Business Law Chapter 14

for promissory estoppel you must have...

1. a promise 2. fact that the promise will be relied on 3. it is not reasonable for the other party to rely 4. for the prevention of injustice, the promise must be enforced

exceptions to consideration

-charitable subscriptions -uniform commercial code -promissory estoppel

gifts

-promises to make a gift are unenforceable because they lack consideration (charitable subscriptions are binding to the extent the donor reasonably should have known the charity was relying on the promise; love and affection are not consideration for a contract) -not enforceable because there is only a one-way exchange of value (only 1 party benefits)

promissory estoppel (exception to consideration)

-where a promise substitutes for consideration -if reliance and detriment, promisor is prevented from claiming promise is unenforceable

illusory promise example

I will pay you $40 for every pound of coal I order...this is not enforceable since you can end up buying 0 pounds of coal

agreements are...

NOT enforceable without consideration

conditional promise example

if i am able to lease this restaurant, I will hire you as head chef for $100,000

consideration (benefit-detriment approach)

a benefit received by the promisor or detriment incurred by the promisee

compromise and release of claims (under a preexisting legal obligation)

a promise to pay part is not consideration for a promise to discharge the balance

BigOil promises Gasnow as many barrels of oil as they want at $50 per barrel. In this case: a. BigOil has made an illusory promise. b. BigOil's promise is legally sufficient unless BigOil knows they are running out of oil. c. BigOil has made a conditional promise which is not sufficient to form consideration. d. BigOil's promise is forbearance and the courts will therefore not enforce it.

a. BigOil has made an illusory promise.

Harrison enters into a written contract to sell his home, valued at $200,000, to his only daughter Olivia for $100,000. His 2 sons file lawsuit claiming that the reduced price does not constitute consideration. What would the court likely rule about the amount of consideration? a. Courts will generally not consider the adequacy of consideration. b. Courts would require Olivia to pay fair market value for the home c. Courts would require the home or the subsequent value to be split between the 3 siblings. d. Courts would consider this an illusory promise and thus unenforceable.

a. Courts will generally not consider the adequacy of consideration.

The court in Angel v. Murray ruled as follows: a. the court decided for the city and Maher as the increase in Maher's workload was unforeseen at the outset of the contract. b. the court decided against Maher since the additional compensation was not negotiated in good faith. c. the court ruled against Maher for failure to additional consideration for his part of the contract modification. d. the court issued a judgment for Angel as the original payment adequately covered the work in Maher's job.

a. the court decided for the city and Maher as the increase in Maher's workload was unforeseen at the outset of the contract.

uniform commercial code (exception to consideration)

abolishes the requirement of consideration in some cases

liquidated debt

amount due is known and agreed upon

unliquidated debt

amount due is not known (in dispute)

In some situations the courts will enforce new promises to perform an obligation that originally was not enforceable. Which of the following would be that sort of promise? a. An illusory promise. b. A new promise to pay a debt barred by the statute of limitations. c. A promise to supply all of the materials a manufacturer will need for the production of a certain item for a specified period of time. d. In the majority of states, a promise by a father to pay someone who rendered emergency services to his injured son before the father had arrived at the accident scene.

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

__________ means doing that which the promiser was under no prior legal obligation to do. a. Bargained-for exchange b. Legal detriment c. Bilateral d. Illusory

b. Legal detriment

The fact that the consideration turns out to be disappointing __________ the binding character of the contract. a. does affect b. does not affect c. sometimes affects d. None of these are correct.

b. does not affect

As an exception to the rule on courts inquiring as to the adequacy of the consideration, a court will take evidence to establish: a. one party clearly has the better of the deal. b. one party claims to have been defrauded. c. one party has more business experience than the other. d. one party shows a much lower price nationally-advertised on television.

b. one party claims to have been defrauded.

Jacob was injured when Felicia's car struck him as he was jogging to the park. Felicia's insurance company asked Jacob to sign a settlement accepting $75,000 but promising that he would not sue for any further damages. Is this consideration? a. A person cannot give up their legal right to sue in exchange for money. b. this would be considered forbearance and thus consideration c. This would be considered forbearance and thus not consideration d. This would be an illusory promise and valid consideration

b. this would be considered forbearance and thus consideration

__________ is what each party to a contract gives up to the other in making their agreement. a. Contract under seal b. Promissory estoppel c. Consideration d. None of these are correct

c. Consideration

Katie's car is a gas-guzzler and she is looking for a used hybrid car to buy to take on her cross-country trip. Katie makes a deal to buy her friend Heather's Prius in 1 week so that Katie has time to sell her current car and leave on her trip the following day. They spent that week talking about the car and how to take care of it. Katie shared her plans for the trip. When Katie shows up on the agreed upon day with the money, her friend Heather says she no longer wants to sell the car. Katie now cannot go on her trip and has sold her own car in anticipation of buying the Prius. Katie will lose several hotel deposits that she made because she cannot get a car in time to leave for her trip that day. Under what reasoning could Katie sue to get the car and the money she lost by not being able to take the trip? a. Forbearance as consideration b. Conditional promises c. Detrimental reliance d. None, no consideration was present so there was no legal obligation to give her the car

