Poweroxi Inc. to purchase all of the propellant fuel it will need this year from Poweroxi. What would this contract be an example of? A) requirements contract B) output contract C) option contract D) yield contract
A) requirements contract
Under which of the following conditions is a contract said to have legal value? A) the promisor receives a legal benefit B) the promisor suffers a legal detriment C) both promisor and promisee receives a legal benefit D) both promisor and promisee suffers a legal detriment
A) the promisor receives a legal benefit
Which of the following is true of a gift promise? A) A gift promise can be enforced in a court of law. B) A completed gift promise cannot be cancelled for lack of consideration. C) A gift promise contains considerations. D) The promisee can take legal action if the promisor does not uphold the promise.
B) A completed gift promise cannot be cancelled for lack of consideration.
________ is an agreement whereby the parties agree to accept something different in satisfaction of the original contract. A) Counteroffer B) Accord C) Promissory estoppel D) Mirror image acceptance
B) Accord
Which of the following is true for applying promissory estoppels to a contract? A) Both parties must suffer legal detriment. B) Injustice would be caused if the promise were not enforced. C) They can be applied for illusory promise contracts. D) They can be applied for gift promise contracts.
B) Injustice would be caused if the promise were not enforced.
Why does Catapipes's consideration have legal value? A) It is a gift promise contract. B) It is a bargained-for-exchange contract. C) It is an illusory promise contract. D) The consideration is an example of past consideration.
B) It is a bargained-for-exchange contract.
Which of the following is true about a promissory estoppel? A) It is invoked in cases having option contract infringements. B) It permits a court to order enforcement of a contract that lacks consideration. C) It allows for a party to claim goods, which were revoked, for which it has already paid consideration. D) It is invoked in cases that involve a promissory note to pay considerations at a later time.
B) It permits a court to order enforcement of a contract that lacks consideration.
Hartman, who has worked for Aratize Inc. for 25 years, is retiring. Upon hearing the news of his retirement, the president of Aratize announces a bonus of $250,000 to Hartman for his exceptional services toward Aratize thus far. But upon retiring, Hartman isn't paid the bonus. Hartman decides to sue the president and Aratize to recover the promised bonus. Which of the following is true of this case? A) It will be enforceable in court because it is a gift promise. B) It will not be enforceable in court because of past consideration. C) It will not be enforceable because the president is not authorized to make such a promise. D) It will not be enforceable because it is an unlawful consideration.
B) It will not be enforceable in court because of past consideration.
Mark, who recently won a lottery, tells Sean that he will split his lottery winnings with him, if Sean can arrange an interview between Sean's boss and Mark. Sean talks to his boss and the meeting is arranged. But when Sean goes to collect half of Mark's lottery winnings, Mark refuses to pay. What is the act of consideration in this scenario? A) Mark telling Sean he will split his lottery winnings with him B) Sean arranging the interview C) Mark going for the interview D) Sean asking for half of the lottery winnings
B) Sean arranging the interview
A contract in which a seller agrees to sell all of its production to a single buyer is known as a(n) ________. A) requirements contract B) output contract C) best-efforts contract D) option contract
B) output contract
A promise lacks consideration if a person promises to perform an act or do something he is already under an obligation to do. This is called a(n) ________. A) illegal consideration B) preexisting duty C) gift promise D) illusory promise
B) preexisting duty
A(n) ________ is a contract in which a buyer agrees to purchase all of its requirements for an item from one seller. A) option contract B) requirements contract C) best-efforts contract D) output contract
B) requirements contract
________ is a promise to refrain from doing an unlawful act, and therefore is a promise that will not support a contract. A) Preexisting duty B) Illusory promise C) Illegal consideration D) Gift promise
C) Illegal consideration
Which of the following is true for an accord? A) The accord terminates the original contract. B) The nonbreaching party cannot enforce the original contract if the accord is not satisfied. C) It is enforceable even though no new consideration is given. D) An accord is only reached when both parties of the contract fail to meet their contractual
C) It is enforceable even though no new consideration is given.
Mary buys a lottery ticket and promises to buy her friend Sharon a new pair of shoes if she checks the lottery results while Mary is away. Sharon agrees to do so, provided she has the time for it. If Sharon fails to check the results and Mary wins the lottery, which of the following would be true for the contract between Mary and Sharon? A) Mary can claim for breach of contract against Sharon. B) Sharon can claim for breach of contract against Mary. C) Neither Mary nor Sharon can claim breach of contract. D) Mary's promise is supported by consideration.
C) Neither Mary nor Sharon can claim breach of contract.
