CHAPTER 11 – PERFORMANCE, DISCHARGE, AND REMEDIES
TRUE/FALSE
1. Most contracts are discharged by mutual agreement of the parties.
2. Assume that Jessie and Lester have formed a contract whereby Jessie agrees to deliver 10,000 dozen
“Grade A Large Eggs” to be shipped in recycled paper cartons. A shortage of paper makes paper
cartons much more expensive, so Jessie uses styrofoam cartons and ships the eggs. Lester is entitled to
cancel the contract based on this deviation of terms in the contract.
3. A wholesaler of coffee notifies a retailer that it cannot fulfill its contractual obligation to deliver 1,000
pounds of coffee by the contract deadline, but he expects to deliver the coffee three days later. There
was no “time of the essence” clause in the contract. The retailer may treat the wholesaler as having
breached the contract and sue for damages if he doesn’t deliver by the deadline.
4. The legal right to sue for a breach of contract is subject to a statute of limitations.
5. A court may, at times, discharge a party who has not performed.
6. Monumental, Inc. contracts with Champion Builders to erect a three-story office building on a parcel
of land it has purchased. Before construction begins, the local zoning board changes the zoning of the
parcel and those adjoining it to residential use only. Monumental’s contract with Champion is
discharged.
7. Ramon purchased 5,000 pounds of coffee from Quick Jump Coffee. The coffee was to be delivered on
September 1. Since the contract included a date for performance, time is of the essence and the
delivery date is strictly enforceable.
8. Abdulla hired Granite Construction to build an addition onto his home. Granite Construction dug the
foundation but then abandoned the project. Granite Construction is entitled to receive the full contract
price minus the value of the defects.
9. Injunctions are frequently used by courts to force employees to complete their contractual obligations
with their employers.
10. Tess, a tenant, moves from her apartment in breach of the lease agreement. The landlord, Lenny, may
not attempt to rent the apartment until the date of the lease expiration, and so has no recourse to
minimize damages.
11. Carswell, a contractor, enters into a contract with Helen, a homeowner, to remodel her bathroom. The
contract provides a specific completion date. The contract provides that if Carswell does not have the
job finished by the date, Helen may deduct $200 per day from the contract price until the job is
finished. This is an example of liquidated damages.
12. Specific performance is available when the subject matter of the contract is unique.
13. Ernest operates an ice cream stand during the months of May, June, July, and August. Ernest’s ice
cream machine is broken and needs a new part to run. He contracts to have the part shipped to him by
special carrier. Ernest emphasizes that the part needs to be delivered by April 25 and the carrier agrees,
knowing that Ernest intends to open his stand May 1. If the shipper fails to deliver the part on April 25,
Ernest will be able to recover consequential damages caused by the delay.
14. Liquidated damages are awarded to parties who have experienced an injury to their legal rights but
have no actual loss.
15. Expectation interest can best be described as money spent in reliance upon the agreement.
MULTIPLE CHOICE
1. M & E contracted to sell 500 music stands to Coda, Inc. M & E shipped the stands in accordance with
the agreement. Coda paid for the stands as promised. The contract between M & E and Coda is
discharged by:
a.
full performance.
b.
agreement.
c.
rescission.
d.
accord and satisfaction.
2. Statutes of limitations:
a.
define how much money the injured party can sue for under a breach of contract claim.
b.
define whether there has been substantial performance of a contract or a material breach.
c.
limit the time in which an injured party may sue.
d.
only apply to the sale of goods. There is no statute of limitations on a service contract.
3. In January 2008, Professor Noe entered into a contract with State University. She agreed to teach full
time during the 2008-2009 academic year. Professor Noe died on May 31, 2008. Her estate:
a.
is obligated to find another person who will agree to teach during the academic year.
b.
is discharged from any further obligations under the contract.
c.
will be discharged from any obligations under the contract only if it can be shown that her
death was unexpected.
d.
will not be discharged. If the University has to pay more in order to hire a comparable
substitute professor at the last minute, then the estate will be responsible for the difference
in pay.
4. Oxtron, Inc. substantially performed its obligations under a service contract. Oxtron is entitled to
receive:
a.
the full contract price.
b.
substantially nothing.
c.
the fair market value of its performance.
d.
the full contract price minus the value of the defects.
5. Jackie hires Charles to lay new carpet in her bedroom. Charles does such a bad job, that the only way
to fix the carpet is to start over and relay the carpet. Which of the following best describes this
situation?
a.
