Contract Law Learning Questions - Set 5 Flashcards
Generally speaking, the promise to perform an existing legal duty is __________.
A
Past consideration
B
Not consideration
C
Sufficient consideration
D
Valuable consideration
B
Traditionally the promise to perform, or the performance of, an existing legal duty is not consideration.
A promise to perform an existing legal duty is not valuable consideration, unless an exception to the preexisting legal duty rule applies, e.g., new or different consideration is promised, or a minor’s ratification of a voidable contract upon reaching the age of majority.
Past consideration, which is also not sufficient consideration, is based on something already given or performed, not a promise to perform based on a preexisting legal duty.
How can one avoid the preexisting legal duty rule?
A
By full performance of the duty
B
By modifying the original consideration slightly
C
By making a brand-new identical promise
D
By beginning performance
B
Courts are anxious to avoid the preexisting duty rule, which states that the promise to perform, or the performance of, an existing legal duty is not consideration. Thus modifying the original consideration, even slightly, is generally enough to avoid the rule.
Making a brand-new identical promise is not sufficient because there is no consideration for the new promise. There must be new consideration or the consideration that is different in some way, such as by accelerating performance, to avoid the preexisting duty rule.
Beginning performance does not avoid the preexisting legal duty rule. Even full performance of a preexisting legal duty is not sufficient consideration. There must be some new or different obligation.
Which of the following would serve as sufficient consideration for a promise by a creditor to discharge an existing debt?
A
Unforeseen difficulty in performance by the debtor
B
An alternative method of payment
C
Partial payment of the debt
D
Acknowledgement of the existence of the debt
B
When the proposed consideration is in any way new or different (e.g., an alternative method of payment), there is usually sufficient consideration to change a preexisting duty, such as discharging an existing debt.
Mere acknowledgement of a preexisting duty is not sufficient consideration to change the preexisting duty.
Partial payment of the amount due on an existing debt is not sufficient consideration for a promise by the creditor to discharge the debt. Neither a legal detriment nor benefit is present.
Under the majority view, mere unforeseen difficulty in performance is not a substitute for consideration. Although the modern view permits modification without consideration if the modification is fair and equitable in view of circumstances not anticipated when the contract was made, it would not apply to payment of an existing debt. That exception to the consideration requirement applies only if the contract has not been fully performed on either side, and an existing debt suggests that the creditor has already performed. Also, as with impracticability, difficulty in paying money would be unlikely to be considered the type of unforeseen circumstance this view is intended to address.
When the amount due on a debt is undisputed, which of the following will not be considered sufficient consideration for a promise by the creditor to discharge the debt?
A
Payment in a different medium.
B
Payment to one other than the creditor.
C
Payment of a smaller sum than due.
D
Payment before maturity.
C
When the amount due is undisputed, payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. Neither a legal detriment nor a benefit would be present.
In contrast, if the consideration is in any way new or different, such as payment before maturity or to one other than the creditor; or payment in a different medium (e.g., stock instead of cash), then sufficient consideration may be found.
The owner of a summer cottage contracted to put new vinyl siding on the cottage for $10,500. Two weeks before the work was to start, however, the contractor called to say that there was a clerical error in the bid and that he could not do the work for less than $12,000 or he would lose money. The cottage owner agreed to pay the additional $1,500 but told the contractor that he was being unfair. After the work was completed, the cottage owner handed the contractor a check for $10,500, telling the contractor that that was all he would pay him because he had no right to raise the price.
If the contractor sues the cottage owner for the additional $1,500, who will prevail?
A The cottage owner, because the contractor was already under a preexisting legal duty to replace the siding on the cottage for $10,500.
B The cottage owner, because the promise to pay the additional money was not in writing.
C The contractor, because he relied on the cottage owner’s promise to pay the additional money to his detriment.
D The contractor, because there was a valid modification of the parties’ original contract.
A
The cottage owner will prevail, because the contractor was already under a preexisting legal duty to replace the siding on the cottage for $10,500. Under the preexisting legal duty rule, the promise to perform or the performance of an existing legal duty will not be sufficient consideration. If the parties agree to modify their contract, consideration is usually found to exist where the obligations of both parties are varied. However, absent unanticipated circumstances, a modification solely for the benefit of one of the parties is generally unenforceable in contracts not governed by the UCC. Here, the contractor was already under a binding contract to replace the siding on the cottage for $10,500. The contract is primarily for services, and thus not governed by the UCC. Moreover, the obligations of both parties under the modified agreement are not varied; the modification (paying the contractor an additional $1,500) would benefit only the contractor. The contractor’s performance of a duty that he was already obligated to perform does not constitute sufficient consideration to support the modification. Therefore, the cottage owner is obligated to pay only the originally agreed-upon $10,500. Thus, (A) is correct and (D) is incorrect. (B) is incorrect because contracts for services do not come within the Statute of Frauds unless by their terms they cannot be performed within one year of their making, and performance of this contract could be completed in less than a year. (C) is incorrect because, in replacing the siding on the cottage, the contractor was simply fulfilling his contractual obligation, rather than acting to his detriment in reliance on the cottage owner’s promise to pay the additional money. Even where unsupported by consideration, a promise is enforceable under the promissory estoppel doctrine to the extent necessary to prevent injustice if: (i) the promisor should reasonably expect to induce action or forbearance of a definite and substantial character; and (ii) such action or forbearance is in fact induced. The contractor was legally bound to perform the work on the cottage regardless of whether the cottage owner agreed to pay the extra $1,500. Thus, the contractor did not incur a detriment in reliance on the cottage owner’s promise.
