Chapter 12 Business Law

legal detriment

1. doing an act that one os not legally obligated to do 2. refrainng from doing an act that one has the legal right to do

3. Debbie promises to pay Bill $2,000 if Bill paints Debbie's house. Bill doesn't say a word but paints Debbie's house. This is an example of: a. a unilateral contract. b. a bilateral contract. c. a gratuitous contract. d. none of the above

A

9. CPA: Which of the following will be legally binding on all the parties despite the lack of consideration? a. A promise to donate money to a charity which was relied upon by the charity in incurring large expenditures b. An employer's promise to pay an employee an additional $400 per month for the remainder of the employee's agreed-upon year of employment. c. An oral promise by a merchant to keep its offer open for 60 days. d. A material modification signed by the parties to a contract to purchase and sell a parcel of land.

A

11. Widget Manufacturing Corporation of America contracts with the Poly Plastic Company of Wisconsin to buy from Poly all of the plastic it will need next year in its manufacturing process. This is an example of a(n): a. illusory contract. b. requirements contract. c. output contract. d. exclusive dealing contract.

B

15. Colleen agrees to pay $10 for David's computer which is worth $300. Colleen's consideration: a. is not legally sufficient. b. appears to be inadequate but is probably legally sufficient. c. is a forbearance. d. is inadequate but the contract will be enforced based on moral obligation.

B

1. The requirement of consideration is satisfied by: a. a promise exchanged for a promise. b. a promise exchanged for an act. c. both (a) and (b). d. neither (a) nor (b).

C

10. CPA: In order to satisfy the consideration requirement to form a contract, the consideration exchanged by the parties must: a. have a monetary value. b. conform to the parties' subjective intent. c. be legally sufficient. d. have approximately the same value.

C

12. Crime Stoppers offers a reward of $500 for information leading to the arrest and conviction of a criminal who has committed several recent burglaries. Paul Police Officer has been working on the case and applies for the reward based upon information he has gathered while on duty. Paul cannot collect the reward under the: a. legal detriment rule. b. inadequacy of consideration rule. c. preexisting duty rule. d. promissory estoppel rule

C

13. Slick owes Gullible $50. Slick offers to let Gullible have Slick's pocket knife if he will accept $25 and forgive the rest of the debt. Later Gullible sues for the balance of the debt. a. Gullible will win because there was no consideration. b. Gullible will lose because he should have sued as soon as he got the knife. c. Slick will win because the knife constituted legally sufficient consideration. d. Slick will lose because he still owes $25.

C

14. Carl Contractor pledges to contribute $500 to the local United Fund for charity. a. This promise lacks consideration and will not be enforced. b. This promise is a firm offer under the Code and will be enforced. c. There is the probability of reliance by the United Fund and the promise will be enforced under the doctrine of promissory estoppel. d. This promise is a preexisting public obligation and will be enforced.

C

2. To be legally sufficient, the consideration for a promise must be: a. a legal detriment to the promisee. b. a legal benefit to the promisor. c. either (a) or (b). d. neither (a) nor (b).

C

4. Which of the following would be an illusory promise? a. Sara agrees to sell her total production to Bill. b. Bill agrees to buy his total widget requirement from Sara. c. Bill agrees to buy all the widgets he wants from Sara. d. Bill agrees to buy Sara's total production of widgets if he inherits enough money from Uncle John to do so.

C

6. Which of the following is necessary in order to satisfy the consideration requirement? a. Legal sufficiency b. Bargained-for exchange c. Both (a) and (b) d. Neither (a) nor (b)

C

5. Which of the following is legally sufficient consideration? a. The performance of a preexisting public obligation b. The performance of a preexisting contractual obligation c. The settlement of an undisputed matured debt of $10,000 arising out of the purchase of land for $8,500 d. The settlement of a debt subject to honest dispute as to its amount

D

7. Which of the following promises must be supported by consideration to be enforceable? a. A promise to pay a debt barred by the statute of limitations b. A promise to pay a debt discharged in bankruptcy c. A promise that has been justifiably relied on by the promisee to his detriment d. A modification of an existing contract under common law

D

8. A promise by Andrew to pay Barry $1,000 if he refrains from suing Andrew, which is accepted by Barry not suing is: a. supported by consideration. b. enforceable because Barry has incurred a legal detriment by refraining from bringing suit. c. enforceable because Andrew has received a legal benefit. d. all of the above.

D

7. In a unilateral contract, each promise is the consideration for the other, a relationship that has been referred to as mutuality of obligation.

False, bilateral contract

15. Bill Businessman has a bad day one Monday morning and signs a contract to buy a piece of real property for $250,000. Later he realizes he has been had, because the property is only worth $100,000. Bill can avoid the contract based on inadequacy of consideration.

False, he was duped, but it was his fault

1. The doctrine of consideration requires only that the promise or performance of one party be legally sufficient

False, it must be legally sufficient and bargained for exchange

3. The adequacy of consideration is the same as the legal sufficiency of consideration.

False, items need not be of same value

9. The agreement of a seller to sell her entire production to a particular purchaser is an illusory agreement because the purchaser doesn't know the quantity being purchased.

False, its a output contract it is made in good faith

12. Under the Code, the modification of a contract for the sale of goods requires the furnishing of additional consideration, just as required under the common law.

False, no need for additional consideration

1. Discuss briefly what is meant by "mutuality of consideration." Define the terms "legal detriment" and "legal benefit."

