Professional Documents
Culture Documents
MULTIPLE CHOICE
3. Mark owes $2000 each to his business partners, Ryan, Bryan, and Clark. Since Mark is facing financial
difficulties, his business partners agree to accept a total amount of $4800 from Mark as a cancellation of
the unpaid balance due to them. This type of an agreement is known as a _____.
a. composition of creditors
b. writ of certiorari
c. forbearance
d. promissory estoppel
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 8-2 NAT: BUSPROG: Ethics STA: AICPA: BB-Legal
TOP: A-head: Adequacy of Consideration KEY: Bloom's: Application
5. When one refrains or promises to refrain from doing something, this conduct is known as _____.
a. duress
b. forbearance
c. negligence
d. disaffirmation
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 8-3 NAT: BUSPROG: Ethics STA: AICPA: BB-Legal
TOP: A-head: Adequacy of Consideration KEY: Bloom's: Knowledge
6. Blake has subscribed to a local charitable association where he needs to make a monthly payment of
$100. However, a few months later, Blake stops paying this amount. Which of the following exceptions
to the requirement of consideration will enforce that Blake pays the amount?
a. Composition of creditors
b. Voluntary subscriptions
c. Forbearance to cancel monthly subscriptions
d. Modification of sales contracts
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 8-4 NAT: BUSPROG: Ethics STA: AICPA: BB-Legal
TOP: A-head: Exceptions to Requirement of Consideration KEY: Bloom's: Application
TRUE/FALSE
11. For a promise to constitute consideration, the promise must prevent imposing an obligation on the
person making it.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 8-1 NAT: BUSPROG: Ethics STA: AICPA: BB-Legal
TOP: A-head: Nature of Consideration KEY: Bloom's: Knowledge
12. As a general rule, the adequacy of the consideration is irrelevant because the law allows bargains.
13. If the debt is evidenced by a note or other written evidence, cancellation and return of the written
evidence cancels the debt.
14. Performing or promising to perform what one is already obligated to do is a valid consideration.
15. If the supposed consideration consists merely of a promise to do what one is already legally obligated to
do, consideration is invalid.
16. When a new contract is replaced with an old one, it is mandatory for the added features to be equal for
both parties for the contract to be enforceable.
17. When charitable enterprises are financed by voluntary subscriptions of many people, the promise of
each person is generally not held to be enforceable.
18. Pledges made by people to charitable associations have no binding power by law.
19. The Uniform Commercial Code states that when a contract for the sale of goods is modified by
agreement of the parties, consideration is necessary to make it enforceable.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 8-4 NAT: BUSPROG: Ethics STA: AICPA: BB-Legal
TOP: A-head: Exceptions to Requirement of Consideration KEY: Bloom's: Knowledge
ESSAY
20. As a general rule, a promise must be supported by consideration. Describe any two exceptions to this
rule.
ANS:
Two exceptions to the requirement of consideration are:
1. Voluntary Subscriptions
When charitable enterprises are financed by voluntary subscriptions of many people, the promise of
each person is generally held to be enforceable. When a number of people make pledges to or subscribe
to a charitable association or to a church, for example, the pledges or subscriptions are binding. Despite
the fact that such promises lack the technical requirements of ordinary contracts, the courts in most states
will enforce the promises as a matter of public policy.
2. Promissory Estoppel
Although not supported by considerations, courts enforce some promises on the basis of promissory
estoppel. According to this doctrine, if one person makes a promise to another, and that other person acts
in reliance on the promise, the promisor will not be permitted to claim lack of consideration.
Enforcement is held to be proper when the promisor should reasonably expect to cause, and does cause,
action by the promisee, and the promisee would be harmed substantially if the promise were not
enforced. The theory has gained support as a means of realizing justice.