Business Law Chapter 9-13 Test (Test #2)3

Steinberg v. Chicago Medical School

(1) In forming a contract, it is required that both parties assent to the same thing in the same sense and that their minds meet on the essential terms and conditions. (2) If either party contracts in good faith he is entitled to the benefit of his contract no matter what may have been the secret purpose or intention of the other party.

requirements of a contract

(1) mutual assent (2) consideration (3) legality of object (4) capacity

Harold purchased 400 pairs of gloves from Isaac at a contract price of $800. Fifty of the gloves were defective and a dispute arose as to the amount due and owing under the contract. Harold refuses to pay the $800, and Isaac is threatening to sue. Which of the following is correct with regard to this transaction?

- Harold has a pre-existing obligation to pay the 800$. - If Isaac accepts the $600, he can still sue for the remaining $200.

There are certain transactions that are enforceable without consideration. These include:

- promises to pay a debt barred by the statute of limitations. - a promise to pay a debt that has been discharged in bankruptcy if certain requirements are met. - a new promise to perform a voidable obligation that has not previously been avoided.

contract

A binding agreement that the courts will enforce.

voidable contract

A contract capable of being made void.

unenforecable contract

A contract for the breach of which the law provides no remedy.

bilateral contract

A contract in which both parties exchange promises.

unilateral contract

A contract in which only one party makes a promise.

implied-in-fact contract

A contract in which the agreement of the parties is inferred from their conduct.

executed contract

A contract that has been fully performed by all of the parties.

executory contract

A contract that has yet to be fully performed.

remedy for promissory estoppel

A court will enforce the promise to the extent necessary to avoid injustice.

requirements of a quasi contract

A court will impose a quasi contract when: (1) The plaintiff confers a benefit upon the defendant. (2) The defendant knows or appreciates the benefit. (3) The defendant's retention of the benefit is inequitable.

promissory estoppel

A doctrine enforcing some non-contractual promises.

breach

A failure to properly perform a contractual obligation.

Which of the following is enforceable without consideration?

A new promise to pay a debt barred by the statute of limitations

requirements of promissory estoppel

A promise made under circumstances that should lead the promisor reasonably to expect that the promise would induce the promisee to take definite and substantial action, and the promisee does take such action.

Which of the following would most likely be enforceable?

A substitute agreement to settle an undisputed debt.

express contract

An agreement that is stated in words either orally or in writing.

Alice says to Brian, "If I decide to buy a word processor next year, I will buy it from you." This is an example of:

An illusory promise

quasi contract (implied in law contract)

An obligation not based upon contract that is imposed by law to avoid injustice.

Andrew agrees to paint Rosalene's house for $500. Two days after he starts the job, he decides that $500 isn't enough money. He refuses to finish the job, unless Rosalene agrees to pay him $100 more. What principle applies to this fact situation?

Andrew was already obligated to paint the house. He gives no additional consideration in return for Rosalene's promise to pay more money.

common law contracts

Contracts involving employment, services, insurance, real property, patents, and copyrights.

consideration

Each party to a contract must intentionally exchange a legal benefit or incur a legal detriment as an inducement to the other party to make a return exchange.

"Consideration" requires an actual benefit to both sides of an agreement.

FALSE

A debt is disputed only if both the existence and amount are contested.

FALSE

A promisee's consideration is effective only if given directly to the promisor by the promisee.

FALSE

An exclusive dealing contract is one type of contract which is illusory, because it lacks consideration.

FALSE

An illusory promise is consideration for a return promise

FALSE

Andrew agreed to exchange something clearly without value to enter a contract with Milt. The contract will not fail for lack of consideration because, if the parties agree to the exchange, the courts will not be concerned about whether the consideration is "adequate."

FALSE

Bob promises to sell to Candy an automobile for $20,000, for which Candy promises $20,000. A unilateral contract exists.

FALSE

D owes C a past-due undisputed debt of $500. D sees C in a bar and pays him $400. C then says to D, "Forget about the other $100 you owe me. I'm glad to get the $400." C's promise to discharge the remainder of the debt is binding.

FALSE

Dana gives care to Marnie's dog when Dana finds Marnie's dog ill on the side of the road. After Marnie locates her dog, Marnie promises to reimburse Dana for the cost of treating the dog. Marnie's promise is binding, because there is a bargained-for-exchange.

FALSE

Exclusive dealing contracts are illegal and void.

FALSE

In a unilateral contract, a promise is exchanged from one party to another for a promise to forbear to act.

