The consideration given to abc now is the 1000

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Unformatted text preview: ree to do so. If, on the other hand, oil prices increase, XYZ will be able to take advantage of its agreement with ABC and buy as much oil as it wants for the $2.75-per-gallon price. But if the agreement were to read “In consideration of a $1,000 cash payment by XYZ to ABC, ABC promises to sell to XYZ all the oil it may want in the coming year to heat its business premises for $2.75 per gallon,” there could be a valid contract. XYZ is now paying ABC a cash amount (valid consideration) for what amounts to an option contract where XYZ can buy any oil it needs during the coming year for a set price. The consideration given to ABC now is the $1,000 payment, and the consideration received by XYZ is the security of knowing that it will have a secure source of oil at a set price during the coming year despite fluctuations in the oil market. rog80328_04_c04_062-088.indd 82 10/26/12 5:42 PM Section 4.4 Consideration CHAPTER 4 Distinguishing Illusory Promises and Requirement Contracts While promises to buy anything one wishes, chooses, desires, or wants are illusory, a promise to buy as much of a given item as one will need or require is valid consideration. Consider the following examples: Example 4.31. ABC Company promises to buy from the XYZ Company “all the heating oil it needs next winter for $3.00 per gallon.” Example 4.32. Carl, a carpenter, promises to buy from Jan’s Hardware “all the hardware supplies he needs for his business during the next year at a discount of 25% off regular retail prices.” Each of the above examples represents a valid requirement contract with valid consideration, even though they may look suspiciously similar to illusory promises. In enforcing these contracts, the courts impose an implied duty of good faith on the parties. As long as the goods, materials, or services contracted for are likely to be needed by the promisor during the period of time in question, the courts hold that there is valid consideration for the promise and will en...
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This test prep was uploaded on 04/09/2014 for the course BUS 311 taught by Professor Parker during the Spring '10 term at Ashford University.

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