c. Detrimental reliance

__________ is an unenforceable promise under the law of contract because of a lack of consideration. a. Fraud b. Mutual mistake c. Gift d. Justifiable reliance

c. Gift

Suppose that Jack, Hal, and Sophia enter into an agreement to sell the restaurant. The contract includes the non-competition agreement. A few months later, Jack decides that he will sell the frozen food unless Hal and Sophia agree to pay him an extra $100,000. This is in violation of the non-competition agreement. Hal and Sophia agree because they do not want to fight. Six months later, however, they still have not paid and Jack sues them. What is the result? a. Jack would win since agreeing to not do something, in this case sell the food, is not valid consideration. b. Hal and Sophia would win since agreeing to not do something, in this case sell the food, is not valid consideration. c. Hal and Sophia would win, since Jack already had a prior existing legal duty to not compete with Hal and Sophia. d. Jack would win since Hal and Sophia agreed to pay the extra $100,000.

c. Hal and Sophia would win, since Jack already had a prior existing legal duty to not compete with Hal and Sophia.

Ned's father orally promises to give him a car for his twenty-first birthday. Using the rule in most states, can Ned legally enforce this promise? a. Yes, Ned can sue his father based on the promise. b. Yes, Ned can sue his promise based on the statute of frauds. c. No, a gift promise is unenforceable. d. No, Ned should have gotten the promise in writing.

c. No, a gift promise is unenforceable.

All of the following will serve as adequate consideration except: a. forbearance to do an act. b. performance of services. c. an illusory promise. d. a promise to perform.

c. an illusory promise.

A contract based on __________ is not enforceable. a. legal detriment b. legal benefit c. past consideration d. unequal consideration

c. past consideration

One issue before the court in Crookham & Vessels, Inc. v. Larry Moyer Trucking, Inc. case was: a. whether the ditch walls collapsed due to the weather conditions at the time of the construction project. b. whether the agreement between the parties for Moyers to dig the ditches a second time was void against public policy. c. whether Moyer was obligated to dig the ditches after they failed as a continuation of his original contract. d. whether there was sufficient consideration owing to Moyer for digging the ditches a second time.

c. whether Moyer was obligated to dig the ditches after they failed as a continuation of his original contract.

not illusory

considered binding...cancellation provision

adequacy of consideration

courts do not ordinarily consider the adequacy of consideration given at it is up to parties to decide if each is getting a fair return (the fact that the consideration is disappointing does not affect the binding character of the contract)

JTC Maintenance was hired by Millie's Eateries to perform basic maintenance at all of their locations for a set annual fee for a 5 year period. 2 years into the agreement, Millie's Eateries began to expand and went from 10 locations to 75 locations in a 3 state area. This greatly increased the cost to JTC Maintenance and they were losing money on the contract so they asked for more money. Millie's Eateries agreed to pay JTC an extra 20% to travel to the other states. But when the checks came, there was no increase. What is the likely result of this situation? a. The current contract will likely stand with no increase for JTC b. An Illusory promise exists to give JTC the increase c. Promissory Estoppel would negate the original contract d. A good-faith adjustment could require Millie's Eateries to renegotiate the contract

d. A good-faith adjustment could require Millie's Eateries to renegotiate the contract

Darryl contracted with Right Builders to build an addition to his house for $25,000. After digging the foundation, Darryl decides he wants to have the house done earlier than was originally agreed. Right Builders agree, but say that it will need to charge an additional $5,000 for the job. Assuming Darryl agrees, which of the following is correct? a. Darryl will only have to pay the original $25,000 because that is what the original contract requires. b. This is a contract under seal which is enforceable. c. This work requires no additional consideration on the part of Right Builders. d. Daryl would have to pay $30,000 even though the addition was not part of the original contract.

d. Daryl would have to pay $30,000 even though the addition was not part of the original contract.

Suppose that Jack and Hal and Sophia enter into the agreement for the sale of the restaurant, with Jack stating in the agreement that if he feels comfortable with his finances in his retirement, that he will not sell the frozen food in competition with the restaurant. After the sale, the stock market rises considerably, and Jack's net worth quadruples. He still decides to sell the frozen food. Hal and Sophia sue. What is the result? a. Hal and Sophia would win since the contract mentioned the non-competition agreement. b. Jack would unless that Hal and Sophia could prove that Jack was comfortable with his finances in his retirement. c. Hal and Sophia would win since Jack's net worth quadrupled. d. Jack would win since the promise not to compete was illusory.

d. Jack would win since the promise not to compete was illusory.

