The Legal Environment Today Business In Its Ethical Regulatory E-Commerce and Global Setting 7th Edition by Roger LeRoy Miller – Test Bank

The Legal Environment Today Business In Its Ethical Regulatory E-Commerce and Global Setting 7th Edition by Roger LeRoy Miller – Test Bank

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. Only a mistake in value will make a contract voidable.

answer: f PAGE: 274 TYPE: N

NAT: AACSB Analytic AICPA Legal

2. Misrepresentation of a material fact can occur by actions alone.

answer: T PAGE: 277 TYPE: N

NAT: AACSB Analytic AICPA Legal

3. Forcing someone to enter into a contract by threatening to do something that the thtreatening party has no right to do is duress.

answer: T PAGE: 279 TYPE: N

NAT: AACSB Analytic AICPA Legal

4. Contracts involving interests in any property must be in writing to be enforceable.

answer: F PAGE: 280 TYPE: N

NAT: AACSB Analytic AICPA Legal

5. Under the Statute of Frauds, all contracts must be in writ­ing to be enforceable.

answer: F PAGE: 280 TYPE: N

NAT: AACSB Analytic AICPA Legal

6. If a contract states that a right cannot be assigned, then ordinarily it cannot be assigned.

answer: t PAGE: 281 TYPE: N

NAT: AACSB Analytic AICPA Legal

7. As a general rule, any contract duty can be delegated.

answer: T PAGE: 281 TYPE: N

NAT: AACSB Analytic AICPA Legal

8. An incidental beneficiary cannot sue the promisor directly for breach of the contract.

answer: T PAGE: 282 TYPE: N

NAT: AACSB Analytic AICPA Legal

9. A duty to perform under a contract may be absolute.

answer: T PAGE: 282 TYPE: +

NAT: AACSB Analytic AICPA Legal

10. The most common way to discharge one’s contractual duties is by novation.

answer: F PAGE: 282 TYPE: N

NAT: AACSB Analytic AICPA Legal

11. In most contracts, promises of performance are not expressly conditioned.

answer: T PAGE: 283 TYPE: N

NAT: AACSB Analytic AICPA Legal

12. In most contracts, promises of performance are expressly conditioned.

answer: F PAGE: 283 TYPE: N

NAT: AACSB Reflective AICPA Legal

13. Performance can be accomplished by tender.

answer: T PAGE: 284 TYPE: N

NAT: AACSB Analytic AICPA Legal

14. Conditions expressly stated in a contract must be fully satisfied for complete performance to take place.

answer: t PAGE: 285 TYPE: +

NAT: AACSB Analytic AICPA Legal

15. A party who in good faith performs substantially all of the terms of a con­tract can enforce the contract against the other party.

