Deck 12: Consideration

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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.

Answer 3

True

Question 4

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

Question 5

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:

A) win because Bill had a legal right to drink alcohol.
B) lose because consideration must have monetary value.
C) win because no consideration is needed in this contract.
D) lose because refraining from an action can never be considered legal consideration.

Question 6

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

Question 7

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.

Question 8

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.

Question 9

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

Question 10

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

Question 11

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

A) the consideration given by each party must be of roughly equal value.
B) each party must give consideration.
C) the consideration must have monetary value.
D) the consideration must consist of some form of property.

Question 12

Which of the following meets the requirements of consideration?

A) A promise not to engage in a crime or tort
B) A promise without a binding obligation
C) A promise that involves the exchange of a legal value
D) A promise to do a preexisting duty

Question 13

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.

Question 14

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

A) security
B) guarantee
C) act
D) promise

Question 15

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.

Question 16

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.

Question 17

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

Question 18

A promise to refrain from smoking cannot be legal consideration because it does not convey anything of economic value to the other party.

Question 19

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.

Question 20

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

A) the consideration given by each party is of roughly equal value.
B) the consideration conforms to the subjective intent of the parties.
C) the consideration has sufficient monetary value.
D) there is mutuality of consideration.

Question 21

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:

A) correct; Daniel has already gained the benefit of the bargain.
B) correct; Daniel did not give anything of legal value.
C) incorrect; Brian owes Daniel a trip to Europe because Daniel's acts are consideration.
D) incorrect, but only if Daniel's acts are adequate consideration for such an expensive trip.

Question 22

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:

A) the first contract was not terminated.
B) there is no consideration for Jack's promise.
C) Joe's promise is illusory.
D) written contracts for the sale of land cannot be modified.

Question 23

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

A) act
B) promise
C) exchange
D) gift

Question 24

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?

A) Yes, because this is a requirements contract.
B) Yes, but only if James buys all of the pastries produced by Mary in the next year.
C) No, because the promise fails to specify the quantity of goods to be purchased.
D) No, because James might not need any pastries in the next year.

Question 25

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

A) requirements contract.
B) composition agreement.
C) output contract.
D) exclusive dealing contract.

Question 26

Which of the following is true of consideration?

A) A promise cannot be deemed a consideration in a bilateral contract.
B) The legal value of a consideration must be equal to the actual value in a consideration.
C) Gross inadequacy of consideration can give rise to an inference of fraud for setting aside a contract.
D) A preexisting moral obligation is deemed a consideration.

Question 27

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?

A) Yes, because there was a valid and binding contract between the co-owners.
B) No, because it was a purely gratuitous promise.
C) No, because an intervening cause absolved John's liability.
D) Yes, because of promissory estoppel.

Question 28

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

A) Nominal consideration
B) Past consideration
C) Composition agreement
D) Requirements contract

Question 29

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?

A) Yes, because the modifications in 2000 were not by mutual consent and for consideration.
B) No, because the employee handbook contains terms and conditions of the employment contract.
C) Yes, because Mass Co. has arbitrarily terminated Ron.
D) No, because Ron had acquiesced to the modification by not raising any objection.

Question 30

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?

A) No, she gave no legal value to Chica.
B) No, unless she purchased an item from one of the fashion consultants.
C) Yes, she came to the store and gave information that was for the store's use.
D) Yes, unless the store was conveniently located.

Question 31

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:

A) binding because it is due to unforeseeable situation.
B) binding by virtue of being mutually agreed on.
C) not binding because it is an outputs contract.
D) not binding due to the promise of performing a preexisting legal obligation.

Question 32

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:

A) enforce such modifications in contract.
B) allow the party to rescind such a contract.
C) consider the contract voidable.
D) consider the contract unenforceable.

Question 33

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):

A) requirements contract.
B) composition agreement.
C) output contract.
D) nominal consideration.

Question 34

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:

A) is supported by consideration.
B) lacks consideration because Casey is not giving Daniel any legal value.
C) lacks consideration because Daniel is promising to perform a preexisting legal obligation.
D) is binding under UCC section 2-209 even though there is no consideration.

Question 35

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

A) requirements contract.
B) composition agreement.
C) output contract.
D) nominal consideration.

Question 36

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:

A) there was no bargained-for exchange for the raise.
B) of the "preexisting duty" rule.
C) past consideration is not an act or promise.
D) past consideration is not liquidated.

Question 37

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.

Question 38

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):

A) valid promise.
B) illusory promise.
C) voidable promise.
D) implied promise.

Question 39

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

A) necessary increase in the value of the exchange.
B) inclusion of a new party to the contract.
C) new and independent consideration.
D) economic exchange of substantial value.

