Chapter 15
Breach and Remedies
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. A remedy is the relief provided to an innocent contracting party when the other
party breaches the contract.
2. If a party breaches a contract, the other party can choose one or more of several
remedies.
3. The measurement of compensatory damages for breach of contract is the same for
all types of contracts.
4. A breach of contract entitles the nonbreaching party to sue for monetary damages.
5. Compensatory damages compensate an injured party for damages arising from the
loss of a bargain caused by a breach of contract.
6. A party seeking to recover compensatory damages cannot also recover incidental
damages.
7. Expenses that are caused directly by a breach of contract—such as those in-
curred to obtain performance from another source—are compensatory dam-
ages.
8. Compensatory damages compensate the injured party for injuries sustained
due to loss of the contract and also punish the party that breached the contract.
9. The injury suffered by a nonbreaching party due to the breach of a contract
may be remedied by payment of compensatory damages.
10. In a contract for a sale of goods, the usual measure of compensatory damages
is the difference between the contract price and the market price.
11. Ordinarily, the remedy for a seller’s breach of a contract for a sale of real estate is
damages.
CHAPTER 15: BREACH AND REMEDIES 3
12. The measure of damages for the breach of a contract for a sale of land de–
pends on which party breaches and when.
13. The measure of damages for breach of a construction contract depends on
which party breaches and when.
14. Special damages are awarded for damage caused by special circumstances beyond
a contract.
15. Consequential damages are awarded to cover all of the remote consequences
of whatever injury a nonbreaching party suffers.
16. Punitive damages are recoverable in contract law for an intentional breach of
contract.
17. Consequential damages are foreseeable damages that arise from a party’s
breach of a contract.
18. Punitive damages are generally available in contract disputes.
19. Normally, when a nonbreaching party has been damaged by a breach of
contract, he or she does not have a duty to mitigate those damages.
20. The duty owed under the mitigation of damages doctrine depends on the nature of
the contract.
21. When a breach of contract occurs, the innocent injured party has a duty to mitigate
the damages.
22. A liquidated damages provision specifies that a certain amount to be paid in the
event of a future default or breach of contract.
23. Liquidated damages provisions are usually not enforceable.
24. A penalty provision specifies a certain amount to be paid in the event of a default or
breach of contract.
25. A liquidated damages provision is the same as a penalty provision.
26. To rescind a contract, each party essentially advances to the position he or she
would have been in if the contract had been fully executed.
27. Restitution involves one party’s recapture of a benefit through which another
party has been unjustly enriched.
28. Specific performance is an equitable remedy requiring exactly the performance
that was specified in a contract.
29. The failure of one party to perform a contract entitles the other party to rescind it.
30. Quasi contract allows a court to act as if a contract exists when there is no
contract.
31. A party seeking to recover in quasi contract must show that he or she has been
unjustly enriched.
32. A party seeking to recover in quasi contract must show that there was an actual
contract or agreement between the parties.
33. A contract may include a clause stating that no damages can be recovered for
a certain type of breach.
34. Whether a contract’s limitation–of-liability clause will be enforced depends on
the type of breach that the clause excuses.
35. A contract can include a provision stating that no damages can be recovered
for certain types of breaches.
MULTIPLE CHOICE QUESTIONS
1. Hybrid Corporation enters into a contract with Insure Service, Inc. (ISI), to
obtain health insurance for Hybrid employees. If ISI breaches the contract and
Hybrid is awarded compensatory damages, the purpose would be to
a. establish, as a matter of principle, that ISI acted wrongfully.
b. provide Hybrid with funds for a foreseeable loss beyond the contract.
c. provide Hybrid with funds for its loss of the bargain.
d. punish ISI and set an example to deter others from similar acts.
2. Clarice pays Damien $10,000 to design an ad campaign for her Sweetwater
Coffee Stand chain. The next day, Damien tells Clarice that he has accepted a
job in New York and cannot design her campaign. She files a suit against
Damien. As compensatory damages, she can recover
a. $100,000.
b. $10,000.
c. $1,000.
d. $0.
