Chapter 12

A promise not to sue another party is not consideration, because the promise does not convey any legal value to the other party.

False

A promissory estoppel cannot be applied in the case of the absence of a binding consideration.

False

According to the provisions of UCC, an exclusive dealing contract imposes a duty only on the distributor to use his/her best efforts to sell the goods.

False

Gross inadequacy of consideration is by itself a sufficient reason to set aside a contract.

False

A promise to refrain from smoking can be legal consideration because refraining from a legal right, the right to smoke, can be consideration.

True

Consideration is what distinguishes enforceable agreements from gratuitous promises.

true

Which of the following meets the requirements of consideration?

A promise that involves the exchange of a legal value

Which of the following will be legally binding on all parties despite lack of consideration?

A promise to donate money to a charity which the charity relied upon in incurring large expenditures.

Which of the following will be legally binding on all the parties despite the lack of consideration?

A promise to donate money to a charity which was relied upon by the charity in incurring large expenditures.

Which of the following is a relevant consideration?

Agreement to settle an unliquidated debt

Able borrowed $10,000 from Baker, promising to return it with $1,000 interest on January 1, 2006. There is no dispute that Able owes Baker $11,000 due on January 1, 2006. On that day, 12-36 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Able gave Baker a valid check in the amount of $10,500 marked "payment in full for loan due January 1, 2006." Baker accepted that check and deposited it into his account. If Baker then sues Able for the unpaid $500, what would the result be?

Baker wins, because Able gave no consideration in exchange for Baker's promise to forgive $500 of the loan.

Which of the following is an exception to a consideration requirement?

Charitable subscription

Historically free made promises were not enforced unless they had what supporting them?

Consideration

A contract in which one party to the agreement agrees to buy all of the produced goods of the other party is called a requirements contract.

False

Unlike the UCC, the CISG requires new consideration to modify a contract.

False

Which of the following is true of consideration?

Gross inadequacy of consideration can give rise to an inference of fraud for setting aside a contract.

Which of the following is an element of a promissory estoppel?

Injustice to the promisee as a result of alliance

Which of the following is true of preexisting contractual duties and their modification under the UCC?

Modification requires "mere agreement" on the part of those involved.

Can a local businessman pay a police officer $50 a week to watch the business more closely?

No, Public Officials cannot give consideration on duties already supposed to perform

John promised the other co-owners of the ship Sea Fairy that he would insure the ship for an upcoming voyage. However, John fails to insure the ship. The ship is shipwrecked in a turbulent sea. The co-owners sue John for breach of contract. Will they succeed?

No, because it was a purely gratuitous promise.

Helen worked for ABC Motors for 25 years. The president of ABC said to her: "In consideration of your past service for 25 years, I promise to give you a new car next week." However, he did not give the car. Is this promise legally enforceable?

No, legal consideration is absent.

Which of the following is often used by agreements that try to make gratuitous promises look like true bargains?

Nominal consideration

Mr. Blue gave Mr. Green $1000 to help his family out. Later Mr. Blue entered into a sales contract with Mr. Green and wanted the consideration to be in part the $1000. What is the term for the $1000?

Past Consideration

In order to reduce creditor attempts to pressure debtors to reaffirm, which of the following acts requires that a reaffirmation promise be made prior to the date of the discharge and gives the debtor the right to revoke his promise within 30 days after it becomes enforceable?

The Bankruptcy Reform Act

Mr. Green is a local mobster who makes Mr. Blue pay $100 not to have his business burned to the ground. What is the status of the contract between Mr. Green and Mr. Blue?

There is no contract because Mr. Green gave inadequate consideration

Mr. White contracts with his wife Ms. White to watch their kids, Joe and Jimmy, for $50 for night. What is the status of the contract between Mr. Smith and Ms. White?

There is no contract because Ms. White gave inadequate consideration

A creditor who fails to file suit to collect a debt within the time prescribed by the appropriate statute of limitations loses the right to collect it.

True

Consideration can be a promise for another promise.

