1
Interactive Quiz for ALT-12e, Chapter 12
Chapter 12 – Consideration
1. Often, consideration is broken down into two parts, something of legal value and:
a. some kind of income redistribution.
b. some kind of coercive behavior.
c. a clear moral hazard.
d. a bargained-for exchange.
Answers:
a. Incorrect. This is not the second part of consideration (although a promise might involve a voluntary redistribution of income).
b. Incorrect. Consideration is a necessary component of a contract, and contracts are only valid if they are entered into voluntarily.
c. Incorrect. Moral hazards are not the second part of consideration.
d. Correct. The second part of consideration is a bargained-for exchange.
2. Liz contracts with Brian. Liz agrees to cook twenty dinners for Brian, in exchange for which Brian will repair all of the plumbing in Liz’s house. In this consideration legally sufficient?
a. No, because it is clear that one dinner is not worth as much as repairing all of the plumbing in Liz’s house.
b. No, because this kind of bargain violates public policy.
c. Yes, based on the clear lack of any bargain.
d. Yes, because Liz has promised something of value.
Answers:
a. Incorrect. We are not able to say that this is legally insufficient consideration because Liz may be a superb cook, whose services are worth a great deal..
b. Incorrect. This bargain does not violate public policy in any way.
c. Incorrect. There is a bargain in this case—an exchange of plumbing services for a free dinner. For all we know, Liz’s dinner could be incredibly wonderful, perhaps a once-in-a-lifetime dining experience.
d. Correct. Liz has promised something of legal value; she must obtain the food, pay for it, and prepare the dinner for Brian. Also, realize that Liz may be a superb chef whose efforts in creating one exquisite meal may well be equal (in Brian’s mind) to Brian’s efforts in repairing Liz’s plumbing.
3. Rescission may be defined as:
a. the substitution of one contract party for another.
b. the revision of a contract’s terms to reflect trade usage.
c. the full performance of a contract.
d. the unmaking of a contract to return the contract parties to the positions they were in before the contract was formed.
Answers:
a. Incorrect. This describes a novation.
b. Incorrect. This describes a kind of contract reformation.
c. Incorrect. Performance is not the same thing as rescission.
d. Correct. This is a definition of rescission.
4. Assume that Binta has been harmed seriously while walking down an aisle in Mckenzie’s store. Binta claims that her injuries have resulted in $12,000 worth of medical expenses, plus another $12,000 for emotional distress. Mckenzie offers to pay Binta $16,000 if Binta promises, in return, not to bring a lawsuit against him. Binta accepts Mckenzie’s offer. What is this agreement called?
a. A covenant not to sue.
b. A reformation.
c. A release.
d. A covenant not to compete.
Answers:
a. Correct. This is a covenant not to sue.
b. Incorrect. This is not a reformation—there is no contract to reform.
c. Incorrect. This agreement does not meet the requirements for a release, which bars any further recovery.
d. Incorrect. This is not a covenant not to compete.
5. Which of the following is required for an accord and satisfaction to take place?
a. The amount of the debt must be in dispute.
b. The amount of the debt must be agreed on and settled.
c. The debt must be liquidated.
d. The accord must be sealed.
Answers:
a. Correct. The amount of the debt must be in dispute for an accord and satisfaction to take place.
b. Incorrect. If the amount of the debt is agreed upon, there can be no accord and satisfaction.
c. Incorrect. The debt must be unliquidated for an accord and satisfaction to take place.
d. Incorrect. The accord does not need to be sealed.
6. A covenant not to sue is:
a. an agreement to substitute a contractual obligation for some other type of legal action based on a valid claim.
b. used only by medical doctors in malpractice cases.
c. against public policy.
d. permitted only if the party involved is represented by an attorney.
Answers:
a. Correct. This is the definition of a covenant not to sue.
b. Incorrect. These covenants are used by many types of people and businesses.
c. Incorrect. These covenants are not against public policy.
d. Incorrect. These covenants may be used even if one party is not represented by an attorney.
7. In order for a court to apply the doctrine of promissory estoppel, which of the following elements IS NOT required?
a. Justice must not be served by enforcing the promise.
b. There must be a clear and definite promise.
c. Just must be served by enforcing the promise.
d. The promisee must have relied on the promise.
Answers:
a. Correct. This element is not required—the opposite is required.
b. Incorrect. This element is required.
c. Incorrect. This element is required for promissory estoppel.
d. Incorrect. This is a required element.
8. Assume that Carol Rogers (a local millionaire) promises to donate $500,000 to the Springfield Humane Society, which the society plans to use to build a new animal hospital. Based on Carol’s promise, the society begins work on the hospital. Carol, however, reneges on her offer. In this case:
a. Carol may be sued for the money under a theory of promissory estoppel.
b. Carol has clearly violated the terms of a formal contract.
c. Nothing can be done. Carol’s donation was a gift.
d. Carol will suffer from a bad conscience, but not from any lawsuit.
Answers:
a. Correct. Because there was a clear promise that the Springfield Humane Society was justified in relying on, and because the reliance was substantial and justice would be better served by enforcing the promise, Carol could be sued under a theory of promissory estoppel.
b. Incorrect. There is no formal contract here.
c. Incorrect. In this case, Carol could be sued.
d. Incorrect. Carol may have to deal with both a lawsuit and a bad conscience.
9. Which of the following types of promises normally DOES NOT lack consideration?
a. A promise to do what one already has a legal duty to do.
b. A promise to do what one does not already have a legal duty to do.
c. A promise made in return for an action or event that has already taken place.
d. A promise of uncertain performance.
Answers:
a. Incorrect. This type of promise normally is deemed to lack consideration.
b. Correct. This type of promise normally constitutes valid consideration.
c. Incorrect. Normally, such a promise does lack consideration in what what is being promised is “past consideration”—or no consideration at all.
d. Incorrect. Normally, promises of uncertain performance (often called “illusory promises”) do lack consideration.
10. In the interests of fairness and equity, the courts may allow an exception to the preexisting duty rule:
a. when the consideration given for a contract is past consideration.
b. when the promise is illusory.
c. when the consideration is defined as inadequate.
d. when contract performance involves unforeseen difficulties.
Answers:
a. Incorrect. The courts would not allow an exception to the preexisting duty rule in this situation.
b. Incorrect. The courts would not allow an exception to the preexisting duty rule in this situation.
c. Incorrect. The courts would not allow an exception to the preexisting duty rule in this situation.
d. Correct. The courts may allow an exception to the preexisting duty rule in this situation.