3. Handy Hardware Store agrees to hire Ilsa for one year at a salary of $500 per
week. When Handy cancels the contract, Ilsa spends $100 to obtain a similar
job that pays $450 per week for a year. Ilsa is entitled to recover
CHAPTER 15: BREACH AND REMEDIES 7
a. the amount of the wages that Handy promised only.
b. the difference between the wages at the two jobs only.
c. the difference between the wages at the two jobs plus $100.
d. $100 only.
4. Kris contracts to work exclusively for Little Manufacturing Company during May
for $5,000. On April 30, Little cancels the contract. Kris finds another job during
May but earns only $3,000. Kris files a suit against Little. As compensatory
damages, Kris can recover
a. $3,000.
b. $2,000.
c. $1,000.
d. $0.
5. Even-Flo Hydraulics enters into a contract to repair valves and fittings in Fiesta
Company’s plant. If Even-Flo breaches the contract, Fiesta can
a. do nothing but make a deal with .a different service provider.
b. do nothing but temporarily suspend operations and wait.
c. file a criminal complaint against Even-Flo.
d. sue Even-Flo for damages.
6. Dondi contracts to buy a custom espresso maker from Caffee Specialties, Inc., for
$4,500, but Caffee fails to deliver. Dondi buys the appliance elsewhere for $5,500.
Dondi’s measure of damages is
a. $1,000.
b. $1,000 plus incidental damages.
c. incidental damages only.
d. $0.
7. Lava Excavators, Inc., needs a drill to continue its operations and orders one
for $3,000 from Mining Supplies Company. Lava tells Mining that it must
receive the drill by Tuesday or it will lose $10,000. Mining ships the drill late.
Lava can recover
a. $13,000.
b. $10,000.
c. $3,000.
d. $0.
8. Rite Contractors, Inc., agrees to build a motel for Sleep Inn Corporation. The
project proceeds according to plan, but before it is done, Sleep tells Rite to quit.
Rite may recover
a. the contract price less costs of materials and labor.
b. the contract price.
c. the costs needed to complete construction.
d. profits plus the costs incurred up to the time of the breach.
9. Beachside Pools, Inc., agrees to build a swimming pool for Candy, but fails to
build it according to the contract specifications. Candy hires Do-We Fix-It
Company to finish the project. Candy may recover from Beachside
a. the contract price less costs of materials and labor.
b. the contract price.
c. the costs needed to complete construction.
d. profits plus the costs incurred up to the time of the breach.
10. Dobry Die & Mold, Inc., enters into a contract with Chet’s Refitting Service to fix
Dobry’s precisely engineered molding equipment. If Chet’s delays the repair for
five days, knowing that Dobry will lose a certain percentage of profit for the
delay, Dobry might be awarded consequential damages to
a. establish, as a matter of principle, that Chet’s acted wrongfully.
b. provide Dobry with funds for a foreseeable loss beyond the contract.
c. provide Dobry with funds for its loss of the bargain.
d. punish Chet’s and set an example to deter others from similar acts.
11. Cooper’s Brakes, Inc., enters into a contract with Byron’s Service to fix Cooper’s
hydraulic equipment. Byron delays the repair for three days, but is not aware that
Cooper loses a certain percentage of profit each day the equipment is out of service.
Cooper is most likely to be awarded
a. compensatory damages.
b. nominal damages.
c. punitive damages.
d. no damages.
12. Clutch Auto Parts enters into a contract with Bio Health Club for discounted
memberships for Clutch’s employees. Bio breaches the contract and Clutch enters
into a contract with Apex Fitness for the same service at a lower price. Clutch might
be awarded nominal damages to
a. establish, as a matter of principle, that Bio acted wrongfully.
b. provide Clutch with funds for a foreseeable loss beyond the contract.
c. provide Clutch with funds for its loss of the bargain.
d. punish Bio and set an example to deter others from similar acts.
13. Pure Oil Company enters into a contract with QuikBilt, Inc., to construct an oil
pipeline to withstand specific conditions. If QuikBilt fails to meet this standard,
which is construed as a breach of contract and a breach of a duty of care, Pure
might be awarded punitive damages to
a. establish, as a matter of principle, that QuikBilt acted wrongfully.
b. provide Pure with funds for a foreseeable loss beyond the contract.
c. provide Pure with funds for its loss of the bargain.
d. punish QuikBilt and deter others from similar acts.
