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Business Law Chapter 18 Homework A breach is material when performance is not at least substantial

Page Count
9 pages
Word Count
5450 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
1
CHAPTER 18
PERFORMANCE AND DISCHARGE
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
ETHICS TODAYCRITICAL THINKING
Why might those entering into contracts be worse off in the long run if the courts in-
creasingly accept impossibility of performance as a defense? Certainly, in the short run,
those who are allowed to use impossibility of performance to avoid their contract obligations are
better off. In the long run, in contrast, those who enter into such contracts will spend more time
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 18.1CRITICAL THINKING
LEGAL ENVIRONMENT
The New York Court of Appeals found that Jacob & Youngs had substantially performed
the contract. To what, if any, remedy was Kent entitled? Kent is entitled to be compensated
CASE 18.2LEGAL REASONING QUESTIONS
1A. What is a material breach of contract? On a material breach, what are the non-
breaching party’s options? A breach of contract is the nonperformance of a contractual duty.
2 UNIT THREE: CONTRACTS AND E-CONTRACTS
2A. What is a minor breach of contract? On a minor breach, is the nonbreaching party
excused from performance? Explain. A breach of contract is the nonperformance of a con-
tractual duty. If a breach is not material, it is minor. The nonbreaching party's duty to perform
3A. In this case, the defendantWayne Mazdaargued that the plaintiffs should not
be granted relief for the plaintiff’s breach. What were the defendant’s main arguments in
support of this position? In this case, Wayne Mazda (the defendant) argued that the Kohels’
(plaintiffs) delivery of their Nissan as a trade-in without a vehicle identification (VIN) tag was a
breach of the contract of sale and barred finding that Wayne Mazda breached the contract. The
defendant also contended that the plaintiffs’ failure to obtain a replacement VIN tag was a repu-
diation of the contract.
CASE 18.3CRITICAL THINKING
LEGAL ENVIRONMENT
What advantage does the discharge of a contractual obligation under the rule applied in
this case offer to the parties to the contract? Discuss. In the Hampton case, an employ-
ment contract between Hampton Road Bankshares (HRB), a financial institution, and Scott Har-
vard, one of its senior executive officers, contained a “golden parachute” payment. Later, Con-
gress enacted the Emergency Economic Stabilization Act (EESA), which included the Troubled
Assets Relief Program. This program barred participating institutions from making “golden para-
chute payments. HRB participated in the program. When Harvard quit the firm, he sought the
CHAPTER 18: PERFORMANCE AND DISCHARGE 3
ETHICAL
Did HRB violate any ethical duty by refusing to pay Harvard’s “golden parachute?” Ex-
plain. No, HRB (Hampton Road Bankshares) did not violate any ethical duty by refusing to
make the “golden parachute” payment that the employer had originally agreed to make to its
employee, senior executive officer Scott Harvard. The payment was made illegal by the federal
Emergency Economic Stabilization Act (EESA), which contained the Troubled Assets Relief
Program that barred participating financial institutions from making “golden parachute” pay-
ments.
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Condition
The appropriate concept would be discharge by failure of a condition. Under the contract, Val’s
does not have to perform (pay) unless the basil meets the stated condition (that it pass an inde-
pendent inspection for chemical residue). Because the basil did not pass inspection, Val’s is not
obligated to perform. This condition of the contract would be precedent rather than subsequent
or concurrent: the basil must pass the inspection before Val’s is obligated to buy.
4 UNIT THREE: CONTRACTS AND E-CONTRACTS
2A. Destruction of the subject matter
The theory of commercial impracticability can excuse parties from their performance obligations
when the performance becomes much more difficult or expensive than originally contemplated
3A. Substantial performance
Substantial performance is good faith performance that does not vary greatly from the contract
and confers the same benefits as promised in the contract. Sun Farms acted in good faith and
4A. Novation
This is a novationan agreement between the contracting parties to substitute a third party for
one of the original parties. Under a novation, the new contract extinguishes the old contract and
discharges the obligations of the prior party to the contract.
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
The doctrine of commercial impracticability should be abolished. Contracts are not
made to be broken, even if that is a popular saying. Contracts are made to be respect-
ed. Those who seek to avoid their contractual obligations by using the excuse of commercial
impracticability, if successful, reduce the certain of contractual obligations and end up hurting
the commercial society in which we all live.
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Ready Foods contracts to buy two hundred carloads of frozen pizzas from Speedy
Distributors. Before Ready or Speedy starts performing, can the parties call off the deal?
What if Speedy has already shipped the pizzas? Explain your answers. Contracts that are
executory on both sidescontracts on which neither party has performedcan be rescinded
CHAPTER 18: PERFORMANCE AND DISCHARGE 5
solely by agreement. Contracts that are executed on one sidecontracts on which one party
2A. C&D Services contracts with Ace Concessions, Inc., to service Ace’s vending ma-
chines. Later, C&D wants Dean Vending Services to assume the duties under a new con-
tract. Ace consents. What type of agreement is this? Are Ace’s obligations discharged?
Why or why not? Novation substitutes a new party for an original party, by agreement of all the
parties. The requirements are a previous valid obligation, an agreement of all the parties to a
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
18-1A. Conditions of performance
If the specifications are considered to be express conditions to the Caplans’ acceptance and
payment under the contract, Faithful must perform fullythat is, must install Crane brand
plumbing fixturesto recover the contract price. Until Faithful does so, the Caplans are not ob-
18-2A. Discharge by agreement
A novation exists when a new, valid contract expressly or impliedly discharges a prior contract
by the substitution of a party. Accord and satisfaction exists when the parties agree that the
original obligation can be discharged by a substituted performance. In this case, Fred’s agree-
18-3A. Impossibility of performance
Normally, events that take place after the formation of the contract and that make performance
of the contract more difficult or burdensome do not render the contract impossible to perform
and do not discharge a party’s liability for failure to fully perform. If such events make perfor-
mance so extremely difficult or burdensome that it is, in effect, impossible, impractical, or unrea-
sonably expensive to perform, however, the contract is discharged. The basic problem is de-
termining when this degree of difficulty or burdensomeness is reached.