A professional baseball player visited a sick boy in the hospital. The player told the boy that in consideration of the boy’s courage, he would hit a home run for him in his next game. As the player was leaving the hospital, the boy’s father stopped the player and told him how important the home run could be in improving his son’s spirits and health. The father told the player he would pay him $5,000 if he did hit a home run in his next game. The player agreed and took extra batting practice before his next game to improve his chances. In his next game, the player hit two home runs. The player’s contract with his ball club does not forbid him from accepting money from fans for good performance. The player has now asked the father for the $5,000.
If the father refuses to pay and the baseball player brings an action against him for damages, which of the following is correct under the prevailing modern rule in contract law?
A The player can recover the $5,000 because the preexisting duty rule does not apply where the duty is owed to a third person.
B The player can recover the $5,000 if he can prove that the value of the home run to the boy is at least $5,000.
C The player cannot recover from the father because the player had a preexisting duty to use his best efforts to hit home runs.
D The player cannot recover from the father because, even under the modern trend, moral consideration is not valid.
A
The player can recover because, under the prevailing modern rule, the preexisting duty rule does not apply if the duty is owed to a third person. Generally, contracts must be supported by consideration. A promise to perform is valid consideration, but if a person already owes a duty to perform, traditionally that performance cannot be used as consideration for another promise. Thus, under the traditional rule, the player could not enforce the father’s promise to pay the player $5,000 if he hit a home run because the player gave no valid consideration in exchange for the father’s promise, since the player owed a preexisting duty to his ball club to exert his best efforts to hit home runs. However, under the modern view as formulated in Restatement (Second) of Contracts, section 73, and followed by a majority of courts, a duty is a preexisting duty only if it is owed to the promisee. Thus, a promise to perform a duty is valid consideration as long as the duty of performance is not already owed to the promisee. In other words, if the duty is owed to a third party, a promise to perform given to another is valid consideration as long as it was bargained for. (B) is incorrect because there is no exception to the preexisting duty rule—modern or otherwise—that allows the promisor to recover merely because his performance benefited a third party. The player can recover under the modern approach because his promise to the father was bargained for. Conversely, the player does not have to prove that the value of his home run to the boy was at least $5,000, because courts generally will not inquire into the adequacy of consideration. (C) would be correct under the traditional rule, but, under the modern trend, the promise here is valid consideration because the duty to hit home runs was owed to a third party (the ball club) rather than to the promisee (the father). (D) is incorrect because while it is true that moral consideration is not good consideration, the father did not rely on moral consideration, but rather exchanged a promise to pay $5,000 for the player’s performance.
A steelmaker purchased a tube rolling machine from a manufacturer of heavy machinery. The machine was sold unassembled for a price of $150,000, with $25,000 payable on delivery and the balance ($125,000) to be paid in 10 monthly installments of $12,500 each. After the machine parts were delivered, the steelmaker contacted an assembly company that specialized in assembly and installation of large and complex manufacturing machinery, and told the company that the machinery had to be up and running within 45 days, or the steelmaker would be in breach of a major contract that it relied on for much of its current revenue. The company agreed, in a written contract with the steelmaker, to assemble and install the tube rolling machine within 45 days at a price of $15,000.
Two weeks later, the manufacturer that sold the tube rolling machine to the steelmaker learned that the assembly company was planning to stop work, due to a strike by its labor union. The manufacturer orally offered the assembly company a $3,500 bonus if it would agree to finish the job for the steelmaker. The company accepted the manufacturer’s promise and completed the assembly and installation of the tube rolling machine with supervisory personnel within the 45-day time limit set in the agreement between the company and the steelmaker. However, the manufacturer refused to pay the assembly company the $3,500 bonus, so the company sued the manufacturer.
Which of the following would be the assembly company’s strongest argument to prevail?
A The assembly company owed the manufacturer no preexisting duty to complete the job for the steelmaker, and such completion was sufficient bargained-for consideration for the manufacturer’s promise to pay the additional $3,500.
B Because the $3,500 payment was characterized as a “bonus,” no further consideration was required and the manufacturer is bound to its promise.
