Chapter 12
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
A1. In contract law, “consideration” refers to the courtesy that one party shows another
in negotiating a deal.
A2. For consideration to have “legally sufficient value,” it must consist of goods or money.
A3. A promise by one party to pay another for refraining from an act is enforceable.
A4. Use of the word consideration in an agreement means that consideration has been
given.
A5. A transaction that lacks a bargained-for exchange lacks an element of consideration.
A6. Parties are not generally free to bargain as they wish.
A7. Inadequate consideration may indicate undue influence.
A8. Courts typically consider the adequacy of consideration.
A9. Risks ordinarily assumed in business do not constitute consideration for the
modification of a contract.
A10. Rescission is the dissolution of a contract that returns the parties to the positions they
held before the contract.
A11. Two parties can mutually agree to rescind a contract unless it is executory.
A12. A promise to do what one already has a legal duty to do is legally sufficient
consideration.
A13. A promise to pay for an act that has yet to occur is unenforceable.
A14. An illusory promise is a promise that is enforceable without consideration.
A15. A contract that one party retains the exclusive right to cancel at any time is
unenforceable.
A16. If a debt is liquidated, an accord and satisfaction cannot take place.
A17. A release does not require consideration to be legally binding.
A18. A covenant not to sue is against public policy.
A19. The doctrine of promissory estoppel does not apply if there is a clear and definite
promise.
A20. A promise to pay a debt for which a statute of limitations bars recovery is an
enforceable promise.
MULTIPLE CHOICE QUESTIONS
A1. Kelsey promises to pay Jon, her son, $15,000 if he obtains his degree at Ivy University,
where he is currently in his second year. Jon graduates. Kelsey is
a. not required to pay, because Jon was already at Ivy.
b. not required to pay, because obtaining a degree benefits Jon.
c. required to pay, because a job can be hard to find after college.
d. required to pay, because Jon obtained a degree at Ivy.
A2. Jen questions whether there is consideration for her contract with Isaac to exchange
her catering services for his payment of a certain amount. To constitute consideration,
the value of whatever is exchanged must be
a. objectively worthy.
b. grossly inadequate.
c. legally sufficient.
d. practically sound.
A3. Vince offers to buy a book owned by Sun-Hi for twice what Sun-Hi paid for it. She
accepts and hands the book to Vince. Sun-Hi’s delivery of the book is
a. not consideration because its transfer is a preexisting duty.
b. not consideration because its exchange is not a bargain.
c. consideration.
d. not consideration because its value is legally insufficient.
Fact Pattern 12–A1 (Questions A4–A6 apply)
Jesse defends against a breach–of-contract suit by College Credit Corporation by claiming that
their deal—a student loan accruing interest at a certain rate and payable beginning on a
certain date—was unfair because the consideration for their contract was inadequate.
A4. Refer to Fact Pattern 12-A1. A court is most likely to evaluate the adequacy of consid-
eration if
a. a thing exchanged has no intangible value to one of the parties.
b. something exchanged is not of direct economic or financial value.
c. the items exchanged were of unequal value.
d. there is a gross disparity in the value of the consideration exchanged.
A5. Refer to Fact Pattern 12-A1. “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.
A6. Refer to Fact Pattern 12-A1. If, as Jesse claims, the consideration in this problem is
inadequate, it may indicate a lack of
a. accord in Jesse’s satisfaction with the value of the deal.
b. bargained-for exchange or mutual assent.
c. flexibility on the part of College Credit to accommodate Jesse’s needs.
d. “heft,” “substance,” or “weight” in the terms of the contract.
A7. Under a contract with Bucolic Farms, Agro Excavation, Inc., begins digging an
agricultural pond. In mid-project, Agro asks for $15,000 over the contract price,
claiming an increase in the “cost of doing business.” Bucolic agrees but later refuses to
pay. Their agreement is
a. unenforceable because Agro’s performance was a preexisting duty.
b. unenforceable because Bucolic’s promise was illusory.
c. enforceable.
d. unenforceable because its performance is unforeseeably difficult.
Fact Pattern 12–A2 (Questions A8–A10 apply)
Cut-Rate Construction Company (CCC) begins building a restaurant for Diners Restaurants,
Inc., but after two months demands an extra $100,000. Diners agrees to pay.
A8. Refer to Fact Pattern 12-A2. If CCC offers no reason for the extra $100,000, but says
only that it will otherwise stop construction, the agreement is
a. enforceable as an accord and satisfaction.
b. enforceable because of unforeseen difficulties.
c. unenforceable as an illusory promise.
d. unenforceable due to the preexisting duty rule.
