Consideration

Question 1

If there is a valid offer and acceptance that creates an agreement, the agreement is

Answer 1

legally enforceable so long as there is consideration.

Question 2

Consideration is

Answer 2

a benefit (e.g., act, money, return promise) bargained for and received by the promisor from a promisee

Question 3

consideration majority rule

Answer 3

Consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.

Question 4

consideration minority rule

Answer 4

Consideration exists if there is either a detriment or a benefit; both are not required.

Question 5

consideration second restatement

Answer 5

Consideration exists if there is simply a bargained-for exchange.

Question 6

For the legal detriment to constitute sufficient consideration, it must be

Answer 6

bargained for in exchange for the promise.
- The promise must induce the detriment, and the detriment must induce the promise (mutuality of consideration).

Question 7

Consideration can take the form of:

Answer 7

i) A return promise to do something;

ii) A return promise to refrain from doing something legally permitted;

iii) The actual performance of some act; or

iv) Refraining from doing some act.

Question 8

A promise to make a gift does not involve

Answer 8

bargained-for consideration and is therefore unenforceable.

Question 9

The test to distinguish a gift from valid consideration is whether

Answer 9

the offeree could have reasonably believed that the offeror’s intent was to induce the action.
- If yes, there is consideration, and the promise is enforceable.

Question 10

A party’s promise to make a gift is enforceable under the doctrine of promissory estoppel if

Answer 10

the promisor/donor knows that the promise will induce substantial reliance by the promisee and the failure to enforce the promise will cause substantial injustice.

Question 11

The basic concept of legal detriment is that

Answer 11

something of substance, either an act or a promise, must be given in exchange for the promise that is to be enforced.

Question 12

In general, a party cannot challenge a contract on the grounds that the consideration is

Answer 12

inadequate

Question 13

difference in economic value between the items exchanged is not grounds for

Answer 13

for finding that a contract did not exist because of inadequate consideration.

Question 14

The benefit to the promisor does not need to have an economic value.

Answer 14

Regardless of the objective value of an item, if the promisor wants it, the giving of it will constitute adequate consideration.

Question 15

Preexisting-duty rule

Answer 15

A promise to perform a preexisting legal duty does not qualify as consideration because the promisor is already bound to perform (i.e., there is no legal detriment).
- if the promisor gives something in addition to what is already owed (however small) or varies the preexisting duty in some way (however slightly), most courts find that consideration exists.

Question 16

When a third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform, the party’s promise to the third party is

Answer 16

sufficient consideration

Question 17

Under the common law, something given in the past is typically

Answer 17

not adequate consideration because it could not have been bargained for, nor could it have been given in reliance upon a promise.
- There is a modern trend, adopted by the Second Restatement, however, toward enforcing some such promises under material-benefit rule

Question 18

An executory contract is a contract whose

Answer 18

terms are to be performed by both parties at a later date or in an ongoing manner.

Question 19

in executory contracts the exchange of promises is

Answer 19

adequate consideration.
- Note, however, that an obligation to make a one-time payment in the future typically does not make a contract executory.

Question 20

Be sure to know the difference between the different common-law and UCC rules regarding contract modification.

Answer 20

• At common law, modifications require consideration.
• Under the UCC, they require only good faith.

Question 21

At common law, modification of an existing contract must be supported by consideration. Agreements to modify a contract may still be enforced if:

Answer 21

i) The parties rescind the existing contract by tearing it up or by some other outward sign and then enter into a new contract whereby one party must perform more than she was to perform under the original contract;

ii) One party agrees to compensate the other when unanticipated difficulties arise if the modification is fair and equitable considering those difficulties; or

iii) There are new obligations on both sides.

Question 22

common law

The modification must rest in

Answer 22

in circumstances that were not anticipated as part of the context in which the contract was made; these circumstances need not be completely unforeseeable.
- In such circumstances, the parties’ relative financial strength, the formality with which the modification is made, the extent to which it is performed or relied on, and other factors may be relevant.

Question 23

ucc

consideration requirements

Answer 23

Unlike the common law, under Article 2, no consideration is necessary to modify a contract; however, good faith is required.

Question 24

under the ucc, if one party attempts to extort a modification, it will

Answer 24

be ineffective

Question 25

# ucc - installment contracts Generally, a party benefited by a condition under a contract may

Answer 25

orally waive that condition without new consideration.

