Sam owes $5,000 to the First National Bank for a student loan which will come due on January 1 next year. He has been offered a two-year graduate fellowship, but he will not be able to pay the loan back if he accepts the fellowship. The bank manager tells Sam that if he pays $3,000 now, they will forgive the loan. Should Sam accept the offer?

Question

Quizplus · Accepted Answer

The early payment of the loan constitutes consideration, which is a necessary element for a valid contract. By offering to pay $3,000 now instead of the full $5,000 later, Sam provides something of value (consideration) in exchange for the bank's promise to forgive the remaining debt. This makes the agreement legally binding.

Sam Owes $5,000 to the First National Bank for a Student