Business Law Today Standard Text and

Summarized Cases 11th Edition Miller

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Chapter 12 Consideration Capacity and Legality

TRUEFALSE

1. ​In contract law, "consideration" refers to the time that a party takes to evaluate a deal.

(A) True

(B) False

Answer : (B)

2. ​Legally sufficient consideration is something of value in the eyes of the law.

(A) True

(B) False

Answer : (A)

3. ​Essentially, adequacy of consideration concerns the fairness of the bargain.

(A) True

(B) False

Answer : (A)

4. ​A promise by one party to pay another for refraining from an action that one has a legal right to
undertake is enforceable.

(A) True

(B) False

Answer : (A)

5. ​Performance can constitute the consideration that creates a contractual obligation.

(A) True

(B) False

Answer : (A)

6. ​A transaction that lacks a bargained-for exchange lacks an element of consideration.

(A) True
(B) False

Answer : (A)

7. ​To be legally sufficient, consideration must be evidenced by something tangible.

(A) True

(B) False

Answer : (B)

8. ​A promise to do what one already has a legal duty to do constitutes legally sufficient
consideration.

(A) True

(B) False

Answer : (B)

9. ​An illusory promise is a promise that is enforceable without consideration.

(A) True

(B) False

Answer : (B)

10. ​Rescission is the unmaking of a contract so as to return the parties to the positions they
occupied before the contract was made.

(A) True

(B) False

Answer : (A)

11. ​A covenant not to sue is against public policy.

(A) True

(B) False

Answer : (B)

12. ​Under the doctrine of promissory estoppel, a promise will not be enforced unless it is supported
by consideration.
(A) True

(B) False

Answer : (B)

13. ​Contractual capacity includes the financial ability to pay for the benefits of a contract.

(A) True

(B) False

Answer : (B)

14. ​All contracts between adults and minors are void.

(A) True

(B) False

Answer : (B)

15. ​Contractual capacity refers to the legal ability to enter into a contract.

(A) True

(B) False

Answer : (A)

16. ​A contract entered into by a minor is voidable at the option of either of the contracting parties.

(A) True

(B) False

Answer : (B)

17. ​Disaffirmance is the legal avoidance, or setting aside, of a contractual obligation.

(A) True

(B) False

Answer : (A)

18. ​In contract law, ratification is the act of accepting and giving legal force to an obligation that
was previously not enforceable.
(A) True

(B) False

Answer : (A)

19. ​Parents are always liable for the contracts made by their minor children.

(A) True

(B) False

Answer : (B)

20. ​Ordinarily, a minor can disaffirm a contract even though she has misrepresented her age.

(A) True

(B) False

Answer : (A)

21. ​A minor who enters into a contract for necessaries may disaffirm the contract but remains liable
for the reasonable value of the goods.

(A) True

(B) False

Answer : (A)

22. ​A contract entered into by an intoxicated person is never valid.

(A) True

(B) False

Answer : (B)

23. ​A person who enters into a contract when he or she is intoxicated can void the contract under
any circumstances.

(A) True

(B) False

Answer : (B)
24. ​Contracts entered into by mentally incompetent persons can be valid.

(A) True

(B) False

Answer : (A)

25. ​If there is a statute that prohibits a certain act, a contract to do it is unenforceable.

(A) True

(B) False

Answer : (A)

26. ​Whether a contract with an unlicensed professional is legal and enforceable depends on the
purpose of the licensing statute.

(A) True

(B) False

Answer : (A)

27. ​Any contract to commit a crime is unenforceable.

(A) True

(B) False

Answer : (A)

28. ​A contract that is void from the outset can be enforced in some circumstances.

(A) True

(B) False

Answer : (B)

29. ​Gambling debts will be enforced even if their enforcement violates a statute.

(A) True

(B) False

Answer : (B)
30. ​A covenant not to compete is enforceable only if it is reasonable in duration and geographic
area.

(A) True

(B) False

Answer : (A)

31. ​A covenant not to compete included in the sale of an ongoing business is unenforceable.

(A) True

(B) False

Answer : (B)

32. ​In certain circumstances, bargains are so oppressive that the courts relieve innocent parties of
part or all of their duties.

(A) True

(B) False

Answer : (A)

33. ​A contract that exculpates one party for negligence or other wrongdoing will often be viewed as
unconscionable.