Question 40

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.

A) No contract was formed because Jack paid no money for his chance at the Million Dollar Wheel.
B) No contract was formed because ABC did not sign any written contract as an obligation to do so.
C) A contract was formed because filling out an application can constitute legal consideration.
D) A contract was formed because no consideration is needed when a customer takes advantage of a "free" offer.

Question 41

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

A) Where the amount of the debt is uncertain or subject to dispute.
B) Where the amount of the debt is certain and undisputed.
C) Where the only consideration the creditor gives the debtor is his promise not to sue the debtor on the original debt.
D) Where the settlement is part of a composition agreement.

Question 42

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 oral employment agreement for a term of nine months from the date the agreement was formed.
C) An irrevocable 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.

Question 43

Owen once owed Carl a $1,000 debt, but the statute of limitations ran on that obligation, discharging Owen. Later, Owen promises in writing to pay Carl the debt. Why is there no consideration for this promise? Why is it binding anyway? What additional requirement do some states impose to make the promise binding?

Question 44

Which of the following is a relevant consideration?

A) A preexisting duty
B) Agreement to settle an unliquidated debt
C) A preexisting moral obligation
D) Nominal consideration

Question 45

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

A) There is no provision of modifications due to unforeseen circumstances.
B) No modifications can be made to an existing contract that is binding.
C) Modification requires "mere agreement" on the part of those involved.
D) Rules for contractual modifications are different for the UCC and the CISG.

Question 46

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, 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?

A) Able wins, because Baker accepted the lesser payment.
B) Able wins, because Baker made an implied promise to accept $10,500 as full payment, thereby forgiving $500 of the loan.
C) Baker wins, because Able gave no consideration in exchange for Baker's promise to forgive $500 of the loan.
D) Baker wins, because marking "payment in full" can never relieve a party of its original obligations under a contract.

Question 47

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

A) It falls under exceptions to consideration.
B) It does not pertain to the present exchange.
C) It is not covered under the UCC for consideration.
D) It involves an issue of moral obligation.

Question 48

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

A) The promisee should reasonably expect to induce reliance
B) Reliance on the promise by the promisor
C) A promise to pay liquidated debts
D) Injustice to the promisee as a result of reliance

Question 49

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

A) An irrevocable oral promise by a merchant to keep an offer open for 60 days.
B) A promise to donate money to a charity which the charity relied upon in incurring large expenditures.
C) A promise to pay for the college education of the child of a person who saved the promisor's life.
D) A signed modification to a contract to purchase a parcel of land.

Question 50

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

A) forbearance to sue.
B) accord and satisfaction.
C) past consideration.
D) moral obligation.

Question 51

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?

A) Yes, a contract was formed.
B) Yes, promissory estoppel requires enforcement of the promise.
C) No, legal consideration is absent.
D) No, legal capacity is absent.

Question 52

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

A) Bargained-for exchange
B) Charitable subscription
C) Nominal consideration
D) Adequacy of consideration

Question 53

Ben, an accountant in Los Angeles, interviewed with Matt, a CPA in San Francisco. At the end of his interview, Matt, the CPA, told Ben: "I look forward to working with you. Please let me know if I can help you prepare for your move to San Francisco." Ben returned to Los Angeles, quit his job, gave a 30-day notice to his landlord, rented an apartment in San Francisco, and moved to San Francisco. Ben then called Matt to ask if he could start his job the following week. Matt replied that Ben had no job with him. Ben wants to recover the cost of moving expenses from Matt. Under what legal theory may he proceed? Discuss the arguments that Ben and Matt will each make if the claim is brought.

Question 54

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.

A) value
B) consideration
C) acceptance
D) capacity

Question 55

In general, settlements of liquidated debts are not binding due to the absence of consideration, while settlements of unliquidated debts are a binding accord and satisfaction. As a matter of technical consideration law, what justifies this distinction?

Question 56

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?

A) The National Labor Relations Act
B) The Bankruptcy Abuse Prevention and Consumer Protection Act
C) The Uniform Debt-Management Services Act
D) The Bankruptcy Reform Act

Question 57

Arthur contracts to sell Ben his house for $100,000. Later the parties modify the contract by changing the price to $110,000. All other terms remain the same. Why is there no consideration for the second agreement? State two ways in which the parties can circumvent this problem.

Question 58

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:

A) charitable subscriptions.
B) promises to pay debts barred by statutes of limitations.
C) promises to pay debts barred by bankruptcy discharge.
D) promissory estoppels.

Question 59

Gift promises are not generally enforceable because they lack:

A) legality.
B) capacity.
C) consideration.
D) agreement.