ANSWER: T PAGE: 285 TYPE: +

NAT: AACSB Analytic AICPA Legal

16. Any breach—material or minor—discharges the nonbreaching party from the contract.

ANSWER: F PAGE: 286 TYPE: +

NAT: AACSB Analytic AICPA Legal

17. Anything less than complete performance is a material breach of contract.

answer: F PAGE: 286 TYPE: N

NAT: AACSB Analytic AICPA Legal

18. Anticipatory repudiation is treated as a material breach of a contract.

answer: T PAGE: 287 TYPE: +

NAT: AACSB Analytic AICPA Legal

19. A contractual obligation may not be discharged through novation.

answer: F PAGE: 288 TYPE: N

NAT: AACSB Analytic AICPA Legal

20. Satisfaction of an accord discharges an original contractual obligation.

answer: T PAGE: 288 TYPE: +

NAT: AACSB Analytic AICPA Legal

21. An innocent party is discharged when the other party has materially altered a written contract without consent.

answer: T PAGE: 289 TYPE: N

NAT: AACSB Analytic AICPA Legal

22. A contract is discharged when its specific subject matter is destroyed.

answer: T PAGE: 289 TYPE: N

NAT: AACSB Analytic AICPA Legal

23. A breach of contract entitles the nonbreaching party to sue for damages.

answer: T PAGE: 291 TYPE: N

NAT: AACSB Analytic AICPA Legal

24. Compensatory damages are foreseeable damages that arise from a party’s breach of a contract.

ANSWER: F PAGE: 292 TYPE: +

NAT: AACSB Analytic AICPA Legal

25. The measurement of compensatory damages for breach of contract is the same for all types of contracts.

ANSWER: F PAGE: 293 TYPE: N

NAT: AACSB Analytic AICPA Legal

26. Consequential damages are awarded for damage caused by special circumstances beyond a contract.

answer: T PAGE: 294 TYPE: N

NAT: AACSB Analytic AICPA Legal

27. The duty owed under the mitigation of damages doctrine depends on the nature of the contract.

answer: t PAGE: 295 TYPE: N

NAT: AACSB Analytic AICPA Legal

28. Liquidated damages provisions are usually not enforceable.

answer: F PAGE: 296 TYPE: N

NAT: AACSB Analytic AICPA Legal

29. Rescission advances the contracting parties to the position they would have been in if the contract had been fully performed.

ANSWER: F PAGE: 297 TYPE: N

NAT: AACSB Analytic AICPA Legal

30. Contracts for the sale of goods usually qualify for specific performance.

answer: f PAGE: 298 TYPE: N

NAT: AACSB Reflective AICPA Legal

31. Reformation enables a court to rewrite a contract to reflect the parties’ true intentions.

answer: T PAGE: 299 TYPE: =

NAT: AACSB Analytic AICPA Critical Thinking

32. Quasi contract is a legal theory under which an obligation is imposed in the absence of an agreement.

answer: T PAGE: 299 TYPE: N

NAT: AACSB Analytic AICPA Legal

33. The purpose of the doctrine of election of remedies is to permit a double recovery.

ANSWER: F PAGE: 300 TYPE: =

NAT: AACSB Reflective AICPA Legal

34. A contract may include a clause stating that damages must be limited to a maximum amount.

answer: T PAGE: 300 TYPE: +

NAT: AACSB Analytic AICPA Legal

35. Whether a contract’s limitation-of-liability clause will be enforced depends on the type of breach that is excused by the clause.

answer: T PAGE: 300 TYPE: =

NAT: AACSB Analytic AICPA Legal

multiple choice questions

1. 1. Maya is a stockbroker. Nora believes that the price of OK Goods, Inc. (OKGI), a widely traded stock, is going to in­crease sub­stantially. Through Maya, Nora buys 500 shares of OKGI at $10 per share, but the price soon drops to $2. Nora can successfully recover from Maya

1. nothing.
2. the amount of the purchase price.
3. the amount of the purchase price plus the expected increase.
4. the amount of the purchase price plus the unexpected decrease.

ANSWER: A PAGE: 274 TYPE: N

NAT: AACSB Reflective AICPA Legal

2. Urban City and Thru-way Construction Company enter into a contract that includes calculations. Urban, whose engineer, Sergei, compiled the figures, discovers later that some numbers were added incorrectly, but Thru-way refuses to make changes. Urban can

1. not rescind the contract.
2. rescind the contract on the basis of fraud.
3. rescind the contract on the basis of mistake.
4. rescind the contract on the basis of duress.

ANSWER: C PAGE: 276 TYPE: N

NAT: AACSB Reflective AICPA Legal

3. Genie.com initiates an online dating service. To attract subscribers and encourage participation, Genie.com creates and posts profiles of fictitious persons and exaggerated profiles of actual users. Fooled by the false profiles, Ham buys a subscription. He is most likely a victim of

1. undue influence.
2. fraud.
3. mistake.
4. nothing.

ANSWER: B PAGE: 276 TYPE: N

NAT: AACSB Reflective AICPA Legal

4. 4. Lyra induces Moe to enter into a contract for the sale of an apartment about which Lyra fraudulently misrepresents a number of material facts. Lyra tells Moe that her commission is 6 percent, but their signed, written contract states “12 percent.” The Statute of Frauds governs

1. contracts that are induced by fraud.
2. contracts that must be in writing to be enforceable.
3. the admissibility in court of oral evidence.
4. the reformation of oral and written statements into one contract.

