Exam 4 (Chapters 14 & 15)

Question 1

Consideration

Answer 1

Promise or performance that the promisor demands as the price of the promise; what each party to a contract gives up to the other in making their agreement

Question 2

Gifts

Answer 2

Promises to make these are unenforceable promises under the law of contracts because of lack of consideration

Question 3

Completed Gift

Answer 3

Cannot be rescinded for lack of consideration; delivery and present donative intent are necessary for this

Question 4

Adequacy of Consideration

Answer 4

It is a matter for the parties to decide when they make their contract whether each is getting a fair return; It is not a function of a court to review the amount of the consideration passed unless the amount is so grossly inadequate as to shock the conscience of the court

Question 5

Forbearance

Answer 5

Refraining from doing an act

Question 6

Illusory Promise

Answer 6

Promise that in fact does not impose any obligation on the promisor

Question 7

Cancellation Provision

Answer 7

Crossing out of a part of an instrument or a destruction of all legal effect of the instrument, whether by act of party, upon breach by the other party or pursuant to agreement or decree of court

Question 8

Conditional Promises

Answer 8

A promise that depends on the occurrence of a specified condition in order for the promise to be binding

Question 9

Good-Faith Adjustment

Answer 9

A current trend to enforce a second promise to pay a contractor a higher amount for the performance of the original contract when there are extraordinary circumstances caused by unforeseeable difficulties and when the additional amount promised the contractor is reasonable under the circumstances

Question 10

Contract for Sale of Goods

Answer 10

When the contract is for the sale of goods, any modification made in good faith by the parties to the contract is binding without regard to the existence of consideration for the modification

Question 11

Liquidated Debt

Answer 11

The rule that doing or promising to do what one is already legally bound to do is not consideration applies to a part payment made in satisfaction of an admitted

Question 12

Unliquidated Debt

Answer 12

A debtor and creditor may have a bona fide dispute over the amount owed or whether any amount is owed; In this case, payment by the debtor of less than the amount claimed by the creditor is consideration for the latter’s agreement to release or settle the claim. It is generally regarded as sufficient if the claimant believes in the merit of the claim

Question 13

Composition of Creditors

Answer 13

Agreement among creditors that each shall accept a part payment as full payment in consideration of the other creditors doing the same

Question 14

Past Consideration

Answer 14

Something that has been performed in the past and which, therefore, cannot be consideration for a promise made in the present

Question 15

Moral Obligation

Answer 15

In most states, promises made to another based on “moral obligation” lack consideration and are not enforceable; They are considered gratuitous promises and unenforceable.

Question 16

Exceptions to Consideration

Answer 16

Charitable subscriptions, Uniform commercial code and Promissory estoppel

Question 17

Uniform Commercial Code

Answer 17

In some situations, the Uniform Commercial Code abolishes the requirement of consideration for

(1) a merchant’s written, firm offer for goods stated to be irrevocable
(2) a written discharge of a claim for an alleged breach of a commercial contract, or
(3) an agreement to modify a contract for the sale of goods

Question 18

Promissory Estoppels

Answer 18

Doctrine that a promise will be enforced although it is not supported by consideration when the promisor should have reasonably expected that the promise would induce action or forbearance of a definite and substantial character on the part of the promised and injustice can be avoided only by enforcement of the promise

Question 19

Doctrine of Detrimental Reliance

Answer 19

Also know as promissory estoppel and is applicable when (1) the promisor makes a promise that lacks consideration, (2) the promisor intends or should reasonably expect that the promisee will rely on the promise, (3) the promisee in fact relies on the promise in some definite and substantial manner, and (4) enforcement of the promise is the only way to avoid injustice

Question 20

Preexisting Legal Obligation

Answer 20

Ordinarily, doing or promising to do what one is already under a legal obligation to do is not consideration. Similarly, a promise to refrain from doing what one has no legal right to do is not consideration. This preexisting duty or legal obligation can be based on statue, on general principles of law, on responsibilities of an office held, or on preexisting contract

Question 21

Compromise of Claims

Answer 21

If the debtor pays the part payment before the debt is due, there is consideration, because, on the day when the payment was made, the creditor was not entitled to demand any payment. Likewise, if the creditor accepts some article (even of slight value) in addition to the part payment, consideration exists.

Question 22

Release of Claims

Answer 22

A debtor and creditor may have a bona fide dispute over the amount owed or whether ant amount is owed (unliquidated debt). In this case, payment by the debtor of less than the amount claimed by the creditor is consideration for the latter’s agreement to release or settle the claim. It is generally regarded as sufficient if the claimant believes in the merit of the claim.

Question 23

Charitable Subscriptions

Answer 23

Where individuals made pledges to finance the construction of buildings for charitable purposes, consideration is lacking according to technical standards applied in ordinary contract cases. For public policy reasons, the reliance of the charity on the pledge in undertaking the project is deemed a substitute for consideration.

Question 24

Promissory Damages

Answer 24

Damages recoverable in a case of promissory estoppel are not the profits that the promise expected, but only the amount necessary to restore the promisee to the position he or she would have been in had the promise not relied on the promise.

Question 25

In Pari Delicto

Answer 25

Equally guilty; used in reference to a transaction as to which relief will not be granted to either party because both are equally guilty of wrongdoing

Question 26

Unequal Guilt

Answer 26

When the parties are not in pari delicto, the least guilty party is granted relief when public interest is advanced by doing so

Question 27

Partial Illegality

Answer 27

An agreement may involve the performance of several promises, some which are illegal and some legal. The legal parts of the agreement may be enforced provided that they can be separated from the parts that are illegal. Contracts that involve both unlawful and lawful provisions may be enforced if the illegal portion is severable from the legal.

