Chapter 10
Consideration
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. Consideration is the value given in return for a promise.
2. In contract law, the term consideration refers to the serious thought that
underlies a party’s intent to enter into a contract.
3. Consideration in bilateral contracts normally consists of a promise in return for
a performance.
4. A determination of whether consideration exists depends on a comparison of
the values of the things exchanged.
5. Forbearance is the act of refraining from doing something that one has a legal
right to do.
6. Adequacy of consideration refers to how much consideration is given.
7. In general, courts consider the fairness of a contract when deciding if the
contract is binding.
8. Inadequate consideration always indicates undue influence.
9. For consideration to have “legally sufficient value,” it must consist of goods or
money.
10. A promise by one party to pay another for refraining from an action that one
has a legal right to undertake is enforceable.
11. The element of bargained-for exchange distinguishes contracts from gifts.
12. A transaction that lacks a bargained-for exchange lacks an element of
consideration.
13. A preexisting duty may arise from a previous contract.
14. A promise to do what one already has a legal duty to do constitutes legally suf–
ficient consideration.
15. If, during the performance of a contract, extraordinary difficulties arise that were
totally unforeseen at the time the contract was formed, a court may allow an
exception to the preexisting duty rule.
16. Rescission is the unmaking of a contract so as to return the parties to the
positions they occupied before the contract was made.
17. A promise made in return for an act or event that has yet taken place is
unenforceable.
18. Past consideration can be legally sufficient consideration.
19. It is illegal for two parties to mutually agree to rescind a valid contract.
4 UNIT TWO: CONTRACTS
20. Risks ordinarily assumed in business constitute consideration for the
modification of a contract.
21. An illusory promise is an enforceable promise.
22. A contract that one party retains the exclusive right to cancel at any time is
unenforceable.
23. If a debt is liquidated, accord and satisfaction cannot take place.
24. Even if the terms of a contract express such uncertainty of performance that
the promisor has not definitely promised to do anything, the promise binds the
promisor.
25. There can be no satisfaction unless there is first an accord.
26. For accord and satisfaction to occur, the amount of the debt cannot be in
dispute.
27. A release bars any further recovery beyond the terms stated in the release.
CHAPTER 10: CONSIDERATION 5
28. In many states, a release contract must be in a signed writing.
29. A covenant not to sue is against public policy.
30. A release does not require consideration to be legally binding.
31. A covenant not to sue does not always bar further recovery.
32. The doctrine of promissory estoppel does not apply if there exists a clear and
definite promise.
33. Under the doctrine of promissory estoppel, a promise will not be enforced
unless it is supported by consideration.
34. A debtor who promises to pay a previous debt even though recovery is barred
by a statute of limitations makes an enforceable promise.
35. Statutes of limitations in all states require a debtor to pay a debt within a
specified period of time.
6 UNIT TWO: CONTRACTS
MULTIPLE CHOICE QUESTIONS
1. Kingston promises to pay Melina $500 to install a sump pump in his
warehouse. Melina completes the installation. The act of installing the pump
a. imposes a moral obligation on Kingston to pay Melina.
b. imposes no obligation on Kingston unless he is satisfied with the job.
c. is not sufficient consideration because it is not goods or money.
d. is the consideration that creates Kingston’s obligation to pay Melina.
2. Jenilee promises to pay Kyle $500 because “he does not have as much money
as other people.” Jenilee’s promise is
a. enforceable because society wants people to keep their promises.
b. enforceable because the redistribution of wealth is a valid social goal.
c. not enforceable because Jenilee could have paid Kyle more.
d. not enforceable because Kyle has not given consideration in return.
3. Henry promises not to open his restaurant before 10:00 A.M. if Suzy, who owns
a bakery next door to him, promises to close her bakery by 4:00 P.M. Henry’s
consideration is
a. the destruction of a legal relationship.
b. the creation of a legal relationship.
c. a forbearance.
d. an exchange of money.
4. Rollo promises to perform, for a price, shoe repair services in affiliation with
Togs ‘n Things, a clothing store. To support a contract, the consideration ex-
changed by the parties must be
a. adequately considerate.
b. equally valuable.