(A) True

(B) False

Answer : (A)

34. ​An exculpatory clause in an employment contract is usually enforceable.

(A) True

(B) False

Answer : (B)

35. ​In most illegal contracts, both parties are considered to be equally at fault, and neither party can
enforce it.

(A) True

(B) False
Answer : (A)

MULTICHOICE

36. 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.

Answer : (C)

37. ​Frisco offers to buy a Gibson guitar owned by Hayden for twice what Hayden 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.

Answer : (C)

38. ​Aaron 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.

Answer : (C)

39. ​D'Sean promises to pay his personal assistant Edie $50,000 in consideration of the services she
provided over the years. D'Sean never makes the payment. D'Sean's promise is

(A) ​enforceable for the entire $50,000.

(B) ​enforceable to the extent of what Edie's services were actually worth.

(C) ​not enforceable because the consideration is in the past.

(D) ​not enforceable because the failure to pay is an unforeseen difficulty.

Answer : (C)

40. ​Digital Enterprise, Inc., promises to pay its employees a year-end bonus "if profits continue to be
high and management agrees at the time." This is

(A) ​an enforceable contract.

(B) ​an illusory promise.

(C) ​an option-to-cancel clause.

(D) ​an output contract.

Answer : (B)

41. F
​ act Pattern 12-1
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.

Refer to Fact Pattern 12-1. 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.

Answer : (D)

42. F
​ act Pattern 12-1
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.

​Refer to Fact Pattern 12-1. 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.

Answer : (D)

43. F
​ act Pattern 12-1
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.

​Refer to Fact Pattern 11-4. 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.

Answer : (B)

44. ​Maya's motorcycle is damaged in an accident caused by Luc's negligence. Luc agrees to pay
Maya $25,000 if she agrees to release him from further liability. Maya agrees. If her damages
ultimately exceed $25,000, she can

(A) ​recover the balance for lack of consideration.

(B) ​recover the balance because the consideration was past.

(C) ​recover the balance due to unforeseen events.

(D) ​not recover the balance.

Answer : (D)

45. ​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 is

(A) ​a covenant not to sue.

(B) ​an illusory promise.

(C) ​an unforeseen difficulty.

(D) ​a release.

Answer : (A)
46. ​While sailboarding, Jolene is injured when Kilroy carelessly crosses her path. Kilroy's insurance
company offers Jolene $50,000 to release Kilroy from liability, and she accepts. Later, she learns that
her injuries are more serious than she realized. The release is

(A) ​enforceable.

(B) ​unenforceable because Jolene's injuries are unforeseeably difficult.

(C) ​unenforceable because Kilroy has a preexisting duty to pay.

(D) ​unenforceable because the release is an illusory promise.

Answer : (A)

47. ​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 rescission and new contract.

(B) ​liable to Niki under the doctrine of promissory estoppel.

(C) ​liable to Niki under the preexisting duty rule.

(D) ​not liable to Niki.

Answer : (B)

48. ​Chet, a minor, signs a contract with Porsha, an adult. The contract is voidable at the option of

(A) ​neither party.

(B) ​Chet only.

(C) ​either party.

(D) ​Porsha only.

Answer : (B)

49. ​Rosalind, a seventeen-year-old, signs a contract to sell her car to Street Fleet Used Cars. The
next day, Rosalind tells Street Fleet that she's decided not to sell the car. Rosalind is liable to Street
Fleet for

(A) ​the cost of a car of comparable value.

(B) ​the value of her performance under the contract.

(C) ​the amount of its profit on the deal.

(D) ​nothing.
Answer : (D)

50. ​Fletcher signs a contract to buy a new electric guitar and amplifier just before reaching the age
of majority. After reaching the age of majority, Fletcher does not take possession or make payments.
With respect to the contract, most courts would hold that this is

(A) ​disaffirmance.

(B) ​emancipation.

(C) ​ratification.

(D) ​rescission.

Answer : (A)

51. ​Vijay enters into a contract to sell his laptop to Winnie. Winnie takes possession of the laptop as
a minor and continues to use it well after reaching the age of majority. Winnie has

(A) ​expressly ratified the contract.

(B) ​impliedly ratified the contract.

(C) ​disaffirmed the contract.

(D) ​none of the choices.

Answer : (B)

52. ​Neil, a minor, attempts to return to its former owner, a set of skis that he recently bought, used,
and wrecked, in a state in which a duty of restitution is imposed. Neil

(A) ​can return the skis "as is" and avoid further liability.