This is substantial performance. Jackie must still pay something to Charles.
b.
This is a material breach. Jackie must still pay something to Charles.
c.
This is substantial performance. Jackie owes nothing to Charles.
d.
This is a material breach. Jackie owes nothing to Charles.
6. Dana hires Paris to paint a portrait of her poodle, “Mack.” The painting is to be done to Dana’s
personal satisfaction. Upon completion of the painting, which of the following will be true?
a.
Dana may refuse to accept the painting if she, in good faith, really does not like it.
b.
Dana may refuse to accept the painting only if a reasonable person would not like it.
c.
Dana may refuse to accept the painting if she cannot afford to pay for it.
d.
Dana may not in good faith refuse to accept the painting.
7. The Grand Performance Hall is in the process of remodeling and is scheduled to open for business
after being closed for 50 years. As part of the remodeling, it is installing a new sound system. The
sound system is to be installed by Sound Systems, Inc. on or before April 10. Opening night of the hall
is May 1. The contract states that “time is of the essence” because of the opening-night deadline.
Sound Systems has some financial difficulties and doesn’t deliver the system until April 20. Grand
Hall refuses to accept it, and Sound Systems sues. What result?
a.
Grand Hall wins; the contract date was strictly enforceable.
b.
Sound Systems wins; the contract was substantially performed.
c.
Grand Hall wins; there was commercial frustration.
d.
Sound Systems wins; there was a true impossibility.
8. Harry agreed to pay $100 to rent a rooftop spot in downtown Seattle to watch the New Year’s Eve
festivities. The festivities were unexpectedly cancelled because of concern over a terrorist attack.
Harry is:
a.
obligated to pay the $100.
b.
not obligated to pay under the commercial impracticability doctrine.
c.
not obligated to pay under the force majeure doctrine.
d.
not obligated to pay under the frustration of purpose doctrine.
9. Which of the following duties are imposed on the parties in the performance and enforcement of a
contract?
a.
perfect performance; honesty
b.
strict performance; team work
c.
good faith; substantial performance
d.
negotiation; arbitration
10. Ron operates a garbage pickup business. He contracts to pick up garbage from an apartment complex
for the next 52 weeks at a price of $150 per week. Unexpectedly, the landfill center where Ron takes
the garbage to dispose of it, files for bankruptcy. As a result, Ron must travel an additional 100 miles
to the nearest landfill center, turning Ron’s expected profit into a loss of $40 per week. Ron’s best
argument in support of his petition to be discharged from the contract is:
a.
the mail box rule.
b.
commercial impracticability.
c.
frustration of purpose.
d.
true impossibility.
11. Which of the following events would probably excuse performance of a contract based on commercial
impracticability?
a.
The price of a raw material increases slightly so that the contract will not be as profitable.
b.
An unforeseeable trade embargo causes prices to triple.
c.
The promisor of personal services dies.
d.
The subject matter of the contract is destroyed.
12. If the injured party can show he conferred a benefit on the defendant, he may be able to show a(n):
a.
Equitable Interest.
b.
Restitution Interest.
c.
Reliance Interest.
d.
Expectation Interest.
13. Linda agrees to buy Missy’s Greyhound race dog for $2,000. Linda is to deliver the money and take
possession of the dog the next morning. That night, running his best race ever, the dog runs away from
Missy, never to be seen again.
a.
Linda must give $2000 for the dog, but only if the dog was insured.
b.
Linda must give $2000 for the dog, but only if Missy can find a replacement dog within a
reasonable time.
c.
Linda must give $2000 for the dog.
d.
None of the above; the contract duties are discharged.
14. Sea Rovers, Inc. contracted to sell 1,000 pounds of shrimp to the Seafood Shack with delivery on June
1. On May 1 Sea Rovers advised the Seafood Shack that it would not be able to deliver the shrimp.
The Seafood Shack:
a.
can sue Sea Rovers immediately for breach of contract, but must try to prevent
unnecessary loss by looking for replacement shrimp.
b.
must wait until June 1 to see if Sea Rovers will perform before suing for breach of
contract.
c.
cannot sue Sea Rovers because Sea Rovers gave adequate notice.
d.
must wait until actual damages are determined before it can sue.
15. Specific performance may be available for the breach of a contract to sell:
a.
an original painting.
b.
20 shares of WalMart stock.
c.
a Nintendo WII video game system.
d.
a 2011 Mustang in mint condition.
