BLAW Chapter 12 Consideration

Mary agrees to sew Georgia's prom dress for $50 plus costs. Georgia decides that she wants ruffles around the neck and calls Mary who says it will now cost $60. When Mary finishes the dress (with ruffles), Georgia must pay:

$60, since the modified agreement is supported by additional consideration.

Which of the following is enforceable without consideration?

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

Which of the following would most likely be enforceable?

A substitute agreement to settle an undisputed debt

Define a substituted contract and describe how it affects an agreement

A substituted contract results when the parties to a contract mutually agree to rescind their original contract and enter into a new one. The rescission is binding in that each party, giving up his rights under the original contract, has provided consideration to the other, as long as each party still has rights under the original contract. Where the rescission and new agreement are simultaneous, the effect is the same as a contractual modification.

Which of the following gratuitous promises are enforceable by statute?

All of the above are enforceable by statute.

A bank robbery has occurred, and the banker's association has offered a $1,000 reward for information leading to the arrest and conviction of the robber. Several people are claiming to be entitled to the money. Which of them is eligible?

An off-duty deputy sheriff from a county other than the one where the arrest occurred

Explain how output and requirements contracts differ from illusory promises.

An output contract is the seller's agreement to sell its entire production to a particular buyer. A requirements contract is a buyer's agreement to purchase from a particular seller all the materials of a particular kind that the purchaser needs. These contracts are not illusory. Illusory promises are words of promise that make performance entirely optional with the purported promisor.

Andrew agrees to paint Betty'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 Betty agrees to pay him $100 more. What law applies to this fact situation?

Andrew gives no additional consideration in return for modification of a preexisting contract.

Which of the following are the two basic elements to consideration?

Bargained-for exchange and legal sufficiency

Darla offers to pay Edward $6,000 for Edward's car, provided that Darla receives that much from her uncle's estate, which is currently being probated. She expects to know for sure how much she will receive within a week or so.

Both B and C

Barbara, a wealthy widow, promises the pastor of her church that she will donate $20,000 to the church to help pay off its mortgage if the stewardship committee can obtain enough pledges for the balance of the $80,000 mortgage. Other pledges are obtained to pay off the mortgage, but now Barbara has changed her mind and plans to take an around-the-world cruise instead.

Both a and c

Carlos 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. Carlos calls the store and demands the advertised price. They say okay.

Carlos must pay $179.99.

Define consideration

Consideration is the inducement for a promise or performance. It is that which is exchanged to make a promise enforceable. Consideration has two basic elements: (1) legal sufficiency (something of value) and (2) bargained-for exchange.

A liquidated debt is an obligation the existence or amount of which is in dispute. T/F

False

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

False

An agreement to sell the entire production of a particular plant to a particular purchaser is a requirements contract. T/F

False

An exclusive dealing contract is one type of contract which is illusory because it lacks consideration. T/F

False

Consideration has only one basic element, which is a bargained-for exchange. T/F

False

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

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. T/F

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. T/F

False

In most states, a contract under seal is binding without consideration. T/F

False

In settling a liquidated debt, payment of a smaller amount before the due date would constitute consideration, but paying a lesser amount on the due date at an agreed-upon different place of payment would not be legally sufficient consideration. T/F

False

Jerry 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. T/F

False

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

False

Legal sufficiency of consideration and adequacy of consideration are virtually synonymous terms. T/F

False

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

False

Sandy's 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. T/F

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. T/F

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. T/F

False

Which of the following will support a contract?

Forbearance to do an act

Rob repairs a door for Howard. In return, Howard is supposed to pay Rob $75 on November 1 at Howard's house. Which of the following would constitute legally sufficient consideration?

Howard pays Rob $60 on November 1 but, after checking with Rob, brings payment to Rob's house.

In which of the following situations will a smaller sum be unable to discharge a larger debt?

If the smaller sum is paid when the larger sum would ordinarily be due, but the debtor is on the verge of insolvency.