Mutuality of consideration means that the promises or performance of both parties to a contract must be legally sufficient for the contract to be enforceable by either. To be legally sufficient, a promise or performance must be either a legal benefit to the promisor or a legal detriment to the promisee. In this regard, legal benefit means the obtaining by the promisor of that which he had no legal right to obtain. A legal detriment means the doing of that which the promisee was under no prior legal obligation to do, or the refraining from doing that which he was previously under no legal obligation to refrain from doing.

4. Sam Student has just graduated from Ivory Towers University and has been offered a graduate assistantship if he wants to pursue an MBA. Big Bucks, Inc., offers him a $35,000 management position if he will move to California and begin work in three weeks. Based on this promise of a job, Sam turns down the graduate assistantship and moves to California. When he contacts Big Bucks, they say they decided that they no longer need him. What recourse does Sam have? Explain.

Sam has reasonably and detrimentally relied upon Big Bucks' promise of a job. He can sue to enforce the contract based upon promissory estoppel.

2. What are the essential elements of consideration? Is the adequacy of consideration a concern in determining legal sufficiency? Explain.

The two essential elements of consideration are (1) legal sufficiency (value) and (2) bargained-for exchange. In short, consideration is a bargained-for exchange of value. The adequacy of consideration, however, is irrelevant and the subject matter that the parties respectively have exchanged need not have approximately the same value. Rather, the law will treat the parties as having considered the subject of the ex¬change adequate by reason of their having freely agreed to the exchange.

5. Give some examples of transactions which are enforceable even though they are not supported by consideration.

There are several situations governed by Article 2 of the UCC in which no consideration is required for enforceability. Modification of a preexisting contract, firm offers by merchants, and a written waiver or renunciation to settle a dispute are all enforceable without consideration.

3. Explain the concept of promissory estoppel.

This doctrine prohibits a party from denying a promise made in those cases where the promisee takes action, or forbears to act, to his detriment when those actions were reasonably based on the promise made. The doctrine is applied when necessary to avoid injustice.

10. In the absence of legal consideration, a promise may nevertheless be enforceable under the doctrine of promissory estoppel if the promisee has relied on the promise to his detriment.

True

11. Under the Code, a merchant's offer to buy or sell goods is not revocable for lack of considera¬tion during the time stated that it is open or if no time is stated, for a reasonable time, but in either event for a period not to exceed three months.

True

13. Bill Businessman agrees to buy 2,000 widgets from the Widget Corporation of America next year for $60 a widget if he wants to for his business. This is an illusory contract.

True

14. Bill purchased 500 pairs of shoes from Sam at a contract price of $1,000. Fifty pairs were defective and a dispute arose as to the amount owing under the contract. Finally, Bill sent a check for $800, marked it "paid in full," and sent a letter to Sam explaining his reasons for thinking $800 was fair. Sam didn't respond, but he cashed the check. The debt is discharged.

True

2. To be legally sufficient, the consideration for the promise must be either a legal detriment to the promisee or a legal benefit to the promisor.

True

5. The performance of a preexisting contractual obligation that is neither doubtful nor the subject of honest dispute is not legally sufficient consideration, because the doing of what one is legally bound to do is neither a detriment to the promisee nor a benefit to the promisor.

True

6. At common law, a modification of an existing contract must be supported by new consideration in order for the reformed agreement to be enforceable.

True

8. Words of promise that make the performance of the purported promisor entirely optional result in an illusory contract.

True

Requirements contract

agreement to buy all of one's needs

Output contract

agreement to sell all of one's production not ilusory promise

Legal sufficiency

benefot to the promiser or detriment to the promisee (1) the parties have agreed to the exchange 2. with respect to each party, the subject matter exchanged, or promised in exchange, either imposed a legal detriment on the promiseeor a conferred a legal benefit on the promisor

promissory estoppel

doctrine that prohibits a party from denying his promise when the promisee takes action or forbearance in his detriment reasonably based upon the promise

4. A contract under which the parties' obligation to perform arises only on the happening of a stated event lacks the requisite mutuality of obligation if the specified event may never occur.

false, okay unless you know the event will not occur

mutuality of obligation

in a bilateral contract, each promise is the consideration for the other each promise must be bound or neither can be bound

Consideration

inducement to make a promise enforcable

bargained for exchange

mutually agrred upon exchange

undisputed debt

obligation whose existence and amount are not contested, must pay the a mount, partial payments not enough, partial payments and a pen is enough

conditional promise

obligations contingent upon a stated event

legal benefit

obtaining something to which you had no legal right

substituted contract

parties recind their original contract and enter into a new one original, contract of recission, and substitute contract giving up rights provided consideration to each other

disputed debt

payment of a lesser sum of money to discharge a disputed debt is legally considered sufficient consideration

Illusory promise

promise imposing no obligation on the promisor I wish, I desite does not create a contract

Gratuitous promise

promise made without consideration not legally enforcable exept under certain situations

exclusive dealing contract

sole right to sell goods in a defined market implied obligations are consideration to bind both parties to bind both parties to the exclusive dealing contract

adequacy of consideration

the items or actions the parties agree to exchange do not need to have the same value. Rather the law regard consideration as adequate if the parties freely agreed to the exchange

Promisee

the offeree person receiving the promise has the legal detriment

promisor

the offeror or makes the promise must gain a legal benefit

statute of limitations

time persiod within which a lawsuit must be innitated

past consideration

unbargained for events consideration is not enforcable

contract under seal

where still recognized, the seal acts as a substitute for consideration