CHAPTER 10: CONSIDERATION 7
c. legally sufficient.
d. wisely priced.
5. Aron questions whether there is consideration for his contract with Banquet
Hall to exchange his musical performance of country tunes at select social
events for Banquet’s payment of a certain amount. To constitute consideration,
the value of whatever is exchanged must be
a. objectively worthy.
b. precisely adequate.
c. legally sufficient.
d. practically sound.
6. Sparky offers Teodora $1,000 for her collection of rare coins. She accepts. If a
dispute arises, a court would likely
a. enforce the deal after questioning the adequacy of consideration.
b. not question the adequacy of the consideration.
c. rewrite the deal after questioning the adequacy of consideration.
d. set aside the deal after questioning the adequacy of consideration.
7. Quentin questions whether there is consideration for his contract with Rainey to
exchange his performance with the Symphonic Saxophone Sextet for her
payment of a certain amount. To constitute consideration, there must be
a. a payment.
b. a performance.
c. a bargained-for exchange.
d. serious thought underlying each party’s intent to contract.
8. Valley Paragliders Association files a suit against Wing Designers, Inc.,
claiming that the consideration for their contract is inadequate. The court will
most likely not examine the adequacy of the consideration if
a. there is a large disparity in the amount of consideration exchanged.
b. the consideration involves the performance of services.
c. something of value passed between the parties.
d. the consideration is worth less than $100.
9. Mobile Minutes Company offers Nate an unlimited number of monthly phone
minutes for $4.50 per month. Nate accepts. If a dispute arises, a court would
likely
a. enforce the deal after questioning the adequacy of the consideration.
b. not question the adequacy of the consideration.
c. rewrite the deal after questioning the adequacy of the consideration.
d. set aside the deal after questioning the adequacy of the consideration.
Fact Pattern 10–1 (Questions 10–12 apply)
Bridey defends against a suit for breach of contract by Continental Mortgage
Company by claiming that their deal—a mortgage loan secured by Bridey’s purchase
of a house—was unfair because the consideration for their contract was inadequate.
10. Refer to Fact Pattern 10–1. “Adequacy” of consideration refers to
a. “how much” consideration is given.
b. legally sufficient value in the eyes of the law.
c. the intangible value to a contracting party of a thing exchanged.
d. the substantiality of the consideration exchanged.
11. Refer to Fact Pattern 10–1. The court is most likely to evaluate the adequacy
of consideration if
a. one of the parties claims that they entered into an unwise contract.
b. something exchanged is not of direct economic or financial value.
c. the items exchanged are of unequal value.
d. there is a large disparity in the amount or value of the consideration
exchanged.
12. Refer to Fact Pattern 10–1. If, as Bridey claims, the consideration for this
contract is inadequate, it may indicate a lack of
a. market value for Bridey’s house.
b. voluntary consent to the contract on Bridey’s part.
10 UNIT TWO: CONTRACTS
c. appraisal by a third party on behalf of Continental.
d. standards for the granting of credit on Continental’s part.
13. Under a contract with Valley Vineyard, Walsh begins grading a terraced hillside
for the planting of grapes. Halfway through the project, Walsh asks for $5,000
over the contract price, claiming an increase in the “cost of doing business.”
Valley agrees but later refuses to pay. Their agreement is
a. unenforceable because Walsh’s performance was a preexisting duty.
b. unenforceable because Valley’s promise was illusory.
c. enforceable.
d. unenforceable because Walsh’s request modified the contract.
14. Frisco offers to buy a Gibson guitar owned by Hayden for twice what she paid
for it. She accepts and hands the guitar to Frisco. Her delivery of the guitar is
a. not consideration because her voluntary consent may be lacking.
b. not consideration because the exchange is not a bargain.
c. consideration.
d. not consideration because the value is not legally sufficient.
CHAPTER 10: CONSIDERATION 11
Fact Pattern 10–2 (Questions 15–17 apply)
Teatro Restoration, Inc., begins renovating an old theater for Urban Edge
Productions, but after three months Teatro demands an extra $250,000. Urban Edge
agrees to pay.