True

David, a debtor, owes debts to creditors Paul, Mark, and Gary. Paul, Mark, and Gary agree with each other and with David to release him from his debts, in exchange for his promise to pay Paul, Mark, and Gary 75 percent of the amount he owes each of them. This is called a composition agreement, and such agreements generally are binding contracts.

True

In determining whether consideration exists, the law is not concerned with any disproportion in value between the things exchanged in a contract.

True

In return for services Charles performed for Richard in the past, Richard promises to pay Charles $1000. There is no consideration for Richard's promise.

True

John promises to pay Robert $100 per week, in exchange for Robert's promise not to beat John up. There is no consideration for John's promise.

True

Michael and William contracted for Michael to mow William's lawn once a week for 20 weeks, at a price of $20 per week. Later, without terminating the first contract, the parties modify the contract as follows: Michael will mow William's lawn in exactly the same way for exactly the same time period, in exchange for William's promise to pay Michael $22 per week. There is no consideration for William's promise.

True

Mr. Blue gave his favorite nephew Jim Jr, who is a mechanic, $1000 in January. Later that year he needed his car repaired. In the sales contract Mr. Blue indicated that the amount owed should be deducted from the money already paid. A court will find that Mr. Blue failed to give proper consideration for the contract.

True

Mr. Green agrees to an offer to drive Ms. White to the airport for $20, but "only if I feel like it". Mr. Green has failed to give sufficient consideration to create a contract with Ms. White.

True

Mr. Green agrees to purchase a lawn mower from Ms. White for $300. The act of payment of $300 by Mr. Green is consideration for the act of passing ownership of the lawn mower from Ms. White to Mr. Green.

True

The rule on adequacy of consideration reflects the laissez-faire assumption of freedom of contract.

True

UCC covers accord and satisfaction by the use of an instrument called full payment check.

True

In which of the following circumstances is a debt settlement a binding contract?

Where the amount of the debt is certain and undisputed.

Ron was employed by Mass Co. in 1970. At that time, he was given an employee handbook that described the particular steps that had to be taken before an employee could be fired. Later on, in 2000, Mass published a new handbook by which all workers status were changed to employment-at- will workers. Mass then fired Ron. Ron claimed he was terminated without cause and was not afforded procedures described in the 1970 handbook, such as an appeal or review of the decision. He sued Mass under breach of contract based upon the 1970 employee handbook. Will he succeed?

Yes, because the modifications in 2000 were not by mutual consent and for consideration.

James owns Great Expectations, a trendy restaurant in Manhattan. He enters into a contract with Mary, who makes and sells pastries. The contract states that Mary will "supply all of Great Expectation's needs" for pastries for the next year. Is this contract enforceable?

Yes, because this is a requirements contract.

Chica, a women's clothing store, held a "prize drawing" for a $500 shopping spree on Saturday that it had advertised throughout the week. Participation in the drawing required being at the store by noon and completing an application form that included personal information and placing it in a box. The information would then be put into a database for marketing purposes. Fashion consultants offering merchandise for sale greeted customers arriving at the store on Saturday morning. Joy was the winner of the drawing. Has she given consideration for the prize?

Yes, she came to the store and gave information that was for the store's use.

The settlement of an unliquidated debt is called a(n):

accord and satisfaction.

Consideration can be a(n) _____ in the case of a unilateral contract.

act

In order to satisfy the consideration requirement to form a contract, the consideration exchanged by the parties must:

be legally sufficient.

X and Y have a contract which obligated X to sell Y 100 boxes of screws for $100. The parties orally modify the contract so that X will sell Y the same 100 boxes of screws for $125. The second agreement is:

binding by virtue of being mutually agreed on.

An accident on a state highway rendered Jill in comatose state for nearly a month. There was an old nurse who used to take care of her then. After her recovery, Jill felt so indebted to the nurse that she contracted to transfer all her assets to her to fulfill her (Jill's) moral obligation. Although this contract lacks ______, it can be enforced.

consideration

Gift promises are not generally enforceable because they lack:

consideration.

