Chapter 18-Business Law

Loss of avoidance

-affirming -delaying unreasonably in exercising the power of avoidance -being subordinated to the intervening rights of third parties

6. An equitable remedy would be granted in which of the following? a. Where the remedy at law is inadequate b. Where the contract is without consideration c. Where relief would cause the defendant unreasonable hardship d. Where the contract involves undue influence

A

1. Contract remedies are available to protect which of the following interests of the injured party? a. Expectation interest b. Reliance interest c. Restitution interest d. All of the above

D

15. An action to recover damages for breach of contract may be maintained even though the plaintiff has not sustained any loss from the breach.

True, compensatory

10. CPA: In general, a clause in a real estate contract entitling the seller to retain the purchaser's down payment as liquidated damages if the purchaser fails to close the transaction is enforceable: a. in all cases, when the parties have signed a contract. b. if the amount of the down payment bears a reasonable relationship to the probable loss. c. as a penalty, if the purchaser intentionally defaults. d. only when the seller cannot compel specific performance.

B

12. Central Contracting has a contract to build an office complex for Woodmenn, Inc. A clause in the contract calls for Central to pay $2,000 a day for each day's delay after the date the contract is scheduled for completion. a. This is a compensatory damages clause. b. This is a liquidated damages clause that may be an unenforceable penalty clause. c. Woodmenn will be given the benefit-of-the-bargain in calculating damages. d. Woodmenn will only be allowed to recover nominal damages in the case of a breach.

B

3. Monetary damages are only recoverable for losses that the party in breach had reason to foresee as a probable result of such breach at the time that: a. the parties began negotiations. b. the parties entered into the contract. c. the breach occurred. d. none of the above

B

11. Sam Seller contracts to sell 200 tables to Bill Buyer at a price of $50 a table. Bill repudiates the contract, whereupon Sam sells the tables to Paula Purchaser at a price of $45 a table. Sam's action in selling the chairs to another buyer is known as: a. liquidated damages. b. specific performance. c. mitigation of damages. d. restitution

C

13. Arthur, a world-famous rock star, has a contract to perform at the Superdome on New Year's Eve. However, he decides he would rather spend the night with his family and friends so he informs the owners of the Superdome. a. The owners of the Superdome are entitled to specific performance, because Arthur's serv-ices are unique. b. The owners of the Superdome will have to wait until after January 1 to sue for breach of contract. c. The owners of the Superdome are entitled to damages, but they are not entitled to specific performance. d. Because an adequate remedy at law is available here, a court would be unable to issue an injunction prohibiting Arthur from performing at Madison Square Garden on New Year's Eve if they gave him a better offer

C

2. Which of the following would not be an appropriate measure of monetary damages? a. Compensatory damages b. Consequential damages c. Unforeseeable damages d. Incidental damages

C

4. Acting in reliance on X's intentional misrepresentation as to a drill press's capabilities, Y purchases the press from X for $17,000. Although the value of the press, if it had performed as promised, would be $10,000, its actual delivered value is $4,000. Under the benefit-of-the-bar-gain rule, Y could recover: a. nothing. b. $3,000. c. $6,000. d. $7,000.

C

5. Through a clerical error, an annuity policy that should be paying $500 per month is actually paying $50 per month. Upon proper proof of the error, a court of equity might elect which of the following remedies? a. Specific performance b. An injunction c. Reformation d. Restitution

C

14. Sam Seller has a contract to provide 100 widgets to Bill Buyer at a price of $10 a widget. Delivery is to be on October 1. Due to unanticipated delays, Sam is unable to get the widgets to Bill until October 2. Bill is not harmed by the delay but sues anyway, because he is angry with Sam. a. Sam's failure to deliver the goods on October 1 is a violation of the Code's perfect tender rule, even if it is not a material breach. b. Bill cannot sue, because this is not a material breach. c. If Bill cannot establish any incidental or consequential damages as a result of the breach, he will only be able to recover nominal damages. d. Two of the above are correct, (a) and (c).

D

15. Michael pays $500 down on a new computer to be used in the office. The salesperson told him the computer has a 100,000 megabyte memory. Michael learns from other sources that this is blatantly untrue and realizes now that the salesperson induced him to enter into the contract based upon fraud in the inducement. The company refuses to return the down payment. If Michael sues, an appropriate remedy would be: a. injunction. b. punitive damages. c. nominal damages. d. rescission and restitution.

D

7. In which of the following instances is restitution available as a remedy for breach of contract? a. When one party totally fails to perform its obligations b. When a party may not enforce the contract because of the statute of frauds c. Upon the avoidance of a voidable contract d. All of the above `

D

8. A party with a power of avoidance may lose that power if: a. he affirms the contract. b. he delays unreasonably in exercising the power of disaffirmance. c. the rights of third parties intervene. d. all of the above.

D

9. CPA: Kaye contracted to sell Hodges a building for $310,000. The contract required Hodges to pay the entire amount at closing. Kaye refused to close the sale of the building. Hodges sued Kaye. To what relief is Hodges entitled? a. Punitive damages and compensatory damages b. Specific performance and compensatory damages c. Consequential damages or punitive damages d. Specific performance

D

2. Loss of value is the difference between the value of the promised performance of the breaching party and the value of the expected performance to the non-breaching party.

