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CHAPTER 13
CONSIDERATION
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 13.1—CRITICAL THINKING
WHAT IF THE FACTS WERE DIFFERENT?
If the nephew had not had a legal right to engage in the behavior in which he agreed not
CASE 13.2—LEGAL REASONING QUESTIONS
1. What did Case view as “the only possible consideration” for his agreement to
reimburse UPI for some of the cost of his employment-related education? Case
contended that “the only possible consideration” for his agreement to reimburse UPI for some of
2. How did the court interpret Case’s view of “the only possible consideration”? Why?
Case maintained that the reimbursement agreement lacked consideration because UPI was not
obligated to employ him and therefore not obligated to provide him with any employment-related
2 UNIT THREE: CONTRACTS AND E-CONTRACTS
3. If UPI had simply offered to pay its employees’ wages and training expenses during
their participation in a program of instruction “subject entirely and exclusively to UPI’s
approval,” would the element of bargained-for exchange have been met? Explain. No, if
UPI had offered to pay its employees wages and training expenses during their participation in a
program of instruction “subject entirely and exclusively to UPI’s approval,” the element of
CASE 13.3—CRITICAL THINKING
ECONOMIC
Why would any party agree to a covenant not to sue? The simple answer is money. When a
party believes it to be an advantage to agree to a covenant not to sue, that party is most likely to
LEGAL ENVIRONMENT
Which types of contracts are similar to a covenant not to sue? Explain. Types of contracts
that are similar to a covenant not to sue include an accord and satisfaction, and a release. In a
covenant not to sue, the parties substitute a contractual obligation for some other type of legal
action based on a valid claim. In an accord and satisfaction, a debtor offers to pay, and a
CHAPTER 13: CONSIDERATION 3
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Elements
2A. Principle
Under the rule of unforeseen difficulties, a change in the terms may be allowed because of
3A. Promise
No, John cannot enforce the promise because it is a gift being offered. At this point in their
4A. Doctrine
Assuming the neighbor knew about the income John was losing by counting on the deal as
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
Courts should not be able to rule on the adequacy of consideration. A deal is a
deal. Courts should not accept to rule on the adequacy of consideration because in so doing,
they create a moral hazard situation for anyone who, after the fact, doesn’t think she or he “got a
good deal.” In other words, if those who enter into agreements know that they can later avoid
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ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. In September, Sharyn agrees to work for Totem Productions, Inc., at $500 a week
for a year beginning January 1. In October, Sharyn is offered the same work at $600 a
2A. Before Maria starts her first year of college, Fred promises to pay her $5,000 when
she graduates. She goes to college, borrowing and spending far more than $5,000. At the
beginning of the spring semester of her senior year, she reminds Fred of the promise.
Fred sends her a note that says, “I revoke the promise.” Is Fred’s promise binding?
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
13-1A. Preexisting duty
The general rule is that a promise to do what one already has a legal or contractual duty to do is
not legally sufficient consideration, because there is neither a legal benefit to the promisor nor a
13-2A. Consideration
Past consideration is no consideration; therefore, a promise to pay for an event that has already
taken place is not enforceable. There is nothing to bargain for. Also, there is no consideration if
the promise is based on a moral duty (obligation) to pay. Because Daniel is presumed to be an
CHAPTER 13: CONSIDERATION 5
13-3A. Accord and satisfaction
The accord and satisfaction created by Merrick’s cashing the check would bar any recovery. An
accord and satisfaction is created by cashing a check that is accompanied by a letter with
restrictive language. In this case, the language in the letter is unambiguous. The check was the
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
13–4A. Rescission
The reviewing court concluded that “Rescission is intended to restore the parties as nearly as
possible to their former positions and ‘to bring about substantial justice by adjusting the equities
13–5A. Statute of limitations
No, Kranzler does not need to prove a new promise with new consideration to collect the unpaid
debt. A statute of limitations requires a creditor to sue within a specified period to collect a debt.
If the creditor fails to sue in time, recovery is barred by the statute. Even if recovery is barred by
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13–6A. SPOTLIGHT ON KANSAS CITY CHIEFS—Consideration
No, there was no consideration for the arbitration provision. Consideration is required to create a
bilateral contract. Consideration is something of legally sufficient value given in return for a
promise. The “something of legally sufficient value” may consist of either a promise to do or
refrain from doing something or a transfer of something of value.
13–7A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Consideration
Citynet’s employee incentive plan was an offer for a unilateral contract. A Citynet employee who
stayed on the job when he or she was under no obligation to do so could be considered to have
accepted Citynet’s offer and to have provided sufficient consideration to make the offer a
13–8A. Agreements that lack consideration
Yes, there was consideration to support the Telephone Deal. Consideration can consist of a
promise, a performance, or forbearance (refraining from an action that one has a legal right to
undertake).
In this problem, Mark Garnett, an owner of Arkansas–Missouri Forest Products, LLC
(Ark-Mo), and Stuart Lerner, an owner of Blue Chip Manufacturing (BCM), agreed to go into
wood-pallet enterprises together, with Ark-Mo to have a 30-percent ownership interest in their
future projects. When Lerner formed Blue Chip Recycling, LLC (BCR) to manage a pallet repair
facility in California, however, he allocated only a 5-percent interest to Ark-Mo. Garnett objected.
13-9A. A QUESTION OF ETHICS—Promissory estoppel
(a) The elements of promissory estoppel are (1) a promise, (2) the promisee’s
justifiable reliance on the promise, (3) reliance of a substantial and definite character, and (4)
justice better served by the enforcement of the promise. In the facts of this problem, under a
theory of promissory estoppel, Aceves’s best strategy is to argue that the bank’s promise to
(b) As for unethical behavior, U.S. Bank clearly misrepresented it was willing to forgo
foreclosure while expediting foreclosure proceedings. The bank apparently never intended to
work with Aceves to modify her loan. It promised to do this only to convince her to forgo
bankruptcy proceedings so that the bank could foreclose on the property. The elements of fraud
are similar to the elements of promissory estoppel, with the additional requirements that a false
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ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
13–10A. Preexisting duty
(a) The legal issue deals with the preexisting duty rule, which basically states that a
promise to do what one already has a legal or contractual duty to do does not constitute con–
sideration, and thus a promise based on a preexisting duty is unenforceable. One of the pur–
poses of this general rule is to prevent commercial blackmail. There are four basic exceptions
to this rule. If any of these applied, a contractor might successfully raise the price of completing
construction based on inflation and the rising cost of materials.
(1) If the duties of Siegel are modified, for example, by changes made by Faraj
(2) Rescission and new contract theory could be applied, by which the old con–
tract of $153,000 would mutually be canceled and a new contract for $166,000 would be
(3) A few states have statutes that allow any modification to be enforceable if it
(4) The unforeseen difficulty or hardship rule could be argued. This rule, how-
(b) In this problem, Siegel was required contractually to build a house according to
a specific set of plans for $153,000, and Faraj’s later agreed to pay an additional $13,000 for
exactly what Siegel was required to do for $153,000. Under the preexisting duty rule, this
agreement is without consideration and unenforceable. Thus, Faraj is not legally required to pay
this additional amount.
CHAPTER 13: CONSIDERATION 9
(c) The preexisting duty rule states that a promise to do what one already has a
legal or contractual duty to do does not constitute consideration, and thus a promise based on a
preexisting duty is unenforceable. One of the purposes of this general rule is to prevent