Bethany's grandmother promised to give her a car when she turned 21 if Bethany agreed not to drink alcohol or smoke cigarettes until that date. Would this be a contract with consideration? a. Yes because her grandmother is concerned for her safety b. No because forbearance never qualifies as consideration c. Yes because a gift is an enforceable contract d. No because it is already illegal for Bethany to drink until she turns 21.

d. No because it is already illegal for Bethany to drink until she turns 21.

Alan finds Marcia's dog on the side of the road. He then takes the dog home and treats the dog's injuries. When he calls Marcia to tell her he has found the dog, she promises to reimburse Alan for the cost of treating the dog. Is Marcia's promise binding? a. Yes, because she should be grateful to him. b. Yes, because Marcia promised to pay him. c. No, because Alan is not a health care professional. d. No, because there was no bargained for exchange.

d. No, because there was no bargained for exchange.

Andrew received a bill for $500 from Jeff for a tune-up Jeff performed on Andrew's SUV. Andrew called Jeff and told him, "The car runs no better now than before the tune-up. I am sending you $200 and no more." Jeff received the $200 check which was marked "paid in full SUV repair" and cashed it. Is Andrew still liable to Jeff for the remaining $300? a. Yes, Andrew is liable for the full amount of the repair. b. Yes, only a court can order that the amount was unfair. c. No, because the car wasn't fixed. d. No, if the check is marked "paid in full" and references the transaction.

d. No, if the check is marked "paid in full" and references the transaction.

Which of the following can be consideration for a promise? a. Refraining from assaulting one's roommate. b. Promising to refrain from stealing from the boss. c. Refraining from using a controlled substance. d. Refraining from smoking cigarettes.

d. Refraining from smoking cigarettes.

Ordinarily, courts do not consider the __________ of the consideration given for a promise. a. legality b. assumption of the risk c. modification d. adequacy

d. adequacy

conditional promise

depends on the occurrence of a specified condition to be valid

cancellation provisions

does not make the promise illusory

consideration amount...

does not need to be equal

good faith adjustment (completion of contract under a preexisting legal obligation)

enforceable with the original contract in extraordinary circumstances

forebearnace

giving up the right to do something you are legally entitled to do (considered consideration)

composition of creditors (under a preexisting legal obligation)

group of creditors agree to accept partial payment in full settlement of debt

fulfilling a preexisting legal obligation...

is not consideration

williams and ormsby...he gave her a gift, is the contract enforceable

it is not enforceable since love and affection are not consideration, therefore not enforceable

contract for sales of goods (completion of contract under a preexisting legal obligation)

modifications in good faith are binding

is paying with a check consideration?

no

moral obligation

not consideration (just because you are morally obligated to pay someone does not mean you have to pay them--no consideration is present/exchanged)

general rule for conditional promise

past consideration does not count (you must exchange consideration at contract time) conditional promise

past consideration

past consideration is no consideration

moral consideration

promises based upon moral obligation are not enforceable

completion of contract (preexisting legal obligation)

promises in the first contract are not binding

forbearance as consideration

refraining from an act can be consideration

charitable subscriptions (exception to consideration)

reliance on a pledge in undertaking a project is a substitute for consideration

what is a preexisting legal obligation

something you already know you have to do

free soda---can't sue

there was a promise made to sell for free, no consideration (so you can't sue if they don't give it to you?)

avoidance promising (preexisting legal obligation)

to do what has already been agreed to is not legal consideration

J owes M $100,000 due 3/1. On 3/5, Joe offers to pay $80,000 if M accepts it at a discharge of the full amount. M agrees and they sign a writing to that affect. M can later sue for the $20,000 balance. Contract enforceable or unenforceable?

unenforceable because J offered no consideration (this is liquidated debt)

illusory promises

unenforceable due to indefiniteness or lack of mutuality, where only one side is bound to perform (is a promise is no obligation or apparent obligation, the contract fails)

consideration (bargain-for-exchange)

what each party gives up in making an agreement (something of value must be given or promised in return for the performance of promise of another) -benefit/detriment, exchange between parties of value, benefit of the bargain

past-payment checks (under a preexisting legal obligation)

when a good faith dispute about the amount exists and a debtor tenders a check saying "paid in full," cashing the check discharges the debt

is paying in cash consideration?

yes

is waving the money due to you consideration?

yes

is an early payment consideration?

yes (time value of money)

example of not illusory

you can cancel if you are offered a significant acting opportunity

example of unliquidated debt

you write a check for the amount you want to pay. In the memo line of the check, write "Paid in full for $X repair on 1/1/19"--if the check is cashed, the debt is discharged and you can't be sued for more (accord and satisfaction)