A9. Refer to Fact Pattern 12-A2. If CCC offers, as a reason for the extra $100,000, that
ordinary business expenses have increased, the agreement is
a. enforceable as an accord and satisfaction.
b. enforceable because of unforeseen difficulties.
c. unenforceable as an illusory promise.
d. unenforceable due to the preexisting duty rule.
A10. Refer to Fact Pattern 12-A2. If CCC offers, as a reason for the extra $100,000, that
extraordinary unforeseen difficulties will add considerable cost to the project, the
agreement is
a. enforceable as an accord and satisfaction.
b. enforceable because of unforeseen difficulties.
c. unenforceable as an illusory promise.
d. unenforceable due to the preexisting duty rule.
A11. Panini Vittles, Inc., contracts with Qino to deliver its sandwiches. Later, the parties
decide to cancel their contract. They can
a. rescind their entire contract.
b. rescind their contract to the extent that it is executory.
c. rescind their contract if they make a new contract at the same time.
d. not rescind their contract.
A12. Mary promises to pay her assistant Ned $10,000 in consideration of the services he
provided over the years. Mary never pays Ned. Mary is
a. liable for payment of the $10,000.
b. liable only if Ned still works for Mary.
c. not liable, because the consideration is in the past.
d. not liable, because the consideration was unintentional.
A13. Homebuyers Mortgage Corporation’s promise to pay its employees a year-end bonus
“if it seems like a good idea at the time” is
a. an enforceable contract.
b. an illusory promise.
c. an unconscionable proviso.
d. a unilateral pact.
A14. Domestic Auto Sales, Inc., promises its salaried employees a bonus at the end of the
year if management thinks it is warranted. This promise is
a. enforceable.
b. unenforceable because it is not supported by consideration.
c. unenforceable because the dollar amount is missing.
d. unenforceable because the employees are paid salaries.
A15. Herm promises to pay Nixie to work as an assistant buyer for his Organic Foods stores.
Nixie agrees and quits her job with Pic-U Grocery, but Herm does not hire her. Herm is
most likely liable to Nixie under
a. the concept of accord and satisfaction.
b. the doctrine of promissory estoppel.
c. the preexisting duty rule.
d. no circumstances.
A16. Cherry is injured in an accident caused by Bronco. Bronco agrees to pay Cherry $2,500
if she agrees to release him from further liability. Cherry agrees. If Cherry’s damages
ultimately exceed $2,500, she can
a. collect the balance from Bronco in a breach–of-contract suit.
b. collect the balance from Bronco in a tort suit.
c. collect the balance from Bronco on the ground of unforeseen events.
d. not collect the balance from Bronco.
A17. Berkie’s bicycle is damaged in an accident caused by Imogene. Berkie agrees not to
sue Imogene if she will pay for the damage. If she fails to pay, Berkie can bring an
action for breach of contract. This is
a. a covenant not to sue.
b. an accord and satisfaction.
c. an illusory promise.
d. a release.
A18. Auto Body Repair Shop (ABRS) promises to pay Ben $1,000 a week to work for ABRS.
Ben accepts and quits his job with Car Care Service. ABRS fails to provide a job for Ben.
Ben has a cause of action based on
a. an illusory promise.
b. a release.
c. past consideration.
d. promissory estoppel.
A19. Venture Capital Corporation loans Wally $15,000 to start a new business. Wally does
not pay, but Venture fails to sue within the time prescribed by the applicable statute
of limitations. Wally’s promise to pay the debt even though recovery is barred
a. needs new consideration.
b. needs no consideration.
c. is unenforceable regardless of any consideration.
d. needs legally sufficient and adequate consideration.
A20. Betty pledges to donate $1,000 to the Children’s Hospital. On the basis of the pledge,
the hospital orders additional equipment. Betty reneges on the pledge. The hospital
sues Betty. If the court enforces the pledge, it will be
a. because Betty’s performance is uncertain.
b. because of the unforeseen difficulties.
c. because the pledge is a gift.
d. under the doctrine of promissory estoppel.
ESSAY QUESTIONS
A1. Flossy promises to pay her cousin Garth, who is dangerously obese, $10,000 if Garth
loses 100 pounds within the next two years. Garth agrees, performs his part of the
bargain, and asks for the money. Flossy refuses to pay, saying that she forgot about
the deal, but that even if she did make such a pledge, there was no valid consideration
for it. Garth files a suit against Flossy. In whose favor is the court likely to rule, and
why?
A2. Real Estate Investments, Inc., owns and manages an office building. Secure Insurance
Company agrees to lease the building for five years. Under the lease, Secure is
obligated to pay all of the utility costs. Two years into the term, Secure asks Real
Estate to modify the lease to provide that the utility costs be split equally between
them. Real Estate agrees, but later decides it does not want to share the costs and
refuses to pay. Is the landlord bound to its agreement to share the utility costs? Why
or why not?