ANSWER: B PAGE: 280 TYPE: N

NAT: AACSB Reflective AICPA Legal

 

5. Fresh Air Filter & Purification Company and Big Box Commercial Storage Company enter into a contract. To be enforceable, the contract must be in writ­ing if it involves

1. an interest in land.
2. an air filter that costs less than $500.
3. collateral for a loan.
4. a service that can be performed within less than a year.

answer: A PAGE: 280 TYPE: N

NAT: AACSB Reflective AICPA Legal

6. 6. Loren and Kendra enter into a contract for the distribution of Loren’s produce to local restaurants for which he agrees to pay Kendra. Kendra transfers her right to payment under the contract to County Bank. This transfer is

1. a delegation.
2. an assignment.
3. a third party beneficiary contract.
4. prohibited.

ANSWER: B PAGE: 281 TYPE: N

NAT: AACSB Reflective AICPA Legal

7. A contract between Drill-Bit Sharpeners, Inc., and East Oil Mining Corporation contains a clause stating that rights under the contract cannot be assigned. This ordinarily prohibits

1. any assignment.
2. no assignment.
3. only an assignment of contract rights to personal services.
4. only an assignment that would change the obligor’s risk.

answer: a PAGE: 281 TYPE: N

NAT: AACSB Reflective AICPA Legal

8. George promises to repair Francesca’s boat dock in exchange for Efrem’s promise to plant trees on George’s property. This is

1. a delegation.
2. an assignment.
3. a third party beneficiary contract.
4. not a contract.

ANSWER: C PAGE: 282 TYPE: N

NAT: AACSB Reflective AICPA Legal

9. Vicky contracts with Rashad for the delivery of hospice services to benefit Sigmund. This is

1. a delegation.
2. an assignment.
3. a third party beneficiary contract.
4. not an enforceable contract.

ANSWER: C PAGE: 282 TYPE: N

NAT: AACSB Reflective AICPA Legal

10. 10. Lark enters into a contract to mine limestone in Milena’s quarry, sell it, and share the profits on its sale with Milena. If the duties under this contract are discharged like those under most contracts, the duties will be

1. repudiated.
2. breached.
3. performed.
4. rescinded.

ANSWER: C PAGE: 284 TYPE: N

NAT: AACSB Reflective AICPA Legal

11. 11. Dylan enters into a contract to manage the operations of Cash’s accounting office for one year, renewable for subsequent one-year terms. If this contract is discharged like most contracts, it will be

1. canceled.
2. compromised.
3. altered.
4. performed.

ANSWER: D PAGE: 284 TYPE: N

NAT: AACSB Reflective AICPA Legal

12. Juana contracts to sell Ignacio her MP3 player for $30. This contract will be fully discharged when Juana and Ignacio

1. agree to sign a bill of sale.
2. exchange the player for the $30.
3. sign a receipt.
4. shake hands and go their separate ways.

ANSWER: B PAGE: 284 TYPE: N

NAT: AACSB Reflective AICPA Legal

13. 13. Candace enters into a contract to pay Parker for a business survey and review of Candace’s competitors, which Parker delivers on June 1. Candace’s unconditional offer, on the same date, to pay Parker is

1. a novation.
2. specific performance.
3. tender.
4. tinder.

ANSWER: C PAGE: 284 TYPE: N

NAT: AACSB Reflective AICPA Legal

14. Red’s Plumbing Service substantially performs its contract with Shady Grove Condominiums, Inc. Shady Grove is entitled to

1. damages.
2. nothing more.
3. repudiation.
4. alteration.

answer: A PAGE: 285 TYPE: N

NAT: AACSB Reflective AICPA Legal

15. Real Cheap Painters, Inc., agrees to paint Quint’s house, using a particular brand of “discount” paint. Real Cheap completes the job but uses a dif­ferent brand of discounted paint. This is most likely

1. an absolute excuse for Quint’s refusal to pay.
2. a material breach.
3. complete performance.
4. substantial performance.

answer: D PAGE: 285 TYPE: N

NAT: AACSB Reflective AICPA Legal

Fact Pattern 10-1 (Questions 16–17 apply)

Mutual Company enters into a contract to employ Neil as an investment manager for two years. During the first year, Neil is often absent without explanation and when present fails to adequately monitor and manage Mutual’s investments.

