Question 1

SFX Paintball Games, Inc., and Truck & Trailer Delivery Corporation sign an agreement that provides for the payment of "$