False It is the difference between the value of the promised performance of the breaching party and the value of the actual performance rendered by the breaching party

10. Specific performance may be ordered in a contract situation calling for personal services.

False courts of equity will not grant specific performance of contracts for personal services

12. Under the doctrine of election of remedies, the injured party's choice of one available remedy will bar the choice of an additional, consistent remedy

False if remedies are not inconsistent, a party injured by a breach of contract may seek more than one remedy

8. A contract term that sets the amount of damages to be paid in event of a breach of contract is enforceable even if it is not a reasonable forecast of the loss that would result from the breach.

False, must be foreseeable

Even if an unforeseeable, extraordinary loss results from a breach of contract, the injured party may still recover for any ordinary loss resulting from the breach.

True

election of remedies

if remedies are not inconsistent, a paty injured by a breach of contract may seek more than one remedy not with the code

4. What is restitution? Explain when it might be appropriate.

Restitution is the act of returning to the aggrieved party the consideration, or the value thereof if the actual consideration cannot be returned, which was given to the other party. Such an award would be available in several situations: (1) as an alternative remedy for a party injured by breach; (2) for a party in default; (3) for a party who may not enforce a contract because of a limitation; or (4) for a party wishing to rescind a voidable contract.

1. Briefly explain "election of remedies."

Should more than one remedy be available to an aggrieved party, his manifestation of a choice of one remedy, such as bringing suit, does not prevent him from seeking another unless the remedies are inconsistent and the other party materially changes her position in reliance on the manifestation

5. American Link, Inc. hires Jill for one year for $20,000 as an administrative assistant. American fires Jill without cause after one month, and she incurs $300 in fees to find comparable employment which will pay her $18,000 annually. How much and what types of damages, if any, may Jill recover from American?

The right to recover compensatory damages for breach of contract is always available to the injured party. Therefore, Jill may recover $2,000 to compensate her for her loss due to American's failure to perform. She may also recover $300 in incidental damages which are damages arising directly out of a breach of contract.

3. What are the two major types of equitable remedies? Discuss each type, including an explanation of when each is available.

The two major equitable remedies applicable to a breach of contract are the decree of specific performance and the injunction. A decree of specific performance orders a breaching party to render the performance promised under the contract. In contrast, an injunction is an order issued by a court commanding a person to refrain from doing a specific act or engaging in specified conduct. Generally, equitable remedies are available only where damages for a breach would be inadequate. A court will not decree specific performance of a contract for personal services. A court may issue an injunction against serving another employer as a means of enforcing an exclusive personal service contract if the probable result would not be to leave the employee without other reasonable means of making a living.

1. The primary purpose of contract remedies is to compensate the injured party for the loss resulting from the contract breach by attempting to provide an equivalent of the promised performance.

True

11. A court may grant an equitable remedy, even though the terms of the agreement prohibit such relief, if the court feels an injustice would otherwise occur.

True

14. Compensatory damages are only recoverable for damages that the party in breach had reason to foresee as a probable result of a breach when the contract was made.

True

3. Generally the breaching party will not be liable in damages for a loss that was not foreseeable at the time of entering into the contract.

True

4. Consequential damages include lost profits and property damage resulting from defective performance.

True

6. In most states, the measure of damages for misrepresentation depends upon whether the misrepresentation was fraudulent or nonfraudulent.

True

7. The Restatement provides that punitive damages are not recoverable for a breach of contract unless the breach also gives rise to a tort for which punitive damages are recoverable.

True

9. When a breach of contract occurs, the injured party has a duty to take steps to minimize the damages that may be sustained.

True

2. What is the doctrine of mitigation of damages? What will the effect be of the injured party's failure to take the appropriate steps?

Under the doctrine of mitigation of damages, the party injured by a breach of contract must take such steps as may be reasonably calculated to lessen the damages that he may sustain. Damages are not recoverable for losses that the injured party could have avoided without undue risk, burden, or humiliation.

nominal damages

a small sum awarded when a contract has been breached but the loss is neglible or unproved

Reliance damages

contract damages placing the injured part in as good as a position as he would have been in had the contract not been made

compenstory damages

contract damages placing the injured party in a position as good as the one he would have held had the other party performed; equals loss of value minus loss avoided by the injured party plus incidental damages plus consequential damages

specific performance

court decree ordering breaching party to render promised performance

injuncrion

court order prohibiting a party from doing a specific act

incidental damages

damages arising directly out of breach of contract

consequential damages

damages not arising directly out of breach of contract but as foreseeable result of the breach

out-of-pocket damages

difference between the value received and the value given

benefit-of-the-bargain damaged

difference between the value received and the value of the fradulent party's performance as represented (majority)

reformation

equitable remedy correcting a written contract to conform with the original intent of contracting parties

punitive damages

genrally not reciverable for breach of contract awarded in addition to compensatory damages to the plantiff in certain situations involving willful, wanton, or malicious conduct purpose is to punish the defendant

7. Foreseeable damages

loss that a party in a breach had reason to anticipate when the contract was made

6. Liquidated damages

reasonable damages agreed to in advanced by the parties of the contract

restituion

restoration of the injured party to the position he was in before the contract was made

Mitigation of damages

the injured party may not recover damages for loss he could have avoided by reasonable effort

13. The power of avoidance may be lost if the party having the power does not rescind within a reasonable time.

true