Ch 12: Consideration

Question 1

Consideration

Answer 1

The value given in return for a promise (bilateral) or in return for a performance (unilateral).

Question 2

What are the two parts of consideration?

Answer 2

1. Something of legally sufficient value must be given in exchange for the promise.
2. Must be a bargained for exchange.

Question 3

The something of legally sufficient value may consist of what?

Answer 3

1. A promise to do something that one has no prior legal duty to do.
2. The performance of an action that one is otherwise not obligated to undertake.
3. Refraining from an action that one has a legal right to undertake (called forbearance).

Question 4

Bargained-for exchange

Answer 4

Second element of consideration. It must provide the basis for the bargain struck between the contraction parties. The item of value must be given or promised by the promisor (offeror) in return for the promisee’s promise, performance, or promise of performance.

(This element of bargained- for exchange distinguishes the difference between contracts from gifts)

Question 5

Court will not question Adequacy of consideration based solely on the comparative value of the things exchanged, true or false?

Answer 5

True, determination of whether consideration exists does not depend on comparison of the values of the things exchanged.

Question 6

Under most circumstances, a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration, True or False?

Answer 6

True

Question 7

The rule regarding pre-existing duty is meant to what?

Answer 7

Prevent extortion and the so-called hold up game.

Question 8

Rescission

Answer 8

Unmaking of a contract so as to return the parties to the positions they occupied before the contract was made.

Question 9

Past Consideration

Answer 9

Promises made in return for actions or events that have already taken place are unenforceable. Therefore, past consideration is NO consideration.

Question 10

Noncompete agreement

Answer 10

Employee agrees not to work for competitors of the employer for a certain period of time after the employment relationship ends.

AKA: covenant not to compete

Question 11

Illusory Promises

Answer 11

If the term of the contract express such uncertainty of performance that that the promisor has not definitely promised to do anything. A promise is illusory when it fails to bind the promisor. Promisor has option to cancel contract before performance has begun

(When the nature or extent of performance is too uncertain, the promise is rendered illusory and unenforceable)

Question 12

Requirements Contract

Answer 12

Buyer and seller agree that the buyer will purchase from the seller all of the goods of a designated type that the buyer needs, or requires.

Question 13

Output Contract

Answer 13

Buyer and seller agree that the buyer will purchase from the seller all of what the seller produces, or the seller’s output.

Question 14

Accord and satisfaction

Answer 14

Claims are commonly settled this way. A debtor offers to pay a lessor amount than the creditor originally claimed to be owed.

Accord- Agreement under which one of the parties undertakes to give or perform, and the other to accept, in satisfaction of a claim something other than that on which the parties originally agreed.

Satisfaction- Performance that takes place after the accord is executed.

Basic rule: can be no satisfaction unless there is first and accord-Amount of debt must be in dispute

Question 15

Claims are settle in two ways?

Answer 15

1. Accord and satisfaction

2. Signing of a release or covenant not to sue.

Question 16

Liquidated Debt

Answer 16

One whose amount has been ascertained, fixed, agreed on, settled, or exactly determined.

Accord and satisfaction cannot take place if debt is liquidated.

Question 17

Unliquidated Debt

Answer 17

The amount of debt has not been ascertained, fixed, agreed on, settled, or exactly determined.

Question 18

Release

Answer 18

Contract in which one party forfeits the right to pursue a legal claim against the other party.

Question 19

Releases will generally be binding if?

Answer 19

1. Given in good faith.
2. Stated in a signed writing (which is required in many states)
3. Accompanied by consideration.

Question 20

Covenant to sue always bar further recovery, true or false?

Answer 20

False; Covenant to sue does not always bar further recovery

Question 21

What types of of promises may be enforced despite the lack of consideration?

Answer 21

1. Promises that induce detrimental reliance, under the doctrine of promissory estoppel.
2. Promises to pay debts that are barred by a statute of limitations.
3. Promises to make charitable contributions.

Question 22

Promissory Estoppel

Answer 22

(Detrimental reliance) A person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery.

Question 23

Requirements to state a claim of promissory Estoppel

Answer 23

1. Must be a clear and definite promise.
2. The promisor should have expected that the promisee would rely on the promise.
3. The promisee reasonably relied on the promise by acting or refraining from some act.
4. The promisee’s reliance was definite and resulted in substantial detriment.
5. Enforcement of the promise is necessary to avoid injustice.

Question 24

Estopped

Answer 24

Prevented

Question 25

What is the difference between quasi contracts and promissory estoppel?

Answer 25

With quasi contracts no promise was made at all, whereas promissory estoppel, a promise was made and relied on, but it was unenforceable.

Question 26

Statute of Limitations

Answer 26

Require a creditor to sue within a specified period to recover a debt. If the creditor fails to sue in time, recovery of the debt is barred by the statute of limitations.