Chapter 10 Questions

Dion contracts to build a store for Ella for 500k, with payments to be in installments of 50k as the work progresses. Dion finishes the store except for a cover over a compressor on the roof. A cover can be installed for $500. Ella refuses to pay the last installment. If Dion's breach is not material a. both parties have claims against each other b. Dion has a claim against Ella for 50k, but Ella has no claim against Dion c. Ella has a claim against Dion for the failure to cover the compressor, but Dion has no claim against Ella d. neither party has a claim against the other

A. A breach of contract entitles the non-breaching party to damages, but only a material breach discharges the nonbreaching party from his or her duty to perform under the contract. In this problem, the builder has a claim for the amount due on the contract, but the buyer is entitled to have set off the difference of the value of the building as constructed (that is, to subtract the expense to finish the construction)

Olivia contracts with Pinky to buy the credenza for 1.5k. Olivia tells Pinky that if the goods are not delivered on Monday, she will lose 2k in business. Pinky ships the credenza late. Olivia can recover: a. 3.5k b. 2k c. 1.5k d. nothing

B. On the seller's breach of contract, the buyer is entitled to be compensated for the loss of the bargain. Here, the buyer will receive what was contracted for, but it will be late. When, as in this problem a seller knew that the buyer would lose business if the goods were not delivered on time, the loss of the bargain is the consequential damages (the amount lost as a foreseeable consequence of the breach).

Carlotta contracts with Darlene to act as her personal finance planner. Carlotta's duties under this contract will be discharged if a. Darlene declares bankrupcy b. it becomes illegal for Eve to provide the service c. the cost of providing the service doubles d. none of the choices

B. This contract would thus be discharged by objective impossibility of performance. On tis basis, a contract may be discharged if, for example, after it is made, performance becomes objectively impossible because of a change in the law that renders that performance illegal. This is also the result if one of the parties dies or becomes incapacitated, or the subject matter of the contract is destroyed.

Cavendish contracts to deliver Bagels & More's products to its customers for 1.5k, payable in advance. Bagels pays the money, but Cavendish fails to perform. Bagels can a. obtain restitution of the 1k but not rescind the contract b. recover nothing nor rescind the contract c. rescind the contract and obtain restitution of 1k d. rescind the contract only

C. A breach of contract by failure to perform entitles the nonbreaching party to rescind the contract, and the parties must make restitution by returning whatever benefit they conferred on each other, particularly when the breaching party would otherwise be unjustly enriched.

Finnegan and Ewan want Dribble to replace Finnegan as a party to their contract. They can best accomplish this by agreeing to a: a. accord and satisfaction b. an assignment c. a novation d. a nullification

C. A novation substitutes a new party for an original party, by agreement of all the parties. The requirements are a previous valid obligation, an agreement of all the parties to a new contract, extinguishment of the old obligation, and a new contract (which must meet the requirements for a valid contract, including consideration).

Billie agrees to sell an acre of land to Cliburn for 5k. Billie fails to go through with the deal, when the market price of the land is 7k. If Cliburn cannot obtain the land through specific performance, he may recover a. 7k b. 5k c. 2k d. nothing

C. Specific performance is an award of the act promised in a contract. This remedy is granted when the legal remedy (damages) is inadequate. Damages are generally inadequate for a buyer on the breach of a contract for a sale of land, because every piece of land is considered unique. If specific performance is not available, however, as when the land cannot be sold by the contracting seller, damages are possible mad their measure is the benefit of the buyer's bargain (the difference between the contract price and the market price of the land at the time of the breach)

Soda Fountain Supplies Corporation contracts to sell to Tasty Malts, Inc, six steel mixers for 5k. When Soda Fountain fails to deliver, Tasty Malts buys mixers from Dairy Appliance Company for 6.5k. Tasty Malts measure of damages is: a. 6.5k b. 5k c. 1.5k plus incident al damages d. nothing

C. Under a contract for sale of goods, the usual measure of compensatory damages is the difference between the contract price and the market price, plus incidental damages. On a seller's breach, the measure includes the difference between what the seller would have been owed if he or she had performed and what the buyer paid elsewhere for the goods.

Town Delivery Service contracts with Pizza! Pie! to deliver its goods to customers. This contract will, like most contracts, be discharged by a. accord and satisfaction b. agreement c. operation of law d. performance

D. Accord and satisfaction, agreement, and operation of law are valid bases on which contracts are discharged, but most contracts are discharged by the parties doing what they promised to do. A contract is fully discharged by performance when the contracting parties have fully performed that they agreed to go (exchange services for payment for example.)

Ric and Skye contract for the sale of Ric's business. Skye makes a down payment, and Ric gives her the keys to one of his stores. Before the contract is fully performed, however, they agree to return the money and the keys, and cancel the sale, this is: a. material breach b. an accord and satisfaction c. a novation d. a rescission

D. Contracts that have not been fully performed on either side can be rescinded. The parties must make another agreement (which must satisfy the legal requirements for a contract) the parties' promises not to perform are consideration for the new agreement. A contract that has been fully performed on one side can be rescinded only if the party who has performed receives additional consideration to call off the deal.

Doctors Hospital Inc, contracts with E-Services Company to maintain Doctor's computers. Their contract provides that E-Services will pay Doctors $500 for each day that E-Services is late in responding to a service request. If Doctors sues to enforces this clause, Doctors will a. lose, because the clause is a liquidated damages clause, which violates public policy b. lose, unless the clause is determined to be a penalty c. win, because the clause is a liquidated damages clause, which is always enforceable d. win, unless the clause is determined to be a penalty

D. If the clause if determined t be a penalty clause, ti will be unenforceable. To determine whether a clause is a liquidated damages clause or a penalty clause, consider first whether, when the contract was made, damages would clearly be difficult to estimate in the event of a breach. Second, consider whether the amount set as damages seems reasonable. Two 'yeses' means the clause is enforceable. One 'no' means the provision is an unenforceable penalty.

T/F A material breach of contract does not excuse the non-breaching party from further performances

F. A material breach of contract (which occurs when performance is not at least substantial) excuses the nonbreaching party from performance of his or her contractual duties and gives the party a cause of action to sue for damages caused by the breach. A minor breach of contract however, does not excuse the nonbreaching party's duty to perform, however, although it may affect the extent of his or her performance, and like any contract breach, allows the nonbreaching party to sue for damages.

T/F An executory contract cannot be rescinded

F. An executory contract can be rescinded. If it is executory on both sides, it can be rescinded solely by agreement. In any case, the parties must make a new agreement, and this agreement must qualify as a contract. (The parties promises not to perform are consideration for the new contract)

T/F Specific performance is the usual remedy when one party has breached a contract for a sale of goods

F. Damages is the usual on breach of contracts for sales of goods. To obtain specific performance damages must not be an adequate remedy. If goods are unique, or a contract involves a sale of land, damages would not adequately compensate an innocent party for a breach of contract, so specific performance is available.

T/F Liquidated damages are uncertain in amount

F. Liquidated damages are certain amounts of money estimated in advance of, and payable on, a breach of contract. Liquidated means determined, settled, or fixed.

T/F Complete performance occurs when a contract's conditions fully occur.

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T/F Consequential damages are forseeable damages that arise from a party's breach of a contract

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T/F Damages are designed to compensate a nonbreaching party for the loss of a bargain

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T/F If a contract does not require a certain time for performance, a reasonable time will be implied

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T/F Objective impossibility discharges a contract

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T/F On a breach of contract, a nonbreaching party has a duty to mitigate damages that he or she suffers

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