Question 25

# ucc Good faith requires

Answer 25

honesty in fact and fair dealing in accordance with reasonable commercial stand - The same definition of good faith applies to all parties, both merchants and nonmerchants alike.

Question 26

# ucc - consideration in installment contracts, the waiver may be retracted if

Answer 26

the other party is provided reasonable notice that strict performance is required. - The retraction is allowed unless it would be unjust because of a material change of position by the other party in reliance on the waiver.

Question 27

Accord and satisfaction are the

Answer 27

the tender and acceptance of an alternative performance that discharges a contractual obligation

Question 28

Under an accord agreement,

Answer 28

a party to a contract agrees to accept a performance from the other party that differs from the performance promised in the existing contract. - This alternative performance satisfies the other party’s existing duty

Question 29

When a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be

Answer 29

consideration or a consideration substitute for the party’s promise to accept the lesser amount.

Question 30

A satisfaction is the

Answer 30

performance of the accord agreement; it will discharge both the original contract and the accord contract.

Question 31

there is no satisfaction until

Answer 31

performance, and the original contract is not discharged until satisfaction is complete.

Question 32

if the party promising a different performances breaches an accord, the other party can

Answer 32

sue either on the original contract or under the accord agreement.

Question 33

If a claim is unliquidated or otherwise subject to dispute, it can be discharged if:

Answer 33

i) The person against whom the claim is asserted in good faith tenders a negotiable instrument (e.g., a check) accompanied by a conspicuous statement indicating that the instrument was tendered as full satisfaction of the claim (e.g., “Payment in full”); and ii) The claimant obtains payment of the instrument.

Question 34

A claimant’s addition of a restriction to an endorsement of the check, such as “under protest,” does not

Answer 34

preserve the claimant’s right to seek additional compensation.

Question 35

When the claimant is an organization, the discharge is not effective if the

Answer 35

instrument is not tendered to a person, place, or office designated by the organization. - If no such designation is made or if the claimant is not an organization, the discharge is not effective if the claimant returns the payment within 90 days.

Question 36

regardless of the type of claimant, when the claimant or an agent of the claimant with direct responsibility over the disputed obligation knew, within a reasonable time before collection was initiated, that the instrument was tendered in full satisfaction of the claim,

Answer 36

these exceptions do not apply, and the claim is discharged. - The burden to establish such knowledge is on the party seeking discharge

Question 37

An illusory promise is one that

Answer 37

essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. - Such a promise is not legally binding.

Question 38

A promise that is based on a condition under the promisor’s control may be illusory, but courts often find

Answer 38

hat the promisor has also promised to use their best efforts to bring about the condition

Question 39

a promise to purchase goods upon the promisor’s satisfaction with the goods is not illusory because

Answer 39

the promisor is required to act in good faith.

Question 40

A promise that is voidable or unenforceable by a rule of law (e.g., infancy) can

Answer 40

nevertheless constitute consideration

Question 41

requirements contract

Answer 41

a contract under which a buyer agrees to buy all that the buyer will require of a product from the other party.

Question 42

output contract

Answer 42

a contract under which a seller agrees to sell all that the seller manufactures of a product to the buyer.

Question 43

there is consideration in output and requirement contracts because

Answer 43

the promisor suffers a legal detriment. The fact that the party may go out of business does not render the promise illusory.

Question 44

Because a covenant of good faith and fair dealing is implied in all contracts (common law and UCC), any quantities under requirement and output contract may not be

Answer 44

unreasonably disproportionate to any stated estimates or, if no estimate is stated, to any normal or otherwise comparable prior requirements or output.

Question 45

A promise not to assert or a release of a claim or defense that proves to be invalid does not

Answer 45

constitute consideration. - However, such a promise or release may constitute consideration if the claim or defense is doubtful because of uncertainty of facts or law. - It may also constitute consideration if the party promising not to assert or releasing the claim or defense believes in good faith that it may be fairly determined to be valid.

Question 46

There are several circumstances in which a promise will be enforceable despite the fact that it is not supported by consideration.

Answer 46

1. Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy 2. Promise to Perform a Voidable Duty 3. Promise to Pay Benefits Received—Material-Benefit Rule 4. Promissory Estoppel

Question 47

# Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy A new promise to pay a debt after the statute of limitations has run is enforceable without

Answer 47

any new consideration

Question 48

# Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy When the new promise is an express promise, most states require

Answer 48

that the new promise be in writing and signed by the debtor.

Question 49

# Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy A new promise made to pay a debt discharged in bankruptcy is enforceable without

Answer 49

any new consideration

Question 49

# Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy In addition, a new promise may be implied when the obligor:

Answer 49

i) Voluntarily transfers something of value (e.g., money, negotiable note) to the obligee as interest on, part payment of, or collateral security for the prior debt; ii) Voluntarily acknowledges to the obligee the present existence of the prior indebtedness; or iii) States to the obligee that the statute of limitations will not be pleaded as a defense.

Question 50

# Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy While there must be an express promise to pay rather than a mere acknowledgment or partial payment of the discharged debt, the new promise need not be

Answer 50

in writing

Question 51

# Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy Because the new promise, not the prior debt obligation, is enforceable, the amount to which the obligee is entitled may be

Answer 51

less than the prior debt obligation.

Question 52

# Promise to Perform a Voidable Duty A new promise to perform a duty that is voidable will be enforceable despite the absence of consideration, provided that

Answer 52

the new promise does not suffer from an infirmity that would make it, in turn, voidable.

Question 53

# Promise to Pay Benefits Received—Material-Benefit Rule the material-benefit rule

Answer 53

when a party performs an unrequested service for another party that constitutes a material benefit, the modern trend permits the performing party to enforce a promise of payment made by the other party after the service is rendered.

Question 54

# Promise to Pay Benefits Received—Material-Benefit Rule the material benefit rule, is a rule even though at common law

Answer 54

such a promise would be unenforceable because of a lack of consideration.

Question 55

# Promise to Pay Benefits Received—Material-Benefit Rule the material benefit rule is not enforced when

Answer 55

the performing party rendered the services without the expectation of compensation (e.g., as a gift).

Question 56

# Promise to Pay Benefits Received—Material-Benefit Rule the promise is enforced only to the extent

Answer 56

necessary to prevent injustice.

Question 57

# Promise to Pay Benefits Received—Material-Benefit Rule he promise is not enforceable to the extent that its

Answer 57

value is disproportionate to the benefit received or if the promisor has not been unjustly enriched.

Question 58

# Promise to Pay Benefits Received—Material-Benefit Rule Note that apart from a contract remedy, the provider of services may also be able to recover under

Answer 58

quasi-contract theory

Question 59

If one party requests another party to perform a service but does not indicate a price and the service is performed, this generally creates

Answer 59

an implied-in-fact contract.

Question 60

The party who performed the requested service is generally entitled to recover the

Answer 60

reasonable value of his services in a breach-of-contract action against the party who enjoyed the benefit of the services without paying. - An exception applies, however, when the services were rendered without the expectation of payment.

Question 61

Promissory estoppel is referred to as

Answer 61

a consideration “substitute.”

Question 62

The doctrine of promissory estoppel (detrimental reliance) can be used under certain circumstances to enforce

Answer 62

a promise that is not supported by consideration.

Question 63

before considering promissory estoppel as the correct answer choice

Answer 63

Always evaluate whether there is sufficient consideration to form a valid contract

Question 64

# promissory estoppel A promise is binding if:

Answer 64

i) The promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person; ii) The promise does induce such action or forbearance; and iii) Injustice can be avoided only by enforcing the promise.

Question 65

# promissory estoppel In general, the promisee must rely on

Answer 65

the promise, and such reliance must have been reasonably foreseeable to the promisor.

Question 66

# promissory estoppel The remedy may be limited or adjusted as justice requires. Generally, this results in the award of

Answer 66

reliance damages rather than expectation damages.

Question 67

# Exception to the reliance requirement for charitable subscriptions Courts often apply the doctrine of promissory estoppel to enforce promises to

Answer 67

charitable institutions.

Question 68

# Exception to the reliance requirement for charitable subscriptions A charitable subscription (i.e., a written promise) is enforceable under the doctrine of promissory estoppel without

Answer 68

proof that the charity relied on the promise.

Question 69

# Construction contracts and promissory estoppel In the construction industry, it would be unjust to permit a subcontractor to revoke a bid after

Answer 69

inducing justifiable and detrimental reliance in the general contractor.

Question 70

# Construction contracts and promissory estoppel an agreement not to revoke a sub-bid offer can be

Answer 70

enforceable under the theory of promissory estoppel.

Question 71

# Construction contracts and promissory estoppel Because the sub-bid is only an outstanding offer, the general contractor is

Answer 71

not bound to accept it upon becoming the successful bidder for the general contract.

Question 72

# Construction contracts and promissory estoppel