Exam 4 (Chapters 14 & 15) Flashcards Preview

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Flashcards in Exam 4 (Chapters 14 & 15) Deck (50):


Promise or performance that the promisor demands as the price of the promise; what each party to a contract gives up to the other in making their agreement



Promises to make these are unenforceable promises under the law of contracts because of lack of consideration


Completed Gift

Cannot be rescinded for lack of consideration; delivery and present donative intent are necessary for this


Adequacy of Consideration

It is a matter for the parties to decide when they make their contract whether each is getting a fair return; It is not a function of a court to review the amount of the consideration passed unless the amount is so grossly inadequate as to shock the conscience of the court



Refraining from doing an act


Illusory Promise

Promise that in fact does not impose any obligation on the promisor


Cancellation Provision

Crossing out of a part of an instrument or a destruction of all legal effect of the instrument, whether by act of party, upon breach by the other party or pursuant to agreement or decree of court


Conditional Promises

A promise that depends on the occurrence of a specified condition in order for the promise to be binding


Good-Faith Adjustment

A current trend to enforce a second promise to pay a contractor a higher amount for the performance of the original contract when there are extraordinary circumstances caused by unforeseeable difficulties and when the additional amount promised the contractor is reasonable under the circumstances


Contract for Sale of Goods

When the contract is for the sale of goods, any modification made in good faith by the parties to the contract is binding without regard to the existence of consideration for the modification


Liquidated Debt

The rule that doing or promising to do what one is already legally bound to do is not consideration applies to a part payment made in satisfaction of an admitted


Unliquidated Debt

A debtor and creditor may have a bona fide dispute over the amount owed or whether any amount is owed; In this case, payment by the debtor of less than the amount claimed by the creditor is consideration for the latter’s agreement to release or settle the claim. It is generally regarded as sufficient if the claimant believes in the merit of the claim


Composition of Creditors

Agreement among creditors that each shall accept a part payment as full payment in consideration of the other creditors doing the same


Past Consideration

Something that has been performed in the past and which, therefore, cannot be consideration for a promise made in the present


Moral Obligation

In most states, promises made to another based on “moral obligation” lack consideration and are not enforceable; They are considered gratuitous promises and unenforceable.


Exceptions to Consideration

Charitable subscriptions, Uniform commercial code and Promissory estoppel


Uniform Commercial Code

In some situations, the Uniform Commercial Code abolishes the requirement of consideration for
(1) a merchant’s written, firm offer for goods stated to be irrevocable
(2) a written discharge of a claim for an alleged breach of a commercial contract, or
(3) an agreement to modify a contract for the sale of goods


Promissory Estoppels

Doctrine that a promise will be enforced although it is not supported by consideration when the promisor should have reasonably expected that the promise would induce action or forbearance of a definite and substantial character on the part of the promised and injustice can be avoided only by enforcement of the promise


Doctrine of Detrimental Reliance

Also know as promissory estoppel and is applicable when (1) the promisor makes a promise that lacks consideration, (2) the promisor intends or should reasonably expect that the promisee will rely on the promise, (3) the promisee in fact relies on the promise in some definite and substantial manner, and (4) enforcement of the promise is the only way to avoid injustice


Preexisting Legal Obligation

Ordinarily, doing or promising to do what one is already under a legal obligation to do is not consideration. Similarly, a promise to refrain from doing what one has no legal right to do is not consideration. This preexisting duty or legal obligation can be based on statue, on general principles of law, on responsibilities of an office held, or on preexisting contract


Compromise of Claims

If the debtor pays the part payment before the debt is due, there is consideration, because, on the day when the payment was made, the creditor was not entitled to demand any payment. Likewise, if the creditor accepts some article (even of slight value) in addition to the part payment, consideration exists.


Release of Claims

A debtor and creditor may have a bona fide dispute over the amount owed or whether ant amount is owed (unliquidated debt). In this case, payment by the debtor of less than the amount claimed by the creditor is consideration for the latter's agreement to release or settle the claim. It is generally regarded as sufficient if the claimant believes in the merit of the claim.


Charitable Subscriptions

Where individuals made pledges to finance the construction of buildings for charitable purposes, consideration is lacking according to technical standards applied in ordinary contract cases. For public policy reasons, the reliance of the charity on the pledge in undertaking the project is deemed a substitute for consideration.


Promissory Damages

Damages recoverable in a case of promissory estoppel are not the profits that the promise expected, but only the amount necessary to restore the promisee to the position he or she would have been in had the promise not relied on the promise.


