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Chapter 18
Breach of Contract 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
B1. If a party breaches a contract, the other party can choose one or more of several
remedies.
B2. Damages compensate a party for harm suffered as a result of another’s wrongful act.
B3. Most parties go to trial for damages or other remedies rather than settle their
lawsuits.
B4. The measurement of compensatory damages for breach of contract is the same for all
types of contracts.
214 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B5. Expenses that are caused directly by a breach of contract—such as those incurred to
obtain performance from another source—are incidental damages.
B6. The measure of damages on a breach of contract is the amount that will impress on
the breaching party the harm that has been done.
B7. 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.
B8. Ordinarily, the remedy for a seller’s breach of a contract for a sale of real estate is
specific performance.
B9. Consequential damages are foreseeable damages that arise from a party’s breach of a
contract.
B10. Punitive damages are almost never available in contract disputes.
B11. When a breach of contract occurs, the innocent injured party has a duty to mitigate
the damages.
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B12. Nominal damages normally establish that the defendant acted wrongly.
B13. A liquidated damages provision specifies that a certain amount is to be paid in the
event of a future default or breach of contract.
B14. Liquidated damages provisions are usually not enforceable.
B15. Rescission advances the contracting parties to the position they would have been in if
the contract had been fully executed.
B16. Restitution involves one party’s recapture of a benefit through which another party
has been unjustly enriched.
B17. Reformation allows a court to rewrite a contract to reflect the parties’ true intentions.
B18. A party seeking to recover in quasi contract must show that he or she has been
unjustly enriched.
216 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B19. A party who knowingly accepts defective performance of a contract thereby
acknowledges the breach and can take later action on it.
B20. Whether a contract’s limitation–of-liability clause will be enforced depends on the
type of breach that the clause excuses.
MULTIPLE CHOICE QUESTIONS
B1. 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
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.
B2. GroundCover Pools, Inc., agrees to build a swimming pool for Franci, but fails to
complete the job. Franci hires EquiAqua, Inc., to finish the project. Candy may recover
from GroundCover
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.
CHAPTER 18: BREACH OF CONTRACT AND REMEDIES 217
Fact Pattern 18-B1 (Questions B3–B4 apply)
Bella Homes enters into a contract to buy 132 acres from Watershed Holdings to subdivide
and sell in fifth-acre lots for Pristine Acres, a residential development.
B3. Refer to Fact Pattern 18-B1. 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.
B4. Refer to Fact Pattern 18-B1. 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.
B5. Cooper’s Brakes, Inc., enters into a contract with Byron’s Service to fix Cooper’s
hydraulic equipment. Byron delays the repair for five days, aware that Cooper loses a
certain percentage of profit each day. An award to Cooper of consequential damages
would
a. establish, as a matter of principle, that Byron acted wrongfully.
b. provide Cooper with funds for a foreseeable loss beyond the contract.
c. provide Cooper with funds for its loss of the bargain.
d. punish Byron and set an example to deter others from similar acts.
B6. 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
218 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
a. $13,000.
b. $10,000.
c. $3,000.
d. $0.
B7. Earl holds 1,000 pounds of perishable fruit in storage for Fresh Food Corporation.
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.
B8. Bret contracts to work for City Construction Corporation (CCC) during July for $4,500.
On June 30, CCC cancels the contract. Bret declines a similar job with Downtown
Builders, Inc., which would have paid $4,000. Bret files a suit against CCC. As
compensatory damages, Bret can recover
a. $4,500.
b. $4,000.
c. $500.
d. $0.
CHAPTER 18: BREACH OF CONTRACT AND REMEDIES 219
B9. 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.
B10. 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.
B11. 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.
220 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B12. 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.
B13. 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.
B14. 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.
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B15. For Petra to recover the benefit of her bargain from a breached real estate contract
with River City Properties, Inc., the most appropriate remedy is
a. damages.
b. quasi-contractual recovery.
c. rescission.
d. specific performance.
B16. 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.
B17. A contract for a sale of land from Evergreen Properties, Inc., to Longlife Investment
Corporation contains an erroneous legal description. The most appropriate remedy
for these parties is
a. quasi-contractual recovery.
b. reformation.
c. rescission.
d. specific performance.
222 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B18. 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.
B19. Value Ventures, Inc., contracts to buy Umbrage Corporation’s assets. Umbrage
breaches the contract. Value files a suit against the corporation, seeking various
remedies. The doctrine of election of remedies has been eliminated in contracts
involving sales of
a. goods.
b. intellectual property.
c. real property.
d. services.
B20. A contract between E-Debits, Inc., and Fiscal 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
B1. Quicksilver Delivery Service contracts to deliver Pete’s Pizza Parlor’s products to its
customers for $5,000, payable in advance. Pete’s pays the money, but Quicksilver fails
to perform. Can Pete’s rescind the contract? Can Pete’s also obtain restitution? What
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does it mean to “rescind” a contract? How is a contract rescinded? What is
restitution? How is restitution accomplished? Explain.
B2. 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?
224 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS