Exam 8: Consideration and Privity

A promise to perform a pre- existing contractual obligation cannot provide consideration under a new contract with the same party. That rule always reflects commercial reality.

ABC Construction agreed to build a pool for Miranda in exchange for $100 000. The pool was to be built during the month of May, but payment was not due until the end of August. The pool was completed on schedule. However, because it was experiencing financial difficulties, ABC orally assigned its contractual rights against Miranda to Mirth Enterprises in early June. In July, Miranda discovered that the pool leaked. Because ABC denied responsibility, Miranda had the problem fixed by another company at a cost of $20 000. The evidence now indicates that the problem was in fact caused by ABC's breach of contract. ABC failed to use appropriate materials when it constructed the pool. Which of the following statements is TRUE?

A gratuitous promise is never enforceable.

Which of the following statements is TRUE?

Tracey is a police officer. While she was on vacation, she agreed to act as a security guard at a concert in exchange for payment of $500. She performed the work, but the concert promoter refuses to pay her. He is entitled to do so because the law wants to discourage public servants like Tracey from improperly taking advantage of their special skills for private gains.

Which of the following statements is TRUE?

Lewis is a wealthy entertainer. While watching a telethon that was aimed at raising money for medical research, he was overwhelmed by a sense of grief and sorrow. He consequently picked up the telephone, dialed the number on the screen, and promised to donate $5 000 000 within one month. The volunteer on the other end of the line thanked Lewis and assured him that "the money will be put to good use." Two days later, before Lewis had sent in a cheque, the telethon organizers announced that, because of the public's overwhelmingly positive response, and in particular because of Lewis's generous promise, their organization would be able to build a research facility that they previously believed was beyond their budget. They also announced that they would name the facility the Jerry Medical Research Park, after Thomas Jerry, a local surgeon who recently had died. Lewis became very angry. He had long hated Jerry and he was horrified at the thought of paying for a building named in his enemy's honour. He therefore informed the telethon organizers that he had changed his mind and that he would not be sending any money. The telethon organizers have now sued for breach of contract. Which of the following statements is TRUE?

"The law of contract assumes that people are generally capable of looking after their own interests. An agreement therefore may be enforceable even if the parties do not exchange things of equal value." Discuss that statement. Illustrate your answer with three business law examples.

Briefly describe the requirements that must exist before a promissory estoppel will arise.

Mohana promised Ian that she would pay $10 000 to him on his birthday. Ian gave nothing in exchange for that promise and neither party placed their seal on the document containing Mohana's promise. Ian demanded payment on his birthday. Mohana refused, primarily on the basis that she had recently become quite annoyed with him. Ian then threatened to start a lawsuit. However, he also offered to settle that lawsuit in exchange for payment of $7500. Mohana accepted that offer in an attempt to avoid paying the full $10 000. Several weeks after paying $7500, however, she learned that her initial promise was not actually legally enforceable. She also learned that Ian, who was a lawyer, was aware of that fact all along. Which of the following statements is the most accurate?

Patricia and Charlie entered into a written agreement. Patricia promised to pay $5000 to Haden, who is Charlie's brother. Charlie placed his seal on the document, but Patricia did not do so. Three days later, Charlie promised that he would design a new computer program for Bethany, Patricia's sister, in exchange for Patricia's promise. Which of the following statements is the most accurate?

The employment exception to the privity doctrine

Bentley Inc operates a sporting goods store. In January, it purchased a shipment of baseball bats from Tadpole Manufacturing Ltd for $20 000. In February, Tadpole orally assigned its rights under that contract to J&H Collections. In May, Bentley purchased a shipment of footballs from Tadpole for $15 000 under a separate contract. Immediately after delivery, Bentley discovered that the footballs were defective. They had been improperly treated with a chemical that completely destroyed their leather exterior. The footballs consequently are completely worthless. Both contracts between Bentley and Tadpole required payment to be made by the end of June. Which of the following statements is TRUE?

The Canadian government announced its plan to create and circulate a new $100 bill. Because Marta knew that Bernie was an avid collector of currency, she promised to give him the first new $100 bill that she received from her work at a flea market. The agreement was placed in writing and Bernie applied his seal to the document. Shortly after the government released the new $100 bills, Marta received one from a customer at the flea market. She is required to deliver it to Bernie.

The contractual rule that requires an exchange of value

Which of the following situations illustrates a contractually enforceable promise?

As a wedding anniversary present for himself and his wife, Louisa, Mario entered into an agreement with Stanislaus, a world famous pianist. Under the terms of that agreement, Mario promised to pay Stanislaus $52 000. Stanislaus promised that he would provide weekly lessons for one year for both Mario and Louisa. After two weeks of lessons, Mario completely lost interest, but Louisa is eager to continue. Stanislaus, however, refuses to go on. Louisa has the right to demand the remainder of the lessons from Stanislaus because the courts generally assume that if one party (such as Mario) enters into a contract for another person (such as Louisa), the promise provided by the other contractual party (such as Stanislaus) is held on trust.

Which of the following rules applies to an equitable assignment?

Sebastien Johan is a music critic known for his ill- tempered manner. In a recent newspaper article, he harshly criticized a classical recording that was released shortly after the death of Glenn Klavier, its featured performer. Johan's review attacked Klavier's music, which was not unusual. However, the review also attacked Klavier personally. It unfairly and inaccurately suggested that Klavier had intentionally stolen all of his ideas from another pianist. Klavier's widow sued Johan under the tort of defamation on the basis that the review tended to make people think less of her late husband. She threatened to sue for $500 000 unless she immediately received payment of $100 000. Although Johan normally would have simply ignored the matter, he recently had experienced a number of financial setbacks. He therefore realized that while he would prefer to pay nothing, he could afford $100 000, but would be ruined if he was ever required to pay $500 000. He therefore promised to pay $100 000 within one year to Klavier's widow in exchange for her promise to drop the lawsuit. Six months later, however, Klavier's widow was reliably informed that her lawsuit certainly would have failed if it had been brought before a judge. The law of defamation states that a person cannot be held liable for making derogatory comments about a dead person. Johan therefore now refuses to fulfill his promise to pay $100 000. Is he entitled to do so? Explain your answer.

Which of the following explains why the courts will not enforce an agreement that was created on the basis of a pre- existing public duty?