Chapter 5 – Contract and Consideration

Review Materials for Chapter 5

• Cost-Plus Contract – A way of sharing risk
• Sham Consideration – Stated consideration did not really occur
• Illusory – An illusion; stated consideration does not really obligate the party
• Accord and Satisfaction – Agreement to accept and give payment or performance, different from that originally required by contract
• Subject Standard – Imposed or influenced by individual position or bias
• Incentive consideration – Consideration changes to motivate faster or better performance
• Waiver – Intentional relinquishment of right, claim, or privilege
• Formal contracts – Contracts under seal
• Output Contract – Contract under which buyer agrees to purchase all that seller produces; court may impose requirement of reasonable performance
• Liquidated debt – Debt that is not in dispute
• Needs Contract – Contract under which buyer agrees to purchase all of buyer’s needs from seller (see exclusive dealing); court may impose requirement of reasonable performance
• Unliquidated debt – Debt, the amount of which is in dispute; settlement of an unliquidated debt can constitute consideration
• Exclusive Dealing – Contract under which parties agree to deal only with each other with respect to particular needs
• Bargained for – Each party is induced to enter contract by consideration offered by other party
• Objective Standard – Used to determine whether parties had “meeting of the minds,” looks to what a reasonable person would believe, based on circumstances
• Nominal – Minimal
• Condition Subsequent – Event that may “undo” an executed contract
• Rescind – To terminate a contract before all of its terms are completely performed
• Condition Precedent – Event that must occur before the contemplated transaction is completed
• Allowances – Contract total price includes “estimates” for components; if actual price of components differs from allowances, total contract price changes
• Consideration – Something promised, given, refrained from, or done that has the effect of making an agreement a legally enforceable contract
• Recitals – Short statements that provide background or explain the reasons for the contract; not technically part of a contract