Jason's mother would like him to go to college, so in June he enrolls at State University. He also quits his job and tells his mother his plans to continue taking 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. Which of the following is true regarding his mother's promise?

It is unenforceable, because Jason had already enrolled in school and there is no consideration.

Ken, a research chemist, has been promised a fellowship with a stipend of $10,000 to do research on synthetic fuel oil. Under the terms of the fellowship, Ken is free to use the money as he sees fit. Ken decides to build his own laboratory, so he will not have to rent one. He hires a carpenter who begins working on shelving and cabinets in the laboratory. Then Ken receives a telegram saying the fellowship has been canceled. No reason is given for the cancellation. If Ken sues, will he be able to collect the money from the foundation which promised the fellowship? Explain your answer using legal terminology.

It might be argued that since no work product is required, there was no consideration for the fellowship. Therefore it may be revoked. However, Ken has detrimentally relied on the promise of the fellowship, and under the doctrine of promissory estoppel, the courts would in all likelihood stop the grantors from rescinding the fellowship.

Janet promises Eli $4,000 for one of his original paintings on the condition that she receive $1 million from her mother's will.

Janets promise is legally sufficient unless Janet knew at the time she made the promise that she could not inherit the $1 million

Define legal detriment.

Legal detriment means (1) doing (or undertaking to do) that which the promisee was under no prior legal obligation to do or (2) refraining from doing (or undertaking to refrain from doing) that which he was previously under no legal obligation to refrain from doing.

Which of the following requires consideration in order to be binding upon the parties?

Material alteration of a personal service contract

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 is most accurate?

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

What transactions are enforceable even though they are not supported by consideration?

Such transactions would include: -promises to perform prior unenforceable obligations,. -promises which induce detrimental reliance (promissory estoppel), -promises made under seal, and -promises made enforceable by statute (UCC: modification of contracts for the sale of goods, written waivers or renunciations signed and delivered by the aggrieved party, and firm offers by merchants).

How does Article 2 of the UCC change the common law with regard to consideration for a contract modification?

The UCC states that the modification of an existing contract for the sale of goods is enforceable without consideration.

Is a promise to pay a pre-existing moral obligation enforceable? Explain

The law does not regard the performance of or promise to perform a pre-existing legal duty, public or private, as either a legal detriment or a legal benefit. Under the common law, a promise made in order to satisfy a pre-existing moral obligation is likewise unenforceable for lack of consideration. Instances involving such moral obligation include promises to pay for board and lodging previously furnished to a needy relative or promises to pay debts owed by a relative. The Restatement and a minority of states give considerable recognition to moral obligations as consideration.

William agrees to drill a well up to 200 feet deep for John's rural cabin. The contract price is $3,000. After drilling 100 feet, William strikes solid granite rock. He talks to John and explains that this is highly unusual for the area and could not have been anticipated at the time of entering into the contract. He offers to get a special drill, but says it will cost him more money, so that he will be unable to complete the project for the agreed price. Because John is anxious to have the well, he agrees to pay William an additional $1,000 to complete the job. However, once the well is finished, he changes his mind and now says he will pay only the originally agreed-upon amount.

The parties have agreed to a substitute contract which discharges the original contract. John is obligated to pay the additional $1,000.

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 because there is no valid consideration.

Which of the following statements is most accurate concerning charitable subscription promises?

They are generally enforceable if there is reliance by the charity.

Marilyn contracted with Bravo Builders to build an addition to her house for $15,000. After digging the foundation, Bravo decides that it will take more work and more concrete than it had originally thought and that it will need to charge an additional $5,000 for the job. Assuming Marilyn agrees, which of the following is correct?

