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Chapter 10
Contract Performance,
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 material fact is a fact that a reasonable person would consider important
when determining his or her course of action.
2. Voluntary consent may be lacking because of misrepresentation but not
because of a mistake.
3. Words or terms in contracts that are subject to more than one reasonable
interpretation can lead to bilateral mistakes.
4. Any party who does not receive what he or she considers a fair bargain can
argue mistake.
5. An innocent party does not need to suffer an injury to collect damages as a
result of a misrepresentation.
6. Duress is a defense to the enforcement of a contract, but not a ground for
rescission of a contract.
7. When the dominant party in a fiduciary relationship benefits from that
relationship, a presumption of undue influence arises.
8. When a party’s performance is perfect, it is said to be complete.
9. A party who in good faith performs substantially all of the terms of a contract
can enforce the contract against the other party.
10. Most contracts need to be performed only to the satisfaction of a reasonable
person unless they expressly state otherwise.
11. Any breach entitles the nonbreaching party to sue for damages.
12. The law allows an innocent party to be discharged when the other party has
materially altered a written contract without consent.
13. An occurrence or event that makes performance temporarily impossible
operates to discharge the parties’ contractual duties.
14. A contract will be discharged if supervening circumstances make it impossible
to attain the purpose both parties had in mind when they made the contract.
15. Damages that compensate the nonbreaching party for the loss of a bargain are
known as consequential damages.
16. Compensatory damages compensate a party injured by a breach of contract by
punishing the party that breached the contract.
17. A party seeking to recover compensatory damages cannot also recover in-
cidental damages.
18. Rescission is an equitable remedy used when the parties have imperfectly
expressed their agreement in writing.
19. Ordinarily, a waiver by a contracting party will not operate to waive subsequent,
additional, or future breaches of contract.
20. Whether a contract’s limitation-of-liability clause will be enforced depends on
the type of breach that is excused by the provision.
MULTIPLE CHOICE QUESTIONS
1. Nora enters into a contract with Oceanic Transport, Inc., to insure and ship a
painting from France to the United States for a certain price. But Oceanic
makes a mistake in adding the costs, which results in a contract price that is
$1,000 less than the true cost. Most likely, a court would
a. allow the parties to rescind the contract.
b. award damages to Nora for the mistake.
c. award damages to Oceanic for the mistake.
d. enforce the contract as is.
2. Garth owns two all-terrain vehicles (ATVs), worth $1,000 and $500, respec-
tively. Helen agrees to buy “Garth’s ATV” for $750. Garth believes, in good
faith, that he is selling the $500 ATV. Helen believes, in good faith, that she is
buying the $1,000 ATV. In this situation
a. Garth is entitled to $750 for the $500 ATV.
b. Helen is entitled to the $1,000 ATV for $750.
c. Helen must buy both ATVs for $1,500.
d. there is no contract.
3. At an auction for the first time, Dulcinea bids on a one-hundred-year-old
Edison-brand phonograph, believing that it is worth more than the price asked.
When the item proves to be less valuable, Dulcinea is
a. liable on the bid.
b. not liable on the bid because Dulcinea overestimated the value of the
auctioned item.
c. not liable on the bid because the auctioneer overstated the value of the
auctioned item.
d. not liable on the bid because this was Dulcinea’s first auction.
4. Byron agrees to sell to Charity, for $1,500, a remote parcel of land. They be-
lieve the land to be worthless, but beneath it is a gold mine. Byron can
a. not rescind the contract.
b. rescind the contract on the basis of fraud.
c. rescind the contract on the basis of mistake.
d. rescind the contract on the basis of undue influence.
5. Kari, a real estate agent, assures Linc that a certain parcel of commercial
property fronts on the most highly trafficked street in Metro City. Linc buys the
property and then discovers that the street has no more traffic than any other in
its vicinity. Linc is most likely a victim of
a. opinion.
b. fraud.
c. mistake.
d. nothing.
6. Mona is induced by her guardian Newt to sign a contract to invest her student
loan funds in Overseas Bank through Newt’s investment firm. Unknown to
Mona, Newt realizes ongoing commissions from the investment. Most likely,
Mona may
a. not rescind the contract.
b. rescind the contract on the basis of undue influence.
c. rescind the contract on the basis of mistake.
d. rescind the contract on the basis of unconscionability.
7. Drake enters into a contract with Eve, who claims to have access to a stock-
trading algorithm that will multiply an investment many times over. When the
results do not match this promise, Drake learns that Eve does not have access
to any unique software and files a suit against her, alleging fraud. Proof of an
injury is required to
a. recover damages.
b. rescind the contract.
c. undo Eve’s influence.
d. punish the defendant.
8. Seth offers to buy a house from Tia for less than Tia paid for it, stating that he
would “hate to see anything bad happen to Tia or her house.” Tia agrees to
sell. Regarding this agreement, a court would likely
CHAPTER 10: CONTRACT PERFORMANCE, BREACH, AND REMEDIES 7
a. enforce it.
b. not enforce it.
c. reform it to reflect the true market value of the property.
d. order the parties to renegotiate the price.