FALSE

Legal detriment means the obtaining by the promisor of that which he had no prior legal right to obtain.

FALSE

Nathan entered a contract while he was seventeen. If, upon reaching the age of majority, he has not avoided the contract and promises to perform those contractual obligations, new consideration is required for the contract to be enforceable.

FALSE

Past actions unbargained for by the parties in an agreement can become valid consideration for a contract.

FALSE

The Abbot Corporation contracts with the Baker Corporation to sell to Baker its entire production. After signing the agreement, Abbot can increase its production from one shift to two shifts and Baker will have to buy all of the doubled production.

FALSE

The performance of a pre-existing contractual duty which is neither doubtful nor the subject of an honest dispute is legally sufficient consideration to support a second contract

FALSE

Under the common law, payment of a lesser sum of money than is owed in consideration of a promise to discharge a fully matured, undisputed debt is legally sufficient to support the promise of discharge.

FALSE

erry received a bill for $300 from Johnson for a tune-up Johnson had performed on Jerry's car. Jerry called Johnson and told him, "The car runs no better now than before the tune-up. I am sending you $100 and no more." Johnson received the $100 check which was marked "paid in full" and cashed it. Jerry is still liable to Johnson for $200.

FALSE

An agreement to sell the entire production of a particular plant is a requirements contract.

False

An output contract is a special form of an illusory contract.

False

Legal sufficiency of consideration and adequacy of consideration are virtually synonymous terms.

False

The two basic elements to consideration are legal adequacy and a bargained-for exchange.

False

Which of the following statements best describes charitable subscription promises?

Generally enforceable if there is reliance or a probability of reliance by the charity.

Uniform Commercial Code (UCC) contracts

Governs the sales of goods.

Howard ordered an aluminum storm door for $249.99. Before it was delivered, the same store from which he ordered the door ran an ad in the paper for the same storm door at $179.99. Howard called the store and demanded the advertised price. If the store says "okay":

Howard must pay 179.99

Fox v. Mountain West Electric, Inc. (UCC v. common law contracts)

In determining whether the UCC applies, look at the entire transaction to determine which aspect, the sale of goods or the sale of services, predominates.

Which of the following would not be a promise statutorily made enforceable without consideration?

Jones promises to pay for his cousins past-due cell phone bill.

Nancy, who lives in Birdville, wants to open a McHenry Roast Chicken franchise. Mark, a representative of McHenry, told Nancy, "If you will buy a lot and build a building in River City, we will give you a franchise." Nancy bought the lot and built the building as instructed only to discover that McHenry had awarded the franchise to a large corporation. McHenry claims no liability to Nancy since there was no consideration. Which statement best describes the situation?

McHenry is liable to Nancy based on the concept of promissory estoppel.

Wayne helped Hank study all night for an important exam. After Hank got an "A" on the exam, he told Wayne, "I will give you $10 for helping me get a good grade." Wayne said, "Thanks, I'll take it." There is:

No contract - no valid consideration.

void contract

No contract at all; without legal effect.

valid contract

One that meets all of the requirements of a binding contract.

Skebba v. Kasch (promissory estoppel)

Regarding promissory estoppel: (1a) Did the promisor reasonably expect to induce substantial action or forbearance on the part of the promisee? (1b) Did the promise induce such action or forbearance? (1c) Can injustice be avoided only by the enforcement of the promise? (2) To fulfill the purpose of promissory estoppel and prevent injustice, a court must be able to fashion a remedy that restores the promisee to where he or she would be if the promisor had fulfilled the promise (i.e. specific performance).

A gratuitous promise is a promise made without consideration.

TRUE

A modification of a preexisting contract occurs when the parties agree to change one or more of its terms.

TRUE

Although such a gratuitous promise would be otherwise unenforceable, under the UCC, any claim arising out of an alleged breach of contract can be discharged by a written renunciation signed and delivered by the aggrieved party.

TRUE

Consideration is the inducement to make a promise enforceable.

TRUE

Contracts binding without consideration include promises to pay debts barred by a statute of limitations and debts discharged in bankruptcy.

TRUE

Exclusive dealing contracts are binding because sufficient consideration is present

TRUE

If Marguarite promises to pay Neal $300 not to defame her, the promise is unenforceable because tort law imposes a preexisting obligation on Neal to refrain from such an act.

TRUE

In a bilateral contract, if one party is not bound, neither party is bound.