16. 16. Refer to Fact Pattern 10-1. Neil’s performance is most likely

1. a material breach.
2. a minor breach.
3. Mutual’s breach.
4. no breach.

ANSWER: A PAGE: 286 TYPE: N

NAT: AACSB Reflective AICPA Legal

17. 17. Refer to Fact Pattern 10-1. With respect to Mutual’s duties, Neil’s performance most likely

1. discharges Mutual from the contract.
2. has no effect on Mutual’s performance.
3. increases Mutual’s duties under the contract.
4. suspends Mutual’s duty to perform.

ANSWER: A PAGE: 286 TYPE: N

NAT: AACSB Reflective AICPA Legal

18. Straitedge Toolmakers, Inc., contracts to sell its assets to Tru-Level Hardware Corpo­ration. Before either party has performed, rescission of this con­tract requires

1. a mutual agreement to rescind.
2. an accord and satisfaction.
3. a novation.
4. commercial impracticability.

ANSWER: A PAGE: 287 TYPE: +

NAT: AACSB Reflective AICPA Legal

19. Jane and Kelly want Lucy to replace Kelly as a party to their con­tract. They can best accomplish this by

1. a mutual agreement to rescind.
2. an accord and satisfaction.
3. a novation.
4. an alteration of the contract.

ANSWER: C PAGE: 288 TYPE: N

NAT: AACSB Reflective AICPA Legal

20. 3D FX, LLC, and Vivid Star CG, Inc., are parties to a contract. They subse­quently agree that Pixellated Inc. should take 3D’s place and assume all of its rights and duties under the contract. This is

1. a mutual agreement to rescind.
2. an accord and satisfaction.
3. a novation.
4. commercial impracticability.

answer: C PAGE: 288 TYPE: N

NAT: AACSB Reflective AICPA Legal

21. On April 1, KO Contractors, Inc., contracts to build a store for Lo-Cost Housewares at a specific location in Metro City. On May 1, Metro changes its zoning law to prohibit the construction of a commercial building at that location. Lo-Cost files a suit against KO. In this situation

1. KO is in breach of contract.
2. Lo-Cost is in breach of contract.
3. the contract is discharged.
4. the contract is suspended.

ANSWER: C PAGE: 289 TYPE: N

NAT: AACSB Reflective AICPA Legal

22. Clyde contracts with Deephole Excavation, Inc., to dig an agricultural pond on his farm. Deephole is to keep the excavated gravel in payment. Clyde’s neighbor Eden challenges the dig as an illegal gravel pit. A court orders a halt to the dig. Clyde’s contract with Deephole is

1. breached.
2. discharged.
3. not affected.
4. suspended.

answer: B PAGE: 289 TYPE: N

NAT: AACSB Reflective AICPA Legal

23. Handy Hardware Store agrees to hire Ilsa for one year at a salary of $500 per week. When Handy cancels the contract, Ilsa spends $100 to obtain a similar job that pays $450 per week for a year. Ilsa is entitled to recover

1. the amount of the wages that Handy promised only.
2. the difference between the wages at the two jobs only.
3. the difference between the wages at the two jobs plus $100.
4. $100 only.

ANSWER: C PAGE: 292 TYPE: N

NAT: AACSB Reflective AICPA Legal

24. 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

1. $1,000.
2. $1,000 plus incidental damages.
3. incidental damages only.
4. $0.

ANSWER: B PAGE: 293 TYPE: N

NAT: AACSB Reflective AICPA Legal