________ is an equity doctrine that permits a court to order enforcement of a contract that lacks consideration. A) Illusory promise B) Gift promise C) Promissory estoppel D) Option contract
C) Promissory estoppel
Which of the following is true for a buyer with an output contract? A) The buyer cannot sue the seller in case the seller plans to share its output with another buyer. B) The buyer can choose to buy when and what he wants from the seller. C) The buyer is obliged to buy all the goods sold from the seller. D) The buyer cannot enforce the best-efforts clause in the output contract.
C) The buyer is obliged to buy all the goods sold from the seller.
To avoid legal nuisance, Frasier decides to compromise with James. He asks James to fix a tap in the barn for $250, and modify the current contract to include the tap in the barn. James agrees to this, and does as asked, while Frasier remade the contract. Which of the following would this kind of settlement be referred to as? A) duress B) past consideration C) accord D) mirror image rule acceptance
C) accord
Why does an illusory contract lack consideration? A) because the consideration promised is unlawful and therefore void B) because the person promises to perform an act or do something he is already under an obligation to do C) because one or both parties can choose not to perform their contractual obligations D) because the compensation paid is for work done in the past
C) because one or both parties can choose not to perform their contractual obligations
Poweroxi Inc. produces rocket propellant fuel that is used in space shuttles. NASA is an agency that requires rocket propellant fuel to send its rockets to space. NASA enters into a contract with Poweroxi Inc. to purchase all of the propellant fuel it will need this year from Poweroxi. Which of the following would constitute a breach in contract? A) if Poweroxi sold to another purchaser B) if Poweroxi sold to another purchaser at a lower price C) if NASA purchased fuel from another seller D) if NASA stopped purchasing from Poweroxi due to lack of need
C) if NASA purchased fuel from another seller
Corey desperately needs to get to the airport and decides to take his neighbor Tanner's help. Tanner agrees to help and drives Corey to the airport. Upon arrival at the airport, Corey promises to pay Tanner $25 towards gas money. Which of the following would have made the contract between Corey and Tanner enforceable? A) if Tanner had driven Corey to the airport in the past B) if Corey, upon arrival, had promised to pay gas money to Tanner whenever he could C) if the promise to pay gas money had been made before the trip was made D) if Tanner was contracted to drive Corey to the airport as a duty
C) if the promise to pay gas money had been made before the trip was made
With regards to unenforceable contracts, an extortion call in which a man agrees to pay money in return for his family's safety would be considered as a(n) ________. A) preexisting duty B) illusory promise C) illegal consideration D) past consideration
C) illegal consideration
A contract is said to have legal value if ________. A) both the promisor and the promisee receive a legal benefit B) the promisor suffers a legal detriment C) the promisee suffers a legal detriment D) the promisee receives a legal benefit
C) the promisee suffers a legal detriment
What is contract consideration?
Consideration must be given before a contract can exist. Consideration is defined as something of legal value given in exchange for a promise. Consideration can come in many forms. The most common types consist of either a tangible payment, e.g., money, property, or the performance of an act, e.g., providing legal services. Less usual forms of consideration include the forbearance of a legal right, e.g., accepting an out-of-court settlement in exchange for dropping a lawsuit, and noneconomic forms of consideration, e.g., refraining from "drinking, using tobacco, swearing, or playing cards for a specified time period. Written contracts are presumed to be supported by consideration.
Which of the following is true about an illegal consideration? A) Contract requires that either both parties suffer legal detriment. B) Contract requires that the promisor receives a legal benefit. C) Contract requires that the promisee suffer a legal detriment. D) Contracts based on illegal consideration are void.
D) Contracts based on illegal consideration are void.
Which of the following is true about output contracts? A) It cannot contain the best-efforts clause. B) It provides the seller with reduced selling costs. C) It assures the purchaser that the seller will use their best efforts to achieve the contract's objective. D) It assures the seller of a purchaser for all its outputs.
D) It assures the seller of a purchaser for all its outputs.
To meet contractual legality, considerations must be ________. A) beneficial to both parties involved B) detrimental to both parties involved C) mentioned in writing in the contract D) bargained-for exchange of promise for performance
D) bargained-for exchange of promise for performance
Mary buys a lottery ticket and promises to buy her friend Sharon a new pair of shoes if she checks the lottery results while Mary is away. Sharon agrees to do so, provided she has the time for it. What kind of contract do Mary and Sharon have? A) preexisting duty B) past consideration C) illegal consideration D) illusory promise
D) illusory promise
Corey desperately needs to get to the airport and decides to take his neighbor Tanner's help. Tanner agrees to help and drives Corey to the airport. Upon arrival at the airport, Corey promises to pay Tanner $25 towards gas money. Which of the following contracts does Corey's promise fall under? A) illegal consideration B) illusory promise C) preexisting duty D) past consideration
D) past consideration
James had a contract with Frasier to fix Frasier's plumbing issue at his home. The contract was made to fix the issue for $3,000. But after the work was completed Frasier refused to pay anything unless James agreed to accept $2,500. James's attempt to make a new contract is void because it lacks consideration under the ________ concept. A) illegal consideration B) gift promise C) past consideration D) preexisting duty
D) preexisting duty
A consideration need not be of legal value to be enforceable.
