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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
A1. A breach of contract entitled the nonbreaching party to sue for monetary damages.
A2. Damages are designed to punish a breaching party and deter others from similar
conduct.
A3. Most parties settle their lawsuits for damages or other remedies prior to trial.
NAT: AACSB Analytic AICPA Legal
A4. The four broad types of damages in contract law are conciliatory, consecutive,
punctual, and nominative.
210 TEST BANK A: UNIT THREE: CONTRACTS AND E-CONTRACTS
A5. Compensatory damages are foreseeable damages that arise from a party’s breach of a
contract.
A6. Compensatory damages compensate an injured party for damages arising directly
from the loss of a bargain caused by a breach of contract.
A7. A party seeking to recover compensatory damages cannot also recover incidental
damages.
A8. The measure of damages for breach of a construction contract depends on which
party breaches and when.
A9. Ordinarily, the remedy for a seller’s breach of a contract for a sale of real estate is
damages.
A10. Special damages are awarded for damage caused by special circumstances beyond a
contract.
A11. Punitive damages are recoverable in contract law for an intentional breach of
contract.
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A12. A person’s actions may cause a breach of contract or a tort, but not both.
A13. The duty owed under the mitigation of damages doctrine depends on the nature of
the contract.
A14. A penalty provision specifies a certain amount to be paid in the event of a default or
breach of contract.
A15. The failure of one party to perform a contract entitles the other party to rescind it.
A16. Specific performance is the remedy customarily used when one party has breached a
contract for the sale of goods.
A17. The purpose of the doctrine of election of remedies is to permit double recovery.
A18. A party seeking to recover in quasi contract must show that there was an actual
contract or agreement between the parties.
212 TEST BANK A: UNIT THREE: CONTRACTS AND E-CONTRACTS
A19. A party who knowingly accepts defective performance of a contract waives the
breach.
A20. A contract may include a clause stating that no damages can be recovered for a
certain type of breach.
MULTIPLE CHOICE QUESTIONS
A1. 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.
A2. Consumer Credit Union pays Derby $10,000 to design an ad campaign. The next day,
Derby tells the credit union that he has accepted a job in Boston and cannot design
the campaign. As compensatory damages, the credit union can recover
a. $100,000.
b. $10,000.
c. $1,000.
d. $0.
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A3. Fidelio Corporation enters into a contract with Equi Insurance, Inc., to obtain health
insurance for Fidelio employees. Equi breaches the contract. If Fidelio is awarded
compensatory damages, the purpose would be to
a. establish, as a matter of principle, that Equi acted wrongfully.
b. provide Fidelio with funds for a foreseeable loss beyond the contract.
c. provide Fidelio with funds for its loss of the bargain.
d. punish Equi and set an example to deter others from similar acts.
A4. Development Associates (DA) agrees to buy five acres of land from Eastside Properties
for $15,000. Eastside fails to go through with the deal on the agreed date, when the
market price of the land is $17,000. DA may recover
a. $17,000.
b. $15,000.
c. $2,000.
d. $0.
A5. 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.
214 TEST BANK A: UNIT THREE: CONTRACTS AND E-CONTRACTS
A6. 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.
A7. Damon contracts to repair the turf on a soccer field for Carousel Sports Park. Damon
knows that without the repair, Carousel will have to cancel an upcoming game.
Damon does not perform as promised. As consequential damages, Carousel can
recover
a. the cost of new turf.
b. the difference between Damon’s price and the actual cost of repair.
c. the loss of profit from the canceled game.
d. nothing.
A8. Pure Oil Company enters into a contract with QuikBilt, Inc., to construct an offshore
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.
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A9. 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.
A10. 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.
b. consequential damages.
c. nominal damages.
d. punitive damages.
A11. Ray breaches his lease with Sunny Properties and vacates the premises six months
before the end of the term. In some states, Sunny would have to
a. avoid reletting the premises to recover damages from Ray.
b. make reasonable efforts to relet the premises to mitigate damages.
c. relet the premises to recover damages from Ray.
d. sell the premises to recover damages from Ray.
216 TEST BANK A: UNIT THREE: CONTRACTS AND E-CONTRACTS
A12. SFX Paintball Games, Inc., and Truck & Trailer Delivery Corporation 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.
A13. 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.
A14. Karif orally agrees to buy a unique collection of sports memorabilia for $1,000 from
Jane and sends her $250 as a down payment. When Karif sends her the rest of the
price, Jane refuses to ship the collection. Karif should seek
a. damages.
b. reformation.
c. rescission.
d. specific performance.
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A15. Lester and Myrtle want to rescind their contract under which Lester sold an MP3
player for $40. To rescind the contract
a. Lester must return the $40 and Myrtle must return the player.
b. Lester must return the $40 only.
c. Myrtle must return the player only.
d. the parties can keep the “benefits” of their bargain.
A16. 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.
A17. 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.
218 TEST BANK A: UNIT THREE: CONTRACTS AND E-CONTRACTS
A18. Vacation Vistas, Inc., agrees to sell certain acreage to Umiko, who intends to develop
a destination resort. Vacation Vistas repudiates the deal. Umiko sues Vacation Vistas
and recovers damages. She can now obtain
a. an amount in a quasi-contractual recovery.
b. damages representing restitution.
c. specific performance of the deal.
d. nothing more.
A19. 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.
A20. To avoid liability for intentional injuries, Northwest Power Corporation includes in its
contracts an exculpatory clause. This is
a. enforceable if the other parties are protected from liability.
b. enforceable if the other parties consent to it.
c. enforceable if the other parties have equal bargaining power.
d. not enforceable.
ESSAY QUESTIONS
A1. 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
CHAPTER 18: BREACH OF CONTRACT AND REMEDIES 219
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?
A2. Owen buys a used Prius from Quality Motors, Inc., paying $1,000 down and agreeing
to pay off the balance in thirty-six monthly payments of $200 each. The terms of the
agreement call for Owen to make a payment on or before the first of each month,
beginning March 1. During the first six months, Quality receives a $200 payment
before the first of each month. Starting in September, however, and continuing for
the subsequent five months, Owen’s payment is never made until the fifth of the
month. Quality accepts and cashes the payment check each time. Before the next
payment is due, Quality decides that it is no longer willing to accept late payments.
Can Quality sue Owen immediately for breach? Can Owen continue to make late
payments without liability? Explain.
220 TEST BANK A: UNIT THREE: CONTRACTS AND E-CONTRACTS