Chapter 8: Consideration
1. Consideration is what the promisor demands and generally must receive in order to make his or her promise
legally binding against him or her.
2. A promise unsupported by consideration is generally unenforceable.
3. Generally, a promise to make a gift is enforceable.
4. Generally, what the parties give and get as consideration need to be of equal economic value.
5. If a contract’s termination clause gives a party the right to terminate for any reason whatsoever, that party’s
promise to perform would be illusory and non-binding as consideration.
6. Although a promise to perform an existing private duty cannot be consideration, a similar promise to perform
an existing public duty can be consideration.
7. Past performance by one party to a contract is always legally sufficient consideration for a new promise by
the second party.
8. The payment of money for the release of an unliquidated tort claim is adequate consideration to make the
release enforceable.
9. A promise to make a gift to a charitable organization can be made enforceable by the charity sending a
written request for the money to the potential donor within 30 days.
10. A debt discharged through the debtor’s bankruptcy proceeding can be reaffirmed by the debtor without any
additional consideration for the subsequent promise to repay.
11. What are the three possible forms of consideration?
C. an act, a donation, or a promise
D. a donation, a forbearance, or a promise
12. A group of creditors that cooperatively agree to accept less than what they are entitled to from a particular
debtor is legally known as a(n)
A. gaggle of creditors.
13. If a contract contains a clause that allows you to escape the legal obligation, the promise is said to be
C. adequate consideration.
D. none of these.
14. When buyers agree to purchase all of a particular producer’s production, it is called
C. a production contract.
D. a requirements contract.
15. A liquidated debt is one where the parties agree
A. that the debt exists.
B. on the amount of the debt.
16. Which of the following is not consideration?
A. future performance
B. immediate performance
17. The statute of limitations specifies
C. the maximum amount of people who can file on the same claim.
D. the time limit for consideration.
18. When consideration is provided to keep an offer open, it creates
C. a firm offer.
D. none of these.
19. An important exception to the general rule that mutual consideration is necessary for a valid contract or
binding promise is
C. firm offer.
D. none of these.
20. A big difference in economic value of what one gives and receives may be evidence of
A. duress.
B. mutual mistake.
21. The specific time limit for bringing a lawsuit is set down in the statute of
A. frauds.
B. estoppel.
22. When Marty agrees to take possession of her uncle’s gift to her, Marty becomes a(n)
A. promisor.
B. promisee.
23. Marissa agrees to purchase Danny’s land. Both parties sign the contract, which states she will purchase the
property for “one dollar ($1) and other good and valuable consideration.” This type of consideration is referred
to as
C. illusory.
D. liquidated.
24. Will disagrees with his bank over the money due to pay off a loan. After some negotiations, they agree that
if Will pays 75% of the amount the bank believes it is due, the debt will be canceled. This agreement is termed
an
A. option.
B. release.
25. Dwight signed a contract to begin his own home-based business to distribute health care products. The
clause at the end of the distributor agreement gives him or the parent company the right to end the contract for
any reason. This clause is an example of a(n)
C. requirements contract.
D. adequate consideration.
26. Agreeing not to exercise a legal right is what form of consideration?
C. performance
D. all of the above
27. Dahlia’s Bakery produces a wide variety of cookies, cakes, and pastries. If Dahlia agrees to supply all the
pastries a particular restaurant needs, what has she created?
A. option contract
B. output contract
28. A promise to not do something that has already been performed is
C. illusory consideration.
D. all of the above.
29. Under the UCC once a merchant makes a firm offer to buy or sell goods, the merchant must keep the offer
open for as long as is stipulated in the offer but no longer than
A. one month.
B. 60 days.
30. The person receiving a gift is legally known as the ____________________.
31. If the consideration received by one of the parties to the contract is so grossly inadequate that it shocks the
conscience of the court, there is a great likelihood that the contract will be declared ____________________.
32. After Gail was laid off of her job, she was unable to pay her bills. Not wanting to file bankruptcy, she
negotiates with her creditors for extended terms or reduced amounts of the money they are due. She believes her
debt to one of her creditors, a local finance company, is $300, but the finance company believes the amount is
$800. To avoid litigation, both parties enter into an agreement that calls for Gail to pay $500 to clear the debt.
When Gail pays the $500, she will have completed what is legally termed the accord and
____________________.
33. Debbie produces porcelain dolls in her garage on a part-time basis. A local hobby store agrees to purchase
all of the porcelain dolls she can individually make. This agreement is known as a(n)____________________.
34. Heath cannot afford to purchase a new refrigerator, but his brother, Jim, agrees to purchase the $800
refrigerator for Heath as long as Heath pays Jim $100 a month for the next eight months. Under this
arrangement since Heath owes Jim $800, Jim is the creditor and Heath is the____________________.
35. Under the doctrine of ____________________ obligors can be denied the legal ability to show in court that
they did not receive consideration for their promises. Therefore, the court can enforce those promises against
them.
36. The statement at the end of the contract reads, “Either party can cancel this agreement for any of the above
stated reasons provided that 30 day’s written notice is given to the other party.” This is the
____________________ of the contract.
37. Sergio accidentally wrecked Gustavo’s car. Both parties agreed that Sergio owed Gustavo $4800 as a
consequence. Because both parties agree on the fact that the debt exists and on the amount of that debt, this is
an example of a(n) ____________________ debt.
38. Derrick, a merchant, offers in writing to sell another merchant, Garry, 25 handmade, wrought iron patio
furniture sets. Although no payment or other consideration was given, under the UCC Derrick must honor this
____________________ for a certain period of time not to exceed three months.
39. As the value different individuals put on an object or a performance may vary greatly, the courts typically
do not question the ____________________ of consideration.
40. What are the three requirements of consideration?
1. Each party must give an act, forbearance, or promise to the other party.
41. Luisa combined her and Carol’s babysitting jobs for two weeks in January so Carol could go on a skiing trip.
In exchange, Carol promised to cover Luisa’s babysitting job for two weeks in June so she could go to the
beach. A day after Luisa arrived at the beach, she returned home due to a hurricane coming ashore. She resumed
her babysitting job once home. Is Luisa due some other form of consideration? Explain your answer.
42. After several months of unsuccessfully locating a new job, Lily contacts Staffing Source, an employment
counseling and job placement agency. After completing a battery of tests, Lily meets with Mary, an
employment counselor with Staffing Source. Mary states she can assist Lily in improving her skills and then
place her in a job that matches her skills. Lily signs a written agreement in which she agrees to the training and
program. Once she is placed in a job, Lily will pay the employment counselor 5 percent of her new annual
salary within 90 days from the commencement of her new job. Two weeks later, Mary locates a job for Lily that
will pay her $24,000 annually. Lily accepts the position. Are both parties legally bound? Why or why not?
Yes, the parties are legally bound. Mary, as a representative of Staffing Source, has promised to train and then
43. Rene wants to attend a private college. Tuition is high so Rene obtains a college loan. Her parents agree to
pay off her college tuition loan once she graduates provided that she will not marry or have children until she
graduates. Rene for her part agrees to pay for her own car, books, and incidental living expenses. During her
final month of school, Rene becomes engaged. Are both parties (Rene and her parents) legally bound? What is
the consideration of each party? Now that she is engaged to be married, can Rene’s parents refuse to pay off her
loan?
Yes, the parties are legally bound. Rene’s parents agreed to pay off her college loan. In exchange Rene promised