The Legal Environment Of Business: A Critical Thinking Approach
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Chapter 10
The Law of Contracts and Sales—II
Introduction
Chapter Ten addresses the following questions:
• How are contracts discharged?
• What are remedies for breaching contracts?
• What are e-contracts?
• How do global trends affect contract law?
Achieving Teaching Excellence
Peer Observation of Teaching
Peer observation of teaching could help instructors get an outside perspective on what is
happening in their classroom. In a recent article, information about peer observation of teaching
as a true developmental opportunity is provided.
Before instructors use the idea of peer observation of teaching, it should be made sure that
they set the stage for success by reviewing the context in which peer evaluation will take place.
For instance, invite a colleague whom the instructor can trust and respect to provide feedback on
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Chapter Overview, Topic Outline, and Discussion Questions
Chapter Overview
Chapter Ten is significant because it continues with Chapter Nine’s theme of explaining the
importance of making sure contracts are enforceable. In Chapter Ten, the book moves beyond
making and interpreting contracts and considers how contracts are discharged and what happens
Topic Outline
I. Methods of Discharging a Contract
A. Discharge by Performance
1. Kohel v. Bergen Auto Enterprises, L.L.C.
II. Performance to Satisfaction of Another
A. Material Breach of Contract
1. Uniform Commercial Code and Performance and Convention on International Sale of
B. Discharge by Mutual Agreement
C. Discharge by Conditions Precedent and Subsequent
2. Condition Subsequent
D. Discharge by Impossibility of Performance
E. Discharge by Commercial Impracticability
F. Contracts with the Government and the Sovereign Acts Doctrine
1. Facto v. Pantagis
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1. Compensatory Damages
a. Hallmark Cards, Inc. v. Murley
2. Punitive Damages
4. Liquidated Damages
a. Arrowhead School District No. 75, Park County, Montana v. James A. Klyap, Jr.
B. Equitable Remedies
1. Rescission
3. Specific Performance
4. Injunctions
C. Remedies for Breach of a Sales Contract (Goods)
1. Remedies for the Seller
2. Remedies for the Buyer
a. Fitl v. Strek
IV. E-Contracts
A. E-Signatures
B. The Uniform Computer Information Transaction Act
2. The Business Community: Criticisms of the UCITA
V. Global Dimensions of Contract and Sales Law
VI. Summary
Discussion Questions for Chapter Ten
1. How is the idea of substantial performance related to the idea of conforming goods?
The idea of substantial performance makes it clear that contracts can be discharged even
though they have not been fully completed. Substantial performance allows the contract to
2. Why does it matter that discharge by impossibility of performance is judged by an objective
standard?
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3. Explain relationships between monetary damages and equitable remedies.
Monetary damages include compensatory, punitive, nominal, and liquidated damages.
4. Evaluate this statement: If you sued someone, you would rather get nominal damages than
punitive damages.
Answers to Critical Thinking about the Law Questions, Case Summaries,
Answers to Review Questions, Review Problems, and Case Problems
Suggested Answers to Critical Thinking about the Law
1. Here, in the ruling for Jennifer, the court probably prefers the ethical norm of efficiency. The
2. If Juan knew Jennifer was allergic to sunlight and he knew the concert was outside, he
3. Ambiguous words and phrases that might be troublesome are: outdoors, afternoon, and
extended periods of time. If the concert is at 5 pm, and the sun goes down at 6 pm, or there
Case Summary—Kohel v. Bergen Auto Enterprises, L.L.C.
The plaintiffs, Marc and Bree Kohel, purchased a used 2009 Mazda and traded in their 2005
Nissan Altima as part of the transaction. A few days after their purchase, the defendant
dealership advised the plaintiffs that the Nissan’s vehicle identification number (VIN) tag was
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court against the defendant dealership. The court found in favor of the plaintiffs, and the
defendant appealed.
Case Summary—Architectural Systems, Inc. v. Gilbane Building Co.
This case shows discharge of a contract by a condition precedent. The court has no
sympathy for ASI when it signs an agreement that says Gilbane is not obligated to pay ASI until
it receives payment by the owner. ASI should not have agreed to the condition precedent.