14. Office Accounting, Inc., hires Perry to repair a computer on site for $400, but
Perry does not show up as agreed. Office Accounting hires Raul to do the job
for $350. Office Accounting may recover from Perry
a. compensatory damages.
CHAPTER 15: BREACH AND REMEDIES 11
b. consequential damages.
c. nominal damages.
d. punitive damages.
15. Windstar Heli-Pads, Inc., enters into a contract to employ Valerie as an on-site
project manager for two years. Windstar breaches the contract. Valerie has a duty to
a. do nothing.
b. reduce the damages that Valerie might otherwise suffer.
c. breach the contract with Windstar.
d. sue Windstar to deter others from similar acts.
16. Fashion Retail Center enters into a contract with Great Promotions, Inc., to
provide Fashion with a plan to retool its merchandising strategy. If Great
Promotions breaches the contract, Fashion has a duty to
a. reduce the damages that Fashion might otherwise suffer.
b. reduce the loss that Great Promotions might otherwise suffer.
c. punish Great Promotions and deter others from similar acts.
d. take no action.
17. Earl holds 1,000 pounds of perishable fruit in storage for Fresh Food Corpo–
ration. Fresh Food does not pay for the storage. Earl sells the fruit to Green
Grocers, Inc. This sale represents
a. a breach of contract.
b. a mitigation of damages.
c. rescission and restitution.
d. specific performance.
18. Rig Heli-Pads, Inc., enters into a contract to employ Scott as an on-site project
manager for two years. If Rig breaches the contract, Scott has a duty to
a. do nothing.
b. reduce the damages that Scott might otherwise suffer.
c. rescind the contract with Rig.
d. punish Rig and set an example to deter others from similar acts.
19. Home Delivery Corporation and Interstate Transport, Inc., sign an agreement
that provides for the payment of “$1,000 by whichever party commits a material
breach of the contract that creates damages difficult to estimate but
approximately $1,000.” This is
a. a liquidated damages clause.
b. a mitigation of damages clause.
c. a nominal damages clause.
d. a penalty clause.
20. SealCoat Paving enters into a contract with Royal Golf & Tennis Club to provide
surface material for Royal’s tennis courts by April 1 for a tournament to begin May 1.
The contract specifies an amount to be paid if the contract is breached. This is a
liquidated damages clause if the amount is
a. meant to pay for additional liquid sealant in the event of damage.
b. a reasonable estimate of the loss on a breach.
c. designed to penalize the breaching party.
d. intended to quickly provide cash to the nonbreaching party.
21. Drew contracts to sell a residential duplex to Evan. The contract provides that if
Drew does not close the deal by September 15, he must pay Evan one-half of
the contract price. This provision is not enforceable because it is
a. a liquidated damages clause.
b. a mitigation clause.
c. a nominal damages clause.
d. a penalty clause.
22. Rural Utility, Inc., enters into a contract with Shovel Excavation Service to dig
up, replace, and rebury Rural’s cables in a certain location. Rural advances
Shovel 10 percent of its cost. If the parties rescind the contract, Shovel’s refund
of the payment would be
a. a penalty.
b. liquidated damages.
c. restitution.
d. specific performance.
23. Sonny agrees to buy a unique collection of Olympics memorabilia for $7,000
from Jana and sends $1,500 as a down payment. When Sonny sends Jana the
rest of the price, she refuses to ship the collection. Sonny should seek
a. a penalty.
b. liquidated damages.
14 UNIT TWO: CONTRACTS
c. restitution.
d. specific performance.
24. Rural Power Utility, Inc., enters into a contract with Shovel Excavation Service to dig
up, replace, and rebury Rural’s cables in a certain location. Rural advances Shovel
10 percent of its cost. The parties rescind the contract. Shovel’s refund of the
payment is
a. a penalty.
b. liquidated damages.
c. restitution.
d. a breach of contract.
Fact Pattern 15-1 (Questions 25–26 apply)
Bella Homes enters into a contract to buy 132 acres from Watershed Holdings to subdivide
and sell in fifth-acre lots for Pristine Meadow, a residential development.
25. Refer to Fact Pattern 15–1. If Bella breaches the contract, Watershed’s remedy
would most likely be
a. a certain ratio of the amount that Bella has in liquidated funds.
b. a percentage of Bella’s unrealized profit.
c. the difference between the land’s contract and market prices.
d. specific performance.