16. A contract clause which specifies the amount of damages to be paid in the event of a breach is called:
a.
a covenant of damages clause.
b.
a reliance interest of damages clause.
c.
a liquidated damages clause.
d.
an incidental damages clause.
17. Generally, reasonable liquidated damage clauses will be enforced:
a.
when actual damages are easily determined.
b.
when actual damages are difficult to determine.
c.
almost always.
d.
only in real estate sales contracts.
18. Consequential damages are:
a.
those that flow directly from the contract.
b.
designed to put the injured party in the position she would have been in had both sides
fully performed their obligations.
c.
those resulting from the unique circumstance of this injured party.
d.
the relatively minor costs that the injured party suffers when responding to the breach.
19. Solomon breaches his contract with Neal to purchase the 500 pairs of socks he had promised to buy.
Neal is able to sell the 500 pairs to Renny for a much lower amount. Neal then sues Solomon for
damages. Neal will be able to recover:
a.
the amount in the liquidated damages clause.
b.
the difference between Solomon’s contract price and the amount paid by Renny.
c.
Solomon’s contract price.
d.
an amount which depends on whether Solomon intentionally breached because he found
cheaper socks somewhere else.
20. If a court orders rescission and restitution of a contract under which Nala sold a baseball card to
Shirley in exchange for $450:
a.
Shirley must return the baseball card.
b.
Nala must return the $450.
c.
Both a and b.
d.
Neither a nor b.
21. Farmer Elvin is holding 200 pounds of potatoes in storage for Chef Noble but Chef Noble has
breached the contract by failing to pay for the potatoes. The potatoes are beginning to rot. If Farmer
Elvin sells the potatoes to a local diner to make potato soup and salad, then this action would be
considered:
a.
a reasonable mitigation of damages.
b.
an attempt to maximize damages.
c.
an attempt to realize an unwarranted profit.
d.
conversion.
22. Jennifer substantially (but not completely) performs her service contract with Gretchen. Due to
Jennifer’s failure to render complete performance, Gretchen:
a.
is discharged from any further contractual obligations.
b.
is required to pay the full contract price, minus the value of Jennifer’s defective
performance.
c.
is required to pay the full contract price.
d.
may declare a material breach and pay only for the value received.
23. Mulligan Domestics Co. breached a contract by refusing to accept its order for 60 bolts of fabric from
Wellington Mills, although the fabric met the contract specifications. Wellington:
a.
has at least four remedies under the UCC.
b.
may resell the goods to someone else and, if it sues Mulligan, Wellington will likely be
awarded the difference between the original contract price with Mulligan and the price
received from the resale.
c.
may choose not to resell the fabric so that the Mulligan will be forced to buy the fabric.
d.
would be awarded consequential damages by most courts.
24. Costs to store a vehicle for a short period of time after an auto dealer fails to complete the contract to
purchase the vehicle would be:
a.
compensatory damages.
b.
incidental damages.
c.
consequential damages.
d.
punitive damages.
25. In a promissory estoppel case, a court will generally award:
a.
only reliance damages.
b.
specific performance.
c.
both reliance and punitive damages.
d.
only nominal damages.
ESSAY
1. What does the term “substantial performance” mean? What factors are generally considered when
determining whether one of the parties has substantially performed?
2. Buddy was hired to play drums for a rock group scheduled to tour the Midwest. Part way through the
tour, Buddy was tragically killed in a plane crash. The tour had to be discontinued until a new
drummer could be found. The band lost money on the tour. Is Buddy’s estate or agent responsible for
the loss to the band?
3. Southern Fuels Co. and Langham-Hill Petroleum, Inc. are both in the business of buying and selling
large quantities of petroleum products. In October, the parties entered into a fixed price contract
wherein Southern agreed to purchase 4.2 million gallons of No.2 fuel oil at a specified price per gallon
to be delivered in four monthly installments. The first three monthly shipments of oil were purchased
by Southern as agreed. In January of the next year, the price of oil in the world market collapsed as a
result of Saudi Arabian attempts to regain its share of the world oil market. Southern refused to
purchase the last shipment under the contract. Southern’s basic argument is that it can now buy oil at a
substantially lower price. Will Southern succeed on this basis?
4. Identify and describe the four principal contract interests a court may seek to protect.
5. In a construction contract, there is a $1000 per day estimate of damages for each day that the contract
runs over the completion date. The contractor is 30 days late when the job is completed, resulting in a
prospective damage award of $30,000. What is this type of clause, and when will it be enforced?