C The assembly company would not have completed the job for the steelmaker within the time limit except in reliance on the manufacturer’s promise to pay the additional $3,500.
D By completing the job for the steelmaker, the assembly company conferred a benefit on the manufacturer worth at least $3,500, because such performance assured the steelmaker’s ability to pay the manufacturer the balance on the installment purchase agreement for the tube rolling machine.
A
The assembly company’s best argument is that it owed the manufacturer no preexisting duty to complete the job, and such completion was sufficient bargained-for consideration. Generally, a promise is unenforceable unless it is supported by consideration; thus, for the manufacturer’s promise to be enforceable, there must be consideration supporting it. Consideration is defined as a bargained-for exchange of something of legal value. Most courts hold that the thing exchanged will have legal value if it causes the promisee to incur a detriment. A minority of courts hold that a benefit to the promisor is also sufficient. Thus, the company’s best argument would be one that includes the idea that it incurred a bargained-for detriment, and this is reflected by (A). The problem with (A) is the preexisting legal duty rule. Traditionally, courts have held that performance of an existing legal duty is not sufficient consideration. However, the rule is riddled with exceptions, and one exception recognized in most jurisdictions applies when, as here, the preexisting duty is owed to someone other than the promisor. Thus, (A) is the best argument because it provides for a full contract recovery. (D) is wrong because it merely reflects the fact that the manufacturer received a benefit. As indicated above, it is the presence of consideration—defined as a bargained-for exchange of something of legal value—that permits the contract to be fully enforced. (A) is a better answer than (D) because it more clearly reflects the basis for finding consideration here. (B) is wrong because merely identifying a promise to pay as a “bonus” does not obviate the need for consideration. For a promise to be enforceable, there must be consideration. (C) is wrong because mere reliance on a promise is not enough to make a contract enforceable. For reliance to provide a substitute for consideration, under the doctrine of promissory estoppel, the promisor must reasonably expect that its promise will induce reliance, and such reliance must reasonably be induced. However, the promise will be enforceable only to the extent necessary to prevent injustice. Here, because the company had a duty to complete the work even without the manufacturer’s promise, there is no indication that justice would require payment of the $3,500; there is nothing in the facts to show the company incurred more costs, etc. Thus, the recovery to the company under a promissory estoppel theory would undoubtedly be less than the contract recovery possible under (A).
A downtown department store engaged an electrician to service all electrical appliances sold by the store for a flat fee of $5,000 per month. Under a written contract signed by both parties, the store was responsible for pickup and delivery of the appliances to be repaired and the billing for the work. By its terms, the contract would continue until either party gave 180 days’ written notice of its intent to terminate. Several months ago the electrician informed the store that he was losing money on the deal and was in financial trouble. He requested in good faith that the fee for the next three months be increased by $1,000 and that this increase be paid to a local bank to help pay off a loan that the bank had made to the electrician. The store orally agreed to so modify the original contract. However, the store did not pay the bank and now the bank is suing the store for $3,000.
Who will prevail?
A The store, because there was no consideration to support the promise to pay the bank.
B The store, because the bank is only an incidental beneficiary of the modified contract between the store and the electrician.
C The bank, because it is an intended creditor beneficiary of the modified contract between the store and the electrician.
D The bank, because the electrician exercised good faith in requesting the modification regarding the payment to the bank.
A
The store will prevail, because there was no consideration to support its promise to pay the bank the additional $1,000 per month. This question looks like it concerns third-party beneficiaries, but it actually presents a consideration issue. Generally, there must be consideration for modification of a contract, and a promise to perform an act that a party is already obliged to do is not sufficient consideration (the “preexisting legal duty” rule). Here, the electrician is promising to do exactly what he was obliged to do under his original contract with the store; thus, there is no consideration to support the promise to increase the fee. Note that the modern view permits modification without consideration if it is fair and equitable in view of unanticipated circumstances. That is not applicable here. This exception contemplates an unanticipated circumstance arising in performance of the contract that makes performance more difficult or expensive. (B) is wrong because the bank is an intended beneficiary, not an incidental beneficiary. An intended beneficiary is one who is clearly intended to benefit from the agreement. Here, the bank was named in the agreement and performance was to be made directly to it, and so it is clearly an intended beneficiary. (C) is wrong even though it is true that the bank is an intended creditor beneficiary. Despite this status, the bank will not recover because there was no consideration to support the modification of the contract. The status of creditor beneficiary does not give the bank any more rights than the electrician would have had to enforce the agreement, and the electrician could not enforce the agreement for the additional money because there was no consideration. (D) is wrong because it is based on the rule of UCC section 2-209, which states that an agreement subject to the UCC does not need consideration to be binding. However, the UCC governs only in cases of the sale of goods, and this question presents a contract for services. Thus, the UCC does not apply and the common law rule requiring consideration controls.