15. Refer to Fact Pattern 10–2. If Teatro offers no reason for the extra $250,000,
but says only that it will stop work if it is not paid, the agreement is
a. enforceable as the consideration is past.
b. enforceable because of unforeseen difficulties.
c. unenforceable as an illusory promise.
d. unenforceable due to the preexisting duty rule.
16. Refer to Fact Pattern 10–2. If Teatro says it is asking for the extra $250,000
because ordinary business expenses have increased, the agreement is
a. enforceable as the consideration is past.
b. enforceable because of unforeseen difficulties.
c. unenforceable as an illusory promise.
d. unenforceable due to the preexisting duty rule.
17. Refer to Fact Pattern 10–2. If Teatro says it is asking for the extra $250,000
because it has encountered extraordinary unforeseen difficulties that will add
considerable cost to the project, the agreement is
a. enforceable as the consideration is past.
b. enforceable because of unforeseen difficulties.
c. unenforceable as an illusory promise.
d. unenforceable due to the preexisting duty rule.
12 UNIT TWO: CONTRACTS
Fact Pattern 10-3 (Questions 18–19 apply)
Sally contracts with Tasty Pizza Company to deliver its products. Both parties change
their minds, however, and inform each other that they would like to cancel the
contract.
18. Refer to Fact Pattern 10-3. The next day, Sally changes her mind and again
offers to deliver Tasty’s products. Tasty is willing to deal, but for a new price.
Sally and Tasty
a. may agree to a new contract, but it cannot include a new price.
b. may agree to a new contract that includes the new price.
c. must perform their original contract.
d. must perform the part of their original contract that is executory.
19. Refer to Fact Pattern 10-3. Sally and Tasty
a. may rescind their entire contract.
b. may rescind their contract to the extent that it is executory.
c. must perform their entire contract.
d. must perform the part of their contract that is executory.
20. Mariah promises to pay her assistant Nadine $10,000 in consideration of the
services she provided over the years. Mariah never pays Nadine. Mariah is
a. liable for payment of the $10,000.
b. liable only if Nadine still works for Mariah.
c. not liable, because the consideration is in the past.
d. not liable, because the consideration was unintentional.
21. Industrial Engineering, Inc., promises to give stock options to Jasmine for
processes she has already designed for the firm. This promise is enforceable
a. because it is a new contract.
b. because it is an illusory promise.
c. because it is supported by past consideration.
d. under no circumstances.
22. Mobile Media Company contracts to hire Nada for one year at $35 per hour,
reserving the right to cancel the contract at any time after Nada begins
performance by giving two weeks’ notice. This promise is
a. an enforceable contract.
b. an illusory promise.
c. an option-to-cancel clause.
d. a requirement contract.
23. Dave’s uncle tells Dave that if “he feels that Dave deserves it,” he will give
Dave $1,000 when Dave graduates from college. Dave’s uncle’s promise is
a. illusory.
b. enforceable.
c. a forbearance.
d. a preexisting duty.
24. Sully signs a contract to borrow $200,000 from Riverside Bank to buy a house.
In the contract, Sully agrees to pay a certain rate of interest on the amount of
borrowed funds at monthly intervals for thirty years. This debt is
a. an illusory promise.
b. liquidated.
c. past consideration.
d. unliquidated.
25. Produce Packaging Company promises its employees a 10 percent raise at the
end of the year if productivity has increased and management feels the raise is
warranted. Produce Packaging must
a. do nothing.
b. give the employees a 10 percent raise only at the end of the year.
c. give the employees a 10 percent raise only if productivity increases.
d. give the employees a 10 percent raise under any circumstances.
26. Gustaf and Hilltop Country Club disagree as to the exact amount Hilltop owes
Gustaf for his landscaping work. They form a new agreement that, on
fulfillment, will discharge the prior obligation. This is
a. a covenant not to sue.
b. an accord and satisfaction.
c. a release.
d. promissory estoppel.
27. Apple & Pear Orchards contracts to hire Brigit for one year to tend the fruit in its
commercial orchards but reserves the right to cancel the employment on thirty
days’ notice at any time after Brigit begins work. This promise is
a. enforceable.
b. illusory.
c. unliquidated.
d. unforeseen.