(B) ​is not required to return the skis due to his or her minority.

(C) ​must return the skis and pay for the damage.

(D) ​cannot return the skis unless they can be fully restored.

Answer : (C)

53. ​Alexis, a minor acting on her own, signs a contract to buy a motorcycle and accessories from
Bad Bikes dealership. Later, after taking possession, Alexis disaffirms the deal. She

(A) ​can keep the motorcycle and accessories.

(B) ​can keep the motorcycle but not the accessories.

(C) ​can keep the accessories but not the motorcycle.

(D) ​must return both motorcycle and accessories.

Answer : (D)

54. ​Serenity, a minor, obtains fruits and vegetables on credit from Virgil at Growers' Market. Later,
Serenity disaffirms the purchase. Serenity owes Virgil

(A) ​the reasonable value of the goods.

(B) ​the retail value of the goods.

(C) ​the wholesale value of the goods.

(D) ​nothing.

Answer : (A)

55. ​Lydia, a minor, charges the cost of a smartphone at a Mobile Devices & Minutes store. Two
nights later, Lydia loses the phone at Natural Foods restaurant. She disaffirms the phone's purchase.
Lydia owes Mobile Devices the reasonable value of the phone

(A) ​if it is deemed a necessary.

(B) ​if it is deemed a luxury.

(C) ​if it is deemed unique.

(D) ​under no circumstances.

Answer : (A)

56. ​Mica, a minor, signs a contract to pay National Health Club a monthly fee for twenty-four
months to use its facilities. Six months later, after reaching the age of majority, Mica continues to
use the club. This act is

(A) ​a disaffirmance.

(B) ​an emancipation.

(C) ​a ratification.

(D) ​a restitution.

Answer : (C)

57. ​On Victor's eighteenth birthday, he decides that he no longer wants to keep a fishing boat he
bought from Water Craft, Inc., when he was seventeen. His right to disaffirm the deal will depend on

(A) ​why Victor no longer wants to keep the boat.

(B) ​why Victor entered into the contract to buy the boat.

(C) ​whether Victor acts within a reasonable period of time.

(D) ​whether Water Craft has the right to disaffirm.

Answer : (C)

58. ​Intoxicated and not aware of the consequences, Umberto agrees to a two-year cell-phone service
contract with Wander Talk, Inc., at more than the average market price. This contract is

(A) ​enforceable.

(B) ​not enforceable because contracting parties can change their minds.

(C) ​not enforceable because the contract clearly favors Wander Talk.

(D) ​not enforceable because Umberto was intoxicated enough to lack mental capacity when he
agreed to it.

Answer : (D)

59. ​Fay is mentally incompetent but has not been so adjudged by a court. Any contract Fay enters
into is

(A) ​voidable if Fay has a lucid interval at the time of contracting.

(B) ​voidable if Fay lacks the capacity to comprehend the consequences.

(C) ​voidable if the other party does not realize that Fay is incompetent.

(D) ​unavoidable.

Answer : (C)

60. ​William obtains a loan from a bank at 4.5 percent interest. The state where he obtains the loan
has a usury statute that limits interest rates to a 3.5 percent maximum. William's contract with the
bank is

(A) ​enforceable only if William does not attempt to disaffirm it.

(B) ​enforceable only if the bank does not attempt to disaffirm it.

(C) ​enforceable only if both William and the bank knew of the statute when the contract was signed.

(D) ​not enforceable.

Answer : (D)

61. ​John obtains a loan from Liberty Credit Bank at an interest rate that exceeds the state's
maximum. Liberty has

(A) ​created a risk for the purpose of assuming it.

(B) ​engaged in a restraint of trade.

(C) ​violated a licensing statute.

(D) ​committed usury.

Answer : (D)

62. ​Shannon signs a contract with Tevin, an unlicensed contractor, to build a deck and gazebo at the
rear of her house. This contract is enforceable by

(A) ​Shannon.

(B) ​any third party who is not aware that Tevin is not licensed.

(C) ​Tevin.

(D) ​no one.

Answer : (D)

63. ​Nyoko signs a covenant not to compete with her employer, Midstate Distribution, Inc. The
covenant will be enforced if it

(A) ​does not require either party to obtain a business license.

(B) ​is reasonable with respect to geographic area and duration.

(C) ​relieves Midstate from liability for any injury to Nyoko due to simple negligence.