Question 28

Civil Wrongs

Answer 28

An agreement that calls for the commission of a civil wrongs is illegal and void (agreements to slander a third person, defraud another, infringe another’s patent, trademark, copyright or fix prices)

Question 29

Good Faith and Fairness

Answer 29

Every contract has implied obligation that neither party shall do anything that will have the effect of destroying or injuring the right of the party to receive the fruits of the contract. This means that in every contract there exists an implied covenant of good faith and fair dealing

Question 30

Unconscionability

Answer 30

A provision in a contract that gives what the court believes is too much of an advantage over a buyer may be held void as unconscionable

Question 31

Procedural Unconscionability

Answer 31

Has to be with matters of freedom of assent resulting from inequality of bargaining power and the absence of real negotiations and meaningful choice or a surprise resulting from hiding a disputed term in an unduly long document or fine print.

Question 32

Contracts of Adhesion

Answer 32

Companywide standardized form contracts imposed on a take-it-or-leave-it basis by a party with superior bargaining strength are called these, sometimes they may be deemed procedurally unconscionable

Question 33

Substantive Unconscionability

Answer 33

Contract offered by a dominant party to a party with inferior bargaining power on a take-it-or-leave-it basis, focuses on the actual terms of the contract itself.

Question 34

Public Policy

Answer 34

Certain objectives relating to health, morals and integrity of government that the law seeks to advance by declaring invalid any contract that conflicts with those objectives even though there is no statue expressly declaring such a contract illegal

Question 35

Lottery

Answer 35

Any plan by which a consideration is given for a chance to win a prize; it consists of three elements: (1) There must be a payment money or something of value for an opportunity to win (2) A prize must be available and (3) The prize must be offered by lot or chance

Question 36

Giveaway Plans and Games

Answer 36

Are lawful so long as it not necessary to buy anything or give anything of value to participate. If participation is free, the element of consideration is lacking and there is no lottery.

Question 37

Quantum Meruit

Answer 37

In some states an unlicensed contractor can neither enforce a home improvement contract against an owner nor seek recovery in this

Question 38

Contracts in Restraint of Trade

Answer 38

An agreement that unreasonably restrains trade is illegal and void on the ground that it is contrary to public policy. Such agreements take many forms, such as a combination to create a monopoly, obtain a corner on the market or an association of merchants to increase prices

Question 39

Restrictive Covenants

Answer 39

Restrictive covenants not to compete are disfavored (but not prohibited) in many states as a trade restraint because they may prevent an employee from earning a living, adversely restrain the mobility of employees and may be overly protective of the interests of employers at the expense of employees

Question 40

Restrictive Covenant (Four Necessary Limits)

Answer 40

If

(1) It is narrowly drawn to protect the employer’s legitimate business interests
(2) It is not unduly burdensome on the employee’s ability to earn a living
(3) The geographic restriction is not overly broad and
(4) A reasonable time limitation is given

Question 41

Sale of Business

Answer 41

When a going business is sold, it is commonly stated in the contract that the seller shall not go into the same or a similar business again within a certain geographic area or for a certain period of time (or both)

Question 42

Employment Contract

Answer 42

Employers rely on noncompete clauses to protect their businesses form employees who leave after receiving expensive training or engineers, scientists or other professionals or nonprofessionals who leave firms or businesses to join competitors. Employers enforce these clauses by notifying the new employer and threatening litigation. or seeking a preliminary injunction prohibiting the violation of the noncompete agreement.

Question 43

The Blue Pencil Rule

Answer 43

When a restriction of competition agreed to by the parties is invalid because its scope as to time or geographic area is too great, how does this affect the contract? Some courts trim the restrictive covenant down to a scope they deem reasonable and require the parties to abide by that revision

Question 44

Usury

Answer 44

Lending money at an interest rate that is higher than the maximum rate allowed by law

Question 45

Penalties for Usury

Answer 45

These vary from state to state, with a number of states restricting the lender to the recovery of the loan but no interest whatsoever; other states allow recovery of the loan principal and interest up to the maximum contract rate. Some states also impose a penalty on the lender such as the payment of double the interest paid on a usurious loan

Question 46

Elements of Usury

Answer 46

(1) The transaction was a loan
(2) The money loaned required that it be returned
(3) An interest rate higher than allowed by law was required and
(4) A corrupt intention to take more than the legal rate for the use of the money loaned exists

Question 47

Firm Offer

Answer 47

Offer stated to be held open for a specified time, under the UCC, with respect to merchants

Question 48

Extraordinary Circumstances

Answer 48

A promise to pay a contractor a higher amount for the for the performance of the original contract when there are extraordinary circumstances caused by unforeseeable difficulties and when the additional amount promised the contractor is reasonable under the circumstances

Question 49

“Hold Up” by a Contractor

Answer 49

When a contractor refuses to complete an unprofitable contract unless paid additional compensation, where the preexisting duty rule would apply

Question 50

Agreement

Answer 50

An agreement is illegal either when its formation or performance is a crime or a tort or when it is contrary to public policy or unconscionable. An illegal agreement is void. When it is legal the parties are usually not entitled to the aid of the courts