REG 5 - Contracts 2 - Consideration

Question 1

Which of the following requires consideration to be binding on the parties?
A. Material modification of a contract involving the sale of real estate.
B. Ratification of a contract by a person after reaching the age of majority.
C. A written promise signed by a merchant to keep an offer to sell goods open for 10 days.
D. Material modification of a sale of goods contract under the UCC.

Answer 1

A. A real estate contract cannot be modified unless additional or new consideration is given. Only UCC contracts for the sale of goods can be modified without new consideration.

Question 2

Grove is seeking to avoid performing a promise to pay Brook $1,500. Grove is relying on lack of consideration on Brook’s part.

Grove will prevail if Grove can establish that
A. Prior to Grove’s promise, Brook had already performed the requested act.
B. Brook’s only claim of consideration was the relinquishment of a legal right.
C. Brook’s asserted consideration is only worth $400.
D. The consideration to be performed by Brook will be performed by a third party.

Answer 2

A. Past actions cannot count as consideration for current promises. For consideration to exist, a contract must be a bargained for exchange. If, for example, you took me to work yesterday, and I say today, “Because you gave me a ride yesterday, I promise to pay you $20,” you cannot hold me to the promise. There is no consideration.

Question 3

In which of the following situations does the first promise serve as valid consideration for the second promise?
A. A police officer’s promise to catch a thief for a victim’s promise to pay a reward.
B. A builder’s promise to complete a contract for a purchaser’s promise to extend the time for completion.
C. A debtor’s promise to pay $500 for a creditor’s promise to forgive the balance of a $600 liquidated debt.
D. A debtor’s promise to pay $500 for a creditor’s promise to forgive the balance of a $600 disputed debt.

Answer 3

D. To give consideration, a person must promise to do something new or something not already obligated to do. If the debt is rightfully disputed, a debtor is not under a preexisting obligation to pay the full amount. In offering to pay $500, the offeror is promising to do something he or she does not otherwise have to do – pay $500. This promise, then, is consideration that supports the forgiveness of the rest of the disputed debt.

Question 4

T/F: John borrows $100 from Jim to be paid back without interest. John sends a check to Jim for $95 marked clearly “payment in full.” Even if Jim cashes the check with knowledge of the notation, in the majority of states Jim can sue and collect the remaining $5.

Answer 4

True

Question 5

T/F: An offer is made by John to take Jane to lunch. Jane’s acceptance constitutes a binding contract.

Answer 5

False.

There is no binding contract formed.