Jack went to the ABC Casino to gamble. ABC offers its customers one free spin of the Million Dollar Wheel if they fill out an application form. Jack filled out the form, spun the Million Dollar Wheel, and won. However, now ABC refuses to pay, claiming that because Jack did not purchase his chance at the Million Dollar Wheel, Jack gave no consideration and therefore, no contract was formed. Identify the accurate statement.

contract was formed because filling out an application can constitute legal consideration.

Why is past consideration not a consideration in a present promise?

does not pertain to the present exchange.

In order for the consideration requirement in contracts to be met:

each party must give consideration.

Patricia has requested extra payment because abnormal subsurface rock formations made excavation on the construction site far more costly and time-consuming than could have been reasonably expected. The court will:

enforce such modifications in contract.

A contract that involves obligations on the part of manufacturers and distributors is called a(n):

exclusive dealing contract.

Sigmund enters into a contract with Carl. The terms are that Sigmund will purchase all the gasoline that he wants to purchase in 2011, at a price of $2.50 per gallon, and Carl agrees to sell on those terms. This is an example of a(n):

illusory contract.

Daniel is a senior at State University. Brian, Daniel's father, is concerned about Daniel's study habits, given that Daniel spends most of his evenings at the campus pub instead of the library. Brian promises Daniel that he will send him on an expense-paid trip to Europe after his graduation if Daniel spends at least five evenings a week studying in the campus library for the remainder of his senior year. After returning home from his graduation, Daniel asks Brian about the European trip. Brian replies, "Your education was your reward. I don't owe you a trip to Europe." Brian is:

incorrect; Brian owes Daniel a trip to Europe because Daniel's acts are consideration.

Daniel owes Casey a debt, the amount of which is subject to a good faith dispute. The parties agree to settle the debt, with Daniel promising to pay Casey $15,000 and Casey promising to release Daniel on a $25,000 debt. The settlement agreement:

is supported by consideration.

The general common law rule on contract modifications holds that an agreement to modify an existing contract requires a(n):

new and independent consideration.

Contracts in which one party to the agreement agrees to buy all of the other party's production of a particular commodity is called a(n):

output contract.

Consideration can be a(n) _____ in the case of a bilateral contract.

promise

A reaffirmation promise has to be made prior to the date of the bankruptcy discharge and gives the debtor the right to revoke his promise within 30 days after it becomes enforceable. This is the requirement of:

promises to pay debts barred by bankruptcy discharge.

An agreement in which a party promises to supply all the other party's needs for a particular commodity is called a(n):

requirements contract.

In deciding whether consideration necessary to form a contract exists, a court must determine whether:

there is mutuality of consideration.

Joe and Jack have a written contract whereby Joe agrees to sell Jack a plot of land for $100,000. Later, without terminating the first contract, the parties modify the deal so that Joe sells Jack the same plot of land for $125,000. The second agreement is not a contract because:

there is no consideration for Jack's promise.

Dan, President of BAZ Co., is happy with the extraordinary performance of Naomi, a BAZ Co. senior accountant. Dan informs Naomi that because of her superlative work in the past fiscal year, he is going to give her a 5 percent raise effective next month. Naomi, who has never heard of anyone at BAZ Co. getting a raise, is thrilled and thanks Dan. Later that day, Dan realizes that giving Naomi this raise might cause all senior accountants to demand salary increases. Dan decides not to give Naomi a raise after all. He believes that his promise to give her a raise is not legally binding. Dan is correct because:

there was no bargained-for exchange for the raise.

Bill is 25 years old. His uncle had promised in writing to pay him $2,000 if Bill would refrain from drinking alcohol for one year. Bill refrained from drinking alcohol for one year. However, his uncle now refuses to pay Bill as agreed-upon. The uncle claims that because Bill suffered no detriment by refraining from alcohol, his non-drinking does not constitute legal consideration and therefore no contract was formed. If Bill sues his uncle, Bill will:

win because Bill had a legal right to drink alcohol.