9. Dharma enters into a contract to manage the operations of Esther’s dental
office for one year, renewable for subsequent one-year terms. If this contract is
discharged like most contracts, it will be
a. canceled.
b. breached.
c. altered.
d. performed.
10. Herb’s Hot Dog Vending, Inc., enters into a contract to pay Idris for a business
survey and review of Herb’s competitors, which Idris delivers on August 1.
Herb’s offer, on the same date, to pay Idris is
a. a concurrent condition.
b. a novation.
c. tender.
d. mutual rescission.
11. Ed’s Electric substantially performs its contract with Forest Hills Apartments,
Inc., to deliver and install an alarm system and parking lot lighting. Forest Hills
is entitled to
a. damages.
b. nothing more.
c. to be excused from performance.
d. suspend performance.
12. Even-Bilt Construction contracts to build a warehouse for Discount E-Sales
Company. Even-Bilt completely performs. Discount E-Sales is entitled to
a. damages.
b. nothing more.
c. to be excused from performance.
d. suspend performance.
13. Business Computer Solutions Education Service enters into a contract to
employ Chandra as an instructor for two years to begin June 1. One month
before the term begins, Business Computer is underbid by a competitor and
loses a major client, Debt Consolidation Corporation. Business Computer now
refuses to hire Chandra. Business Computer’s repudiation of its contract to
employ Chandra is most likely
a. a material breach.
b. a minor breach.
c. a condition subsequent.
d. not a breach.
14. Drainage & Irrigation Equipment, Inc., contracts to sell its assets to Earth & Sky
Aquatic Corporation. Before either party has performed, rescission of this con-
tract requires
a. a mutual agreement to rescind.
b. an accord and satisfaction.
c. a novation.
d. a settlement agreement.
15. Gliding Light, LLC, and Hang Gliders, Inc., are parties to a contract. They
subsequently agree that High Riders Inc. should take Gliding Light’s place and
assume all of its rights and duties under the contract. This is
a. a mutual agreement to rescind.
b. an accord and satisfaction.
c. a novation.
d. a settlement agreement.
16. Ambrose enters into a contract to buy 350 acres from Belle Vista Farms to
cultivate grapes and open a winery. If Ambrose breaches the contract, Belle
Vista’s remedy would most likely be
a. a certain ratio of the amount that Ambrose expected to invest in the
project.
b. a percentage of Ambrose’s unrealized profit.
c. the difference between the land’s contract and market prices.
d. specific performance.
17. Dry Gulch Farms hires Elliot to repair its irrigation system on site on a certain
date for $2,500, but Elliot does not show up as agreed. Dry Gulch hires
Fernando to do the job for $2,000. Dry Gulch may recover from Elliot
a. nothing.
b. compensatory damages.
c. consequential damages.
d. nominal damages.
18. Rashi contracts to work for Social Data Analysis Corporation during June for
$4,500. On May 31, Social Data cancels the contract. Rashi declines a job of a
different type and rank with Tech Collection, Inc., which would have paid
$3500. Rashi files a suit against Social Data. As compensatory damages,
Rashi can recover
a. $4,500.
b. $4,000.
c. $500.
d. $0.
19. Metro Facilities, Inc., contracts to sell a parking garage to Nouveau Property
Company. The contract provides that if Metro does not close the deal by
September 15, it must pay Nouveau one-half of the contract price. This
provision is not enforceable because it is
a. a liquidated damages clause.
b. a waiver of breach clause.
c. a limitation-of-liability clause.
d. a penalty clause.
20. Nonny agrees to buy a unique collection of Olympics memorabilia for $7,000
from Piper and sends $1,500 as a down payment. When Nonny sends Piper
the rest of the price, she refuses to ship the collection. Nonny should seek
CHAPTER 10: CONTRACT PERFORMANCE, BREACH, AND REMEDIES 11
a. damages.
b. quasi-contractual recovery.
c. rescission.
d. specific performance.
ESSAY QUESTIONS
1. Lunch Trucks, Inc., contracts to deliver and serve Meals Catering Service’s
products to its clients for $5,000 per event, payable in advance. Meals Catering
pays the money, but Lunch Trucks fails to perform. Can Meals Catering rescind
the contract? Can Meals Catering also obtain restitution? What does it mean to
“rescind” a contract? How is a contract rescinded? What is restitution? How is
restitution accomplished? Explain.
2. Medical Eye Clinic Corporation enters into a contract with local musician
Natalie, who agrees to perform for a meeting of Medical Eye’s personnel to be
held in its main office building. Before the date of the meeting, Natalie refuses
to perform, citing a higher-paying gig. Meanwhile, Medical Eye contracts to sell
the building to Optical Center, Inc., but before the transaction is complete,
Perfect Vision Company offers to pay a higher price. Medical Eye refuses to
transfer the building to Optical Center. In separate suits by Medical Eye against
12 TEST BANK—UNIT THREE: THE COMMERCIAL ENVIRONMENT
Natalie and by Optical Center against Medical Eye, each plaintiff seeks specific
performance. How might the court rule in each case, and why?