FALSE
A contract is considered to be supported by legal value if the promisee receives a legal benefit.
FALSE
A contract is considered to be supported by legal value if the promisor suffers a legal detriment.
FALSE
A gift promise is enforceable if the promisor withdraws from his promise.
FALSE
A gift promise requires the promisee to provide consideration.
FALSE
A new promise can include a past consideration for it to be enforceable.
FALSE
A promise is something of legal value given in exchange of a consideration.
FALSE
A requirements contract is unenforceable due to lack of consideration.
FALSE
Considerations can only be monetary or economic in nature.
FALSE
Contracts based on illegal consideration are valid.
FALSE
Illusory promises are enforceable if one of the parties has performed their contractual obligation.
FALSE
Illusory promises require both parties to perform their contractual obligations.
FALSE
In an output contract, the buyer agrees to make all of its purchase from one buyer.
FALSE
Once an accord has been reached, the original contract cannot be enforced under any circumstance.
FALSE
Preexisting duty promise is unenforceable because of the introduction of a new consideration.
FALSE
Promissory estoppel is an equity doctrine that permits parties to enforce of a contract that includes consideration.
FALSE
Promissory estoppels can be invoked for cases that include consideration.
FALSE
The preexisting rule allows for midstream changes to be enforceable in a contract.
FALSE
What is accord and satisfaction in contractual terms?
In some situations, one of the parties to a contract believes that he or she did not receive what he or she was due. This party may attempt to reach a compromise with the other party, e.g., by paying less consideration than was provided for in the contract. If the two parties agree to a compromise, a settlement of the claim has been reached. The settlement agreement is called an accord. If the accord is performed, it is called a satisfaction. This type of settlement is called an accord and satisfaction, or a compromise.
Explain the preexisting duty principle in private sector contracts.
In the private sector, the preexisting duty rule often arises when one of the Parties to an existing contract seeks to change the terms of the contract during the course of its performance. Such midstream changes are unenforceable: The parties have a preexisting duty to perform according to the original terms of the contract. Sometimes a party to a contract runs into substantial unforeseen difficulties while performing his or her contractual duties. If the parties modify their contract to accommodate these unforeseen difficulties, the modification will be enforced even though it is not supported by new consideration.
Give an account of promissory estoppels.
Promissory estoppels are equity doctrines that permit a court to order enforcement of a contract that lacks consideration. Promissory estoppel is applied to avoid injustice. It is usually used to provide a remedy to a party who has relied on another party's promise, but that party has withdrawn its promise and is not subject to a breach of contract action because consideration is lacking. The doctrine of promissory estoppel prevents the promisor from revoking his or her promise based on lack of consideration. Therefore, the person who has detrimentally relied on the promise for performance may sue the promisor for performance or other remedy the court feels is fair to award in the circumstances.
A completed gift promise cannot be rescinded for lack of consideration.
TRUE
A promise based on past consideration is not enforceable.
TRUE
A promissory estoppel is usually used to provide a remedy to a party who has relied on another party's promise.
TRUE
A requirements contract is a contract in which a buyer agrees to purchase all of its requirements for an item from one seller.
TRUE
An accord is a compromise reached between two parties to settle a claim.
TRUE
An accord is enforceable even though no new consideration is given.
TRUE
An illusory promise is an example of a contract that lacks consideration.
TRUE
An out-of-court settlement in exchange for dropping a lawsuit is an example of consideration.
TRUE
Contracts falling under past consideration are unenforceable due to a preexisting consideration.
TRUE
For a gift promise to be enforceable, the promisee must offer a consideration.
TRUE
Forbearance of a legal right can be provided as consideration.
TRUE
If a contract that was lacking in consideration is performed by the parties, the parties cannot subsequently assert lack of consideration to undo the performed contract.
TRUE
If the accord is not satisfied, the other party can sue to enforce the accord.
TRUE
If the accord is performed, it is called a satisfaction.
TRUE
Imposition of the best-efforts duty provides sufficient consideration to make a contract enforceable.
TRUE
Output contracts serve the legitimate business purposes of assuring the seller of a purchaser for all its output.
TRUE
To be enforceable, a contract must be supported by consideration.
TRUE