(a) Jiminez’s contract is personal, requiring his services for full performance of the
contract. His death makes performance totally impossible, thereby discharging his estate from
liability.
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
184A. Material breach
Yes, STR breached the contract with NTI. A breach of contract is the nonperformance of a con-
tractual duty. A breach is material when performance is not at least substantial. On a material
breach, the nonbreaching party is excused from performance. If a breach is minor, the non-
breaching party's duty to perform can sometimes be suspended until the breach has been rem-
185A. Conditions of performance
No, Humble is not entitled to specific performance. The equitable remedy of specific perfor-
mance calls for the performance of an act promised in a contract. In a case involving an interest
in real property, specific performance can be the appropriate remedy when money damages
186A. Discharge by operation of law
Lambert’s best defense to Baptist’s allegation of breach of contract is the doctrine of impossibil-
ity. Under this doctrine, if, after a contract has been made, a supervening event makes perfor-
mance impossible in an objective sense, the contract is discharged. The doctrine applies only
187A. Conditions
The requirement that the contractor obtain an engineer’s certificate of final completion before
the final payment will be made under the contract is a condition precedent. In most contracts,
promises of performance are not expressly conditionedthey are absolute and must be per-
formed to avoid a breach of the contract. In some situations, however, performance is contin-
18-8A. A QUESTION OF ETHICSConditions
(a) The court issued a judgment in FCCC’s favor, ruling that it was entitled to an
award of $1,501,426.21, including interest, for the damage caused by the blow-in and the rea-
sonable cost of its repair, and $324,417.58 for attorneys’ fees and litigation costs. King County
appealed to a state intermediate appellate court, which affirmed the lower court’s judgment. The
CHAPTER 18: PERFORMANCE AND DISCHARGE 9
The appellate court also cited the finding that King County did not act in good faith or deal
fairly with respect to FCCC and DBM's claims for builder’s risk coverage. In assuming the re-
sponsibilities to procure the proper insurance and to “promote and sponsor” all-risk builder’s risk
claims, but then denying these claims, “the County elected and pursued a course intended only
to protect the County's position and interests, to the detriment of FCCC and DBM. . . . King
(b) DBM filed a suit in a Washington state court against King County, alleging breach
of contract and other claims. The court dismissed the complaint, and on DBM’s appeal, a state
intermediate appellate court affirmed the dismissal. The appellate court held that DBM was not a
third-party beneficiary to the project contract between King County and FCCC.
DBM could not maintain an action on the King CountyFCCC contract because DBM was
not an intended third party beneficiary to it. An intended third-party beneficiary can be specifical-
(c) To recover under an “all risk” insurance policy, the determination of whether a loss
is “fortuitous” has three parts, all in relation to the time at which the policy was issued: (1) the
loss must not have been certain to occur; (2) the loss must not have been reasonably foreseea-
ble; and (3) the parties' perception of the risk must be considered.
It could be argued that faulty workmanship cannot constitute an “accident” within the
meaning of a typical “all risk builder's risk” policy. But courts have held such policies to cover
damages that poor workmanship causes. For example, risks that courts have determined to be
covered “accidents” within the meaning of such policies include water damage resulting from the
removal of a roof and from the mislocation of a house on a lot. Courts have also held that ex-
18-9A. SPECIAL CASE ANALYSISMaterial breach
Case No. 18.2
Kohel v. Bergen Auto Enterprises, L.L.C.
Superior Court of New Jersey, Appellate Division, 2013.
2013 WL 439970.
(a) Issue: This case involved allegations of breach of contract involving which parties
and for what actions? Marc and Bree Kohel were the plaintiffs. Bergen Auto Enterprises, L.L.C.,
doing business as Wayne Mazda Inc., was the defendant. The Kohels agreed to buy a used
2009 Mazda from Wayne Mazda. Part of the payment of the purchase price was a credit of
(b) Rule of Law: What is the difference between a material breach and a minor
breach of contract? A breach of contract is the nonperformance of a contractual duty. A breach
is material when performance is not at least substantial. On a material breach, the nonbreaching
party is excused from performance.
(c) Applying the Rule of Law: How did the court determine which party was in mate-
rial breach of the contract in this case? The court distinguished the Kohels’ conduct from Wayne
Mazda’s actions. The Kohels’ (plaintiffs) delivered a Nissan as a trade-in on their purchase of a
Mazda without a vehicle identification (VIN) tag. But the trial court found that the Kohels were
not aware the Nissan lacked a VIN tag when they offered it in trade. And Wayne Mazda (the de-
(d) Conclusion: Was the defendant liable for breach? Why or why not? Yes, the de-
CHAPTER 18: PERFORMANCE AND DISCHARGE 11
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
1810A. Anticipatory repudiation
(a) When either party repudiates the contract with respect to a performance not yet
due, the party’s repudiation constitutes an anticipatory breach. An anticipatory breach legally
permits the nonbreaching party to suspend performance without legal liability, and to treat the
contract as in breach and immediately pursue a remedy.
(b) Taylor senior is correct. He can immediately file suit for breach of contract, even
though actual performance is not due until May 1. He does not have to wait until May 1, as Tom
(c) From Taylor & Sons’s perspective, the chief consideration is the effect that their
choice of action will have on their business. Should they cut their losses by immediately finding
another party to suit their needs and suing ABC for breach? Could they obtain damages?

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