This is a modification of a preexisting contract, which under common law must be supported by additional consideration on the part of Bravo Builders

"Consideration" does not require an actual benefit to both sides of an agreement. T/F

True

A conditional promise is a promise the performance of which depends upon the happening or nonhappening of an event not certain to occur. T/F

True

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

True

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

True

A new promise to perform a voidable obligation that has not been avoided previously is enforceable without new consideration. T/F

True

A promise to pay $1,000 a year to a local police officer not to have your store vandalized is legally unenforceable under the rule that makes performance of a pre-existing legal obligation legally insufficient consideration. T/F

True

A unilateral contract may consist of a promise exchanged for an act or forbearance. T/F

True

According to the UCC, only a merchant can make a firm offer to a buyer T/F

True

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

True

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

True

Consideration exchanged for a promise does not require both legal detriment to the promisee and legal benefit to the promisor. T/F

True

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

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. T/F

True

If a promise is illusory, mutuality of obligation is lacking. T/F

True

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

True

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

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. T/F

True

In some states a promise under seal is binding without consideration. T/F

True

Otherwise illusory promises may be transformed by some courts into actual promises by implying an obligation of good faith and fair dealing. T/F

True

Pablo promises to sell to Candice an automobile for $20,000, for which Candice promises $20,000. A bilateral contract exists. T/F

True

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

True

The Restatement provides that a promise following the rendering of emergency services is binding even if not supported by consideration if necessary to prevent injustice. T/F

True

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

True

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

True

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

True

The term "past consideration" is not really consideration at all because the law will not find a contract where there is no bargained-for-exchange. T/F

True

Under the UCC, exclusive dealing contracts are binding because sufficient consideration is deemed to be present. T/F

True

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

True

Tyler contracts to build a garage for Wilbur for a price of $6,000. Because of an increase in the cost of labor and materials, Tyler refuses to perform. Wilbur wants the garage, so he agrees to pay an additional $500.

Tyler has given no additional consideration, and under the common law must perform at the agreed upon original price.

Aunt Ellie promises her 21-year-old nephew, Robbie, that she will pay him $100 if he quits smoking for a month. If Robbie does, is there a binding contract?

Yes because Robbie gave up a legal right

Sue owes $5,000 to the First National Bank for a student loan which will come due on January 1 next year. She has been offered a two-year graduate fellowship, but she will not be able to pay the loan back if she accepts the fellowship. The bank manager tells Sue that if she pays $3,000 now, they will forgive the loan. Should Sue accept the offer?

Yes, because the early payment of the loan is consideration that makes the bank's promise binding

Ron owes Matt an unsecured debt of $3,000. Ron has a discharge of all his unsecured debts by a bankruptcy court. Can the contract between Matt and Ron be reinstated?

Yes, the contract can be reinstated if Ron acknowledges that he has had his debt discharged and then makes a promise to Matt to pay regardless of that fact. A promise to pay a debt that has been discharged in bankruptcy is enforceable without consideration. However, the Bankruptcy Act imposes a number of requirements before a promise to pay a debt discharged in bankruptcy may be enforced.

Jack moved from New Hampshire to Florida and decided to have an air conditioner installed in his car. After it was installed, Jack received a bill for $1,200. Jack called the dealer and told him he'd never heard of this service costing more than $500. They argued, but the dealer finally agreed to take $900. Is the agreement enforceable?

Yes, there is consideration for the modified amount

Stan 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. Stan refuses to pay the $800, and Isaac is threatening to sue. Which of the following is correct with regard to this transaction?

a. If Isaac agrees to accept $600 to settle the dispute and Stan agrees to pay that amount, the substitute agreement is enforceable.

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.

Doug obtains an exclusive franchise to sell widgets for the Acme Widget Company. The exclusive franchise covers the entire State of Wisconsin for a period of three years.

both a and b

The requirement of legally sufficient consideration:

is that the parties have agreed to an exchange and it imposed a legal detriment upon the promisee or conferred a legal benefit upon the promisor.

A purchaser's agreement to buy from a particular seller all the materials of a particular kind he needs is a(n) ____ contract.

requirements