In Pari Delicto

Equally guilty; used in reference to a transaction as to which relief will not be granted to either party because both are equally guilty of wrongdoing


Unequal Guilt

When the parties are not in pari delicto, the least guilty party is granted relief when public interest is advanced by doing so


Partial Illegality

An agreement may involve the performance of several promises, some which are illegal and some legal. The legal parts of the agreement may be enforced provided that they can be separated from the parts that are illegal. Contracts that involve both unlawful and lawful provisions may be enforced if the illegal portion is severable from the legal.


Civil Wrongs

An agreement that calls for the commission of a civil wrongs is illegal and void (agreements to slander a third person, defraud another, infringe another's patent, trademark, copyright or fix prices)


Good Faith and Fairness

Every contract has implied obligation that neither party shall do anything that will have the effect of destroying or injuring the right of the party to receive the fruits of the contract. This means that in every contract there exists an implied covenant of good faith and fair dealing



A provision in a contract that gives what the court believes is too much of an advantage over a buyer may be held void as unconscionable


Procedural Unconscionability

Has to be with matters of freedom of assent resulting from inequality of bargaining power and the absence of real negotiations and meaningful choice or a surprise resulting from hiding a disputed term in an unduly long document or fine print.


Contracts of Adhesion

Companywide standardized form contracts imposed on a take-it-or-leave-it basis by a party with superior bargaining strength are called these, sometimes they may be deemed procedurally unconscionable


Substantive Unconscionability

Contract offered by a dominant party to a party with inferior bargaining power on a take-it-or-leave-it basis, focuses on the actual terms of the contract itself.


Public Policy

Certain objectives relating to health, morals and integrity of government that the law seeks to advance by declaring invalid any contract that conflicts with those objectives even though there is no statue expressly declaring such a contract illegal



Any plan by which a consideration is given for a chance to win a prize; it consists of three elements: (1) There must be a payment money or something of value for an opportunity to win (2) A prize must be available and (3) The prize must be offered by lot or chance


Giveaway Plans and Games

Are lawful so long as it not necessary to buy anything or give anything of value to participate. If participation is free, the element of consideration is lacking and there is no lottery.


Quantum Meruit

In some states an unlicensed contractor can neither enforce a home improvement contract against an owner nor seek recovery in this


Contracts in Restraint of Trade

An agreement that unreasonably restrains trade is illegal and void on the ground that it is contrary to public policy. Such agreements take many forms, such as a combination to create a monopoly, obtain a corner on the market or an association of merchants to increase prices


Restrictive Covenants

Restrictive covenants not to compete are disfavored (but not prohibited) in many states as a trade restraint because they may prevent an employee from earning a living, adversely restrain the mobility of employees and may be overly protective of the interests of employers at the expense of employees


Restrictive Covenant (Four Necessary Limits)

(1) It is narrowly drawn to protect the employer's legitimate business interests
(2) It is not unduly burdensome on the employee's ability to earn a living
(3) The geographic restriction is not overly broad and
(4) A reasonable time limitation is given


Sale of Business

When a going business is sold, it is commonly stated in the contract that the seller shall not go into the same or a similar business again within a certain geographic area or for a certain period of time (or both)


Employment Contract

Employers rely on noncompete clauses to protect their businesses form employees who leave after receiving expensive training or engineers, scientists or other professionals or nonprofessionals who leave firms or businesses to join competitors. Employers enforce these clauses by notifying the new employer and threatening litigation. or seeking a preliminary injunction prohibiting the violation of the noncompete agreement.


The Blue Pencil Rule

When a restriction of competition agreed to by the parties is invalid because its scope as to time or geographic area is too great, how does this affect the contract? Some courts trim the restrictive covenant down to a scope they deem reasonable and require the parties to abide by that revision



Lending money at an interest rate that is higher than the maximum rate allowed by law


Penalties for Usury

These vary from state to state, with a number of states restricting the lender to the recovery of the loan but no interest whatsoever; other states allow recovery of the loan principal and interest up to the maximum contract rate. Some states also impose a penalty on the lender such as the payment of double the interest paid on a usurious loan


Elements of Usury

(1) The transaction was a loan
(2) The money loaned required that it be returned
(3) An interest rate higher than allowed by law was required and
(4) A corrupt intention to take more than the legal rate for the use of the money loaned exists


Firm Offer

Offer stated to be held open for a specified time, under the UCC, with respect to merchants


Extraordinary Circumstances

A promise to pay a contractor a higher amount for the for the performance of the original contract when there are extraordinary circumstances caused by unforeseeable difficulties and when the additional amount promised the contractor is reasonable under the circumstances


"Hold Up" by a Contractor

When a contractor refuses to complete an unprofitable contract unless paid additional compensation, where the preexisting duty rule would apply



An agreement is illegal either when its formation or performance is a crime or a tort or when it is contrary to public policy or unconscionable. An illegal agreement is void. When it is legal the parties are usually not entitled to the aid of the courts