Formation: Consideration

Question 1

Definition: Consideration

Answer 1

Bargain and exchange; must be bargained-for legal detriment to the promisee

Question 2

Three Elements of Sufficient Consideration

Answer 2

1. Must be bargained-for in exchange for the promise
2. Promise must induce the detriment
3. Detriment must induce the promise

Question 3

True or False: Consideration can be a promise to do or refrain from doing something in return.

Answer 3

True.

Question 4

Distinguishing Gift from Valid Consideration

Answer 4

Whether offeree could reasonably believe intent of offeror was to induce the action (if YES, then there is consideration and the promise is enforceable).

Question 5

True or False: Even if the promisor knows that the promise to make a gift will induce substantial reliance by promisee and the failure to enforce it would cause substantial injustice, the promise may not be enforceable.

Answer 5

False.

Question 6

Adequacy of Consideration: Subjective Value

Answer 6

Benefit to promisor need not have economic value; if promisor wants it, giving of it will constitute adequate consideration.

Question 7

Adequacy of Consideration: Preexisting Duty Rule

Answer 7

Under the common law, this does not qualify as consideration unless the promisor gives something in addition to what is owed, or varies his preexisting duty in some way.

Question 8

Exception to the Preexisting Duty Rule for Third Parties

Answer 8

A party’s promise to a third party to perform an act the party is contractually obligated to perform for another is sufficient consideration.

Question 9

Adequacy of Consideration: Past Consideration

Answer 9

Modern trends towards enforcing past promises under the material benefit rule.

Question 10

Adequacy of Consideration: Modification

Answer 10

Under the common law, modification must be supported by consideration.

Question 11

Three Factors for Determining if Agreements to Modify K Are Enforceable

Answer 11

1. Rescission of existing K and entering into of new K.
2. Unanticipated difficulties arise and modification is fair and equitable.
3. New obligations arise on both sides.

Question 12

True or False: The UCC does not require consideration when modifying a contract, relying solely on good faith.

Answer 12

True.

Question 13

Adequacy of Consideration: Accord

Answer 13

One party agrees to accept a different performance from the other party to satisfy the other party’s existing duty.

Question 14

Adequacy of Consideration: Satisfaction

Answer 14

Performance of the accord agreement will discharge both the original K and the accord K.

Question 15

True or False: The original K is discharged when performance of the accord has begun.

Answer 15

False, only when satisfaction is complete.

Question 16

True or False: An unliquidated or disputed claim may be discharged by negotiable instrument.

Answer 16

True (e.g., a check with the note “Payment in full”).

Question 17

Adequacy of Consideration: Illusory Promise

Answer 17

Not legally binding because it is vague or promisor can choose whether or not to honor it.

Question 18

Adequacy of Consideration: Voidable/Unenforceable Promises

Answer 18

Can still constitute consideration.

Question 19

Definition: Requirement K

Answer 19

Buyer agrees to buy all that he requires.

Question 20

Definition: Output K

Answer 20

Seller agrees to sell all that he manufactures.

Question 21

Adequacy of Consideration: Requirement and Output Ks

Answer 21

There is consideration because promisor suffers legal detriment. Quantities may not be unreasonably disproportionate to estimates.

Question 22

Adequacy of Consideration: Legal Claim Settlement

Answer 22

A promise not to assert (or a release of) a claim or defense is not consideration, unless the claim or defense is doubtful or the party promising not to assert (or releasing) the claim believes in good faith that it is valid.