26. Refer to Fact Pattern 15–1. If Watershed breaches the contract, Bella’s remedy
would most likely be
a. a certain ratio of the amount that Watershed has in liquidated funds.
b. a percentage of Watershed’s unrealized profit.
c. the difference between the land’s contract and market prices.
d. specific performance.
27. Ralph contracts to sell his Double-R Ranch to Samantha on May 1. On April 20,
Ralph tells Samantha that he will not go through with the deal. Samantha can
recover
a. the cost of any property that Samantha would find suitable.
b. the cost of a similar, nearby ranch.
c. the Double-R Ranch.
d. nothing.
28. Lou and Mira want to rescind their contract under which Lou sold an MP3
player to Mira for $50. To rescind the contract
a. Lou must return the $50 and Mira must return the player.
b. Lou must return the $50 only.
c. Mira must return the player only.
d. the parties can keep the “benefits” of their bargain.
29. Grady enters into a contract to buy 440 acres from Hollis to expand Grady’s ranch.
Hollis breaches the contract. Grady’s normal remedy is
a. damages.
b. reformation.
c. rescission.
d. specific performance.
30. Tristan hires Stefani to perform at Tristan’s Club, but she breaches the agreement to
accept a higher-paying job at Rock Star Arena. Tristan files a suit against her. The
court will most likely
a. award damages to Tristan.
b. cancel Stefani and Rock Star’s contract.
c. order Stefani to perform the contract.
d. reform Tristan and Stefani’s contract.
31. Refined Commodities, Inc., agrees to deliver ten tons of sheet metal to Select
Builders Corporation. The agreement states that delivery is to be within “3”
days, although the parties intend “30” days. Refined cannot convince Select to
amend the contract. Refined should seek
a. damages.
b. reformation.
c. rescission.
d. specific performance.
32. Karson orally agrees to pay Jaime to plant and harvest a quarter of Karson’s
farm acreage for four corn-planting seasons. After Jaime prepares the land and
plants the first crop, Karson says that their deal is off. Jaime can most likely
recover
a. in quasi contract.
b. in reformation.
c. in restitution.
d. on the parties’ existing contract.
33. Mitchell orally agrees to pay Lorena to plant and harvest a quarter of Mitchell’s farm
acreage for four soybean seasons. After Lorena prepares the land and plants the
first crop, Mitchell says that their deal is off. Lorena can most likely recover
a. in quasi contract.
b. nothing.
c. in restitution.
d. on the parties’ existing contract.
34. Clear Creek Corporation enters into a contract with Brightside Management
Associates to manage and maintain Clear Creek’s apartment complex. Their
contract provides that neither party can recover damages for a non-fraudulent or
unintentional breach. This is
a. a limitation-of-liability clause.
b. an exculpatory clause.
c. a liquidated damages clause.
d. a quasi contract.
35. A contract between E-Debits, Inc., and First Credit Corporation includes a
provision excluding liability as a result of fraud. This provision is
a. enforceable because the parties are protected from liability.
b. enforceable because the parties consented to it.
c. enforceable if the parties have equal bargaining power.
d. not enforceable.
ESSAY QUESTIONS
1. National Drilling Company ships its only pump to American Hydraulics
Corporation, the manufacturer, for repair. National hires Overland Transport,
Inc., to take the pump to American Hydraulics and to return it to National as
soon as the repair is complete. National is forced to suspend operations
without a pump, but Overland does not know this. National expects to be
without the pump for five days and to lose profits of $5,000. When the pump is
not returned by the end of the fifth day, National rents a pump at a cost of $100
per day. Overland delays five more days before returning the pump. National
files a suit against Overland, asking for compensatory, consequential, and
punitive damages. Will National recover?
2. General Equity Corporation enters into a contract with Honi, who agrees to
create artwork for General’s main office building. Honi delays and eventually
refuses to perform. Meanwhile, General contracts to sell the building to Ideal
Investments, Inc., but before the transaction is complete, Jewel Funds
Company offers to pay a higher price. General refuses to transfer the building
to Ideal. In separate suits by General against Honi and by Ideal against
General, each plaintiff seeks specific performance. How might the court rule in
each case, and why?