Case Summary—Facto v. Pantagis
This case focuses on the concept of discharge by impossibility of performance. The
appellant court ruled that the defendant, Snuffy Pantagis Enterprises, Inc. was not responsible for
Case Summary—Hallmark Cards, Inc. v. Murley
Janet Murley’s position as vice president of marketing at Hallmark Cards, Inc. was
eliminated due to corporate restructuring. As part of her termination of employment, Murley and
Hallmark entered into a separation agreement under which she agreed not to work in the greeting
card industry for eighteen months, disclose or use any confidential information, or retain any
business records relating to Hallmark. In exchange, Hallmark offered Murley a $735,000
The United States Court of Appeals for the Eighth Circuit found in favor of Hallmark for the
$735,000, concluding that the jury’s reimbursement of Hallmark’s original payment under the
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Case Summary—Arrowhead School District No. 75, Park County, Montana v. James A.
Klyap, Jr.
This case is about enforcing a contract. Klyap was hired by the school district to teach
middle school and to oversee the sports program. He signed a contract for the 1998–1999 school
year with a liquidation clause for $4,100. About two weeks before the school year, Klyap
Suggested Answers to Critical Thinking about the Law Questions
1. Klyap would have to prove that the liquidation clause was unfair and that he did not know
2. A clause for 40 percent could have been seen as exorbitant and unreasonable. There would
be no way someone could pay 40 percent of his or her salary for breaching an employment
Case Summary—Fitl v. Strek
This case deals with recovery of damages for misrepresented merchandise. Strek, a baseball
card seller, sold Fitl what he claimed to be a near-mint condition Mickey Mantle Topps
basketball card for $17,750. Fitl put the card in a safety deposit box. Later, wanting to sell it, it
Answers to Review Questions
10-1. Courts consider the following three standards in determining lost profits:
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• The plaintiff-buyer must show it was reasonably foreseen by the defendant-seller that
10-2. Equitable remedies are nonmonetary damages awarded for breach of contract when
10-3. Punitive damages are damages in excess of compensatory damages that the court awards
10-4. The correction of terms in an agreement so that they reflect the true understanding of the
10-5. Mitigation of damages insists that a person (even though they have not breached a
10-6. E-contracts should include the following:
• Remedies that are available to the buyer if any of the goods contracted for are
defective,
• A statement of the referral policy of the seller.
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Answers to Review Problems
10-7. According to the Uniform Commercial Code for a sale or lease to take place the seller or
lessee has to accept and then pay for the conforming goods. However, the buyer would
10-8. The plaintiff’s motion to dismiss all claims was denied by the court. The court stated that
it could not determine whether Internet Archive was aware of copying the defendant’s
10-9. In case, McDonald decided to keep all five hundred pairs of shoes then she could demand
10-10. Kirk did make repeated efforts to get in touch with Doolittle prior to the shipment time.
Apart from that he had sent Doolittle correspondence regarding this in writing, which
10-11 Dr. J probably won. He might have to pay some sort of damages to the Squires, but a
court would not make him play for the Squires.
10-12. Regarding impossibility of performance, an objective standard would be applied.
Students could ask whether “no person or company could legally or physically perform
Answers to Case Problems
10-13. The Court of Appeals of Maryland ruled that absent special circumstances, a defaulting
purchaser at a judicial sale of property is liable under Maryland Rule 14-305(g) for only
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10-14. The Court of Special Appeals of Maryland ruled that the contractual language at issue
was a valid liquidated damages provision, that Cuesport Properties breached the
10-15. The Court of Appeals of Texas concluded that the evidence was legally sufficient to
support the jury’s findings that STR breached the contract and breached it first and to
support the jury’s award of damages, quantum meruit, and attorney’s fees. The appellate
10-16. The circuit court granted summary judgment for Red-D-Mix in part because it held that
the salesperson’s statement constituted puffery. The Wisconsin Court of Appeals reversed
the circuit court’s summary judgment on the issue of puffery, concluding that puffery is
10-17. Bechtel is correct. West made no effort to find comparable employment. Consequently,
Thinking Critically about Relevant Legal Issues
1. The conclusion is that punitive damages must be awarded in breach of contract cases in
order to deter large companies from breaching contracts and paying relatively small
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3. There needs to be more details about breach of contract cases to see if there are multiple
4. The opposition would argue that many times contracts need to be breached for business
reasons, especially if a business can no longer afford to finish the contract. It could also be