TRUE

In a unilateral contract, a promise is exchanged for an act or forbearance to act.

TRUE

In most, if not all, cases where there is a legal detriment to the promisee, there is also a legal benefit to the promisor.

TRUE

In some states, a contract under seal is binding without consideration.

TRUE

James promises to pay Brooke $2,500 if she does not sue him for negligently injuring her in a bicycle accident. If Brooke does not sue, James's promise to pay is binding because it is supported by consideration.

TRUE

Sandy's private secretary promises not to disclose the contents of an email she typed if Sandy will give her the next day off with pay. If the secretary takes the day off, Sandy does not have to pay her for the day.

TRUE

The UCC provides that a contract for the sale of goods can be effectively modified without new consideration, provided the modification is made in good faith and both parties intend to modify the contract.

TRUE

The parties to a contract may modify the agreement with no additional consideration by simply substituting a new contract.

TRUE

Under the common law, a modification of a preexisting contract must be supported by mutual consideration; under the Code, a contract can be modified without new consideration.

TRUE

Under the common law, in order to be enforceable, a modification of an existing contract must be supported by mutual consideration.

TRUE

capacity

The parties to a contract must have contractual capacity (i.e. not minors, incompetent, intoxicated, etc.)

mutual assent

The parties to a contract must manifest by words or conduct that they have agreed to enter a contract.

remedy for a quasi contract

The plaintiff recovers the reasonable value of the benefit she conferred upon the defendant.

legality of object

The purpose of a contract must not be criminal, tortious, or otherwise against public policy.

Which of the following would not be enforceable without additional consideration?

The settlement of an undisputed debt

Jasdip Properties SC, LLC v. Estate of Richardson (restitution / unjust enrichment)

To recover on a theory of restitution, the plaintiff must show: (1) That he conferred a non-gratuitous benefit on the defendant. (2) That the defendant realized some value from the benefit. (3) That it would be inequitable for the defendant to retain the benefit without paying the plaintiff for its value. Unjust enrichment is usually a prerequisite for enforcement of the doctrine of restitution; if there is no basis for unjust enrichment, there is no basis for restitution.

An illusory promise has the form of a promise but imposes no real obligation.

True

Charitable subscriptions are one of the most frequently occurring applications of the doctrine of promissory estoppel.

True

Obligations contingent upon a stated event are known as conditional promises.

True

The Restatement recognizes moral obligations as consideration.

True

Jason's mother would like him to go to college, so in June he enrolls at the local university. He also quits his job and tells his mother his plans to take classes. His mother says, "I'm so happy that you are going to college that I want to pay for your books." Jason then sends her a bill for $485. Jason's mother's promise is:

Unenforceable because Jason already was enrolled in class.

A modification of a contract for the sale of goods must always be supported by additional consideration

false

Contracts generally require adequacy of consideration where the consideration given by both parties is of fair value and equitable

false

Dana gives care to Marnie's dog when Dana fineds marnies dog ill on the side of the road. After Marnie locates her dog, Marine promises to reinburse Dana for the cost of treating the dog. Marnie's promise is binding because there is a bargained-for-exchange

false

Past actions unbargained for by the parties in an agreement can become valid consideration for a contract

false

Sandys private secretary promises to keep the contents of a letter she typed secret if Sandy will give her the next day off with pay. If the secretary takes the day off, Sandy has to pay her for the day

false

Clint contests the amount of a bill he received from Car Care Specialists. Under the Restatement, settlement of the claim:

is valid consideration if at the time of the settlement the claim was doubtful because of uncertainty as to the facts.

"Consideration" does not require an actual benefit to both sides of an agreement

true

A few states provide by statute that the parties need to provide no new consideration when modifying any contract

true

If Sam agrees to sell to Thomas all of the tomatoes he wants at $25 a bushel, there is no contract for lack of consideration

true

In a unilateral contract, a promise is exchanged for an act or forbearance to act

true

In most, if not all, cases where there is a legal detriment to the promisee, there is also a legal benefit to the promisor

true

The Code has changed the common law rule regarding modification of a preexisting contract providing that a contract for the sale of goods can be effectively modified by the parties without neew consideration, provided they intend to do so and act in good faith

true

The central idea behind consideration is that the parties have intentionally entered into a bargained exchanged with one another and have given each other something in exchange for a promise or performance

true

The element of exchange is absent where a promise is given for an act that has already been done.

true

The parties to a contract may modify the agreement with no additional consideration by simply substituting a new contract

true