(D) ​none of the choices.

Answer : (B)

64. ​Odina signs a covenant not to compete with her employer, Penultimate Sales Corporation. A
court decides that the covenant is overly restrictive. The court will likely

(A) ​enforce it as written so as not to undercut the freedom of contract.

(B) ​enforce it but evaluate its effects over time.

(C) ​reform its terms to prevent any undue burden.

(D) ​refuse to enforce it unless Penultimate pays additional consideration.

Answer : (C)
65. ​U-Can-Own-It Corporation sells appliances to less educated consumers, including Viv, on
installment plans. U-Can-Own-It files a suit against Viv when she stops making payments. Viv claims
that the deal is unconscionable. The court will most likely consider

(A) ​the geographic area of the relevant market.

(B) ​the parties' relative bargaining power.

(C) ​the quality of related products in the general market.

(D) ​the relation of this deal to those of other customers.

Answer : (B)

66. ​Metro City Mall requires its tenants to sign a lease that includes a clause releasing Metro from
liability in the event of monetary or physical injury no matter who is at fault. Coco's Chocolate
Creations signs a lease with the mall that contains the clause. This is

(A) ​a covenant not to compete.

(B) ​an adhesion contract.

(C) ​an exculpatory clause.

(D) ​an illusory promise.

Answer : (C)

67. ​To avoid liability for negligence, Mall Mart Discount Stores can normally obtain a court order to
enforce

(A) ​a covenant not to compete.

(B) ​an adhesion contract.

(C) ​an exculpatory clause.

(D) ​none of the choices.

Answer : (D)

68. ​Country Trucking Company contracts with Baldwin to transport crated goods to a certain
destination for $5,000. \Country delivers the crates, but Baldwin does not pay. Country learns that
the crates contained stolen goods. Country can

(A) ​do nothing with respect to the contract.

(B) ​recover $5,000 from Baldwin.

(C) ​recover the goods but not the $5,000 from Baldwin.
(D) ​recover the goods and the $5,000 from Baldwin.

Answer : (B)

69. ​Boz runs an illegal gambling business and pays Colin, a police officer, not to interfere. The
payments are discovered. Boz and Colin are sent to prison. With respect to the amount of the
payments, Boz can recover

(A) ​all of it.

(B) ​none of it.

(C) ​only as much as Colin has not spent.

(D) ​only as much as Colin has spent.

Answer : (B)

70. ​Through fraudulent means, Finlay induces Ethel to sign a contract to in-vest with him the profits
from her business. When Ethel learns the truth, she may

(A) ​only enforce the contract.

(B) ​only recover what she invested with Finlay.

(C) ​enforce the contract or recover what she invested with Finlay.

(D) ​do nothing.

Answer : (C)

ESSAY

71. ​Dean, the president of Billing & Credit Company, promises to pay his employee Ewing, who is
dangerously obese, $10 for every pound that he loses within the next two years. Ewing agrees, diets
and exercises, loses 154 pounds, and asks Dean for $1,540. Dean refuses to pay, saying that he does
not remember the promise, but that even if he did make it, there was no consideration, and Ewing's
improved health is a sufficient benefit for his effort and sacrifice. Ewing files a suit against Dean. In
whose favor is the court likely to rule, and why?

Graders Info :

A court is most likely to rule against Dean and in favor of Ewing. Generally, a waiver of a legal right
in this case, the right to eat to obesity at the request of another party is sufficient consideration to
support a promise. Here, Ewing provided legally sufficient consideration by losing 154 pounds in
weight over the stipulated two-year period. The promise in the question was the payment of $10 for
every pound lost. It does not matter that the performance-the loss of weight-also benefited Ewing.​
72. 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?​

Graders Info :

​ Centre City Properties, Inc., the landlord, is not bound to its agreement to share utility costs with
DIY Home Improvement Stores, its tenant. Under the preexisting duty rule, a promise to do what
one already has a legal duty to do does not constitute legally sufficient consideration. The
preexisting legal duty may arise out of a previous contract. And if a party is already bound by
contract to perform a certain duty, that duty cannot serve as consideration for a second contract.
Thus, a modification of a contract requires consideration to be binding.
In this question, the agreement to split the utility costs was a modification of the original terms of
the parties' lease. Centre City is not bound because the landlord did not receive any consideration in
exchange for the agreement to split the utility costs.