28. Qiana writes a check to Payday Loans, Inc., in an amount that represents half
of her debt to the lender. On the back of the check, Qiana includes the words
“payment in full.” Payday agrees to accept the lesser sum and cashes the
check. This discharges the entire debt
a. if the debt is liquidated.
b. if the debt is past due.
c. if the debt is unliquidated.
d. under no circumstances.
29. Franzea is injured in an accident caused by Gentry. Gentry agrees to pay
Franzea $2,500 if she agrees to release him from further liability. She agrees. If
Franzea’s damages ultimately exceed $2,500, she can collect
a. the balance from Gentry in a breach-of-contract suit.
b. the balance from Gentry in a tort suit.
c. the balance from Gentry on the ground of unforeseen difficulties.
d. nothing more from Gentry.
30. After an accident with a driver for Onyx Security Company, Paul signs a
covenant not to sue Onyx for damages in a tort action if it pays for the damage
to his car. This covenant
a. bars recovery only if Onyx pays.
b. is an illusory contract.
c. is barred by the preexisting duty rule.
d. is unconscionable.
31. Twyla’s dock is damaged in an accident caused by Ulric’s negligence. Twyla
agrees not to sue him if he will pay for the damage. If Ulric fails to pay, Twyla
can bring an action for breach of contract. This agreement is
a. a covenant not to sue.
b. an accord and satisfaction.
c. unliquidated.
d. a release.
32. Marketing Solutions Inc. promises to employ Niki as a software engineer. In
reliance on the promise, Niki quits her job with Online Ad Company, but
Marketing Solutions does not hire her. Most likely, Marketing Solutions is
a. liable to Niki under the concept of accord and satisfaction.
b. liable to Niki under the doctrine of promissory estoppel.
c. liable to Niki under the preexisting duty rule.
d. not liable to Niki.
33. Rudy files a suit against Shakes & Shingles, Roofing Contractor, Inc., under the
doctrine of promissory estoppel. Rudy must show that
a. he justifiably refused to fulfill a promise to Shakes & Shingles.
b. he justifiably relied on Shakes & Shingles’ promise to his detriment.
c. Shakes & Shingles justifiably refused to fulfill a promise to him.
d. Shakes & Shingles justifiably relied on his promise to its detriment.
34. Lea signs a contract with Metro Business Loans, Inc., to borrow $25,000 to
remodel Lea’s Hair Care Salon. Lea does not repay the loan. Metro fails to sue
within the time prescribed by the applicable statute of limitations. Later Lea
promises to pay the debt. To be enforceable, this promise needs
a. bargained-for consideration.
b. no consideration.
c. legally sufficient consideration.
d. adequate consideration.
35. Claudia pledges to donate $10,000 to Disaster Relief & Recovery Inc. (DR&R).
On the basis of the pledge, DR&R orders additional supplies. If Claudia does
not fulfill the pledge, a court may enforce it
a. under the preexisting duty rule.
b. on the basis of unforeseen difficulties.
c. as a requirement contract.
d. under the doctrine of promissory estoppel.
18 UNIT TWO: CONTRACTS
ESSAY QUESTIONS
1. Centre City Properties, Inc., owns and manages a warehouse. DIY Home
Improvement Stores agrees to lease the warehouse for six years. Under the
lease, DIY is obligated to pay all of the utility costs. Two years into the term,
DIY asks Centre City to modify the lease to provide that the utility costs will be
split equally between them. The landlord agrees, but later decides it does not
want to share the costs and refuses to pay. Is Centre City bound to its
agreement to share the utility costs? Why or why not?
2. Chris promises Dina $40,000 if she graduates from Eagle College. Dina enrolls
in Eagle, attends full-time for four years, and graduates. When Dina asks Chris
for $40,000, Chris says, “I don’t remember promising you $40,000. But if there
was a promise, it’s not enforceable, because we didn’t bargain for it. And even
if there was a promise that would otherwise be enforceable, I revoke it now.”
Can Dina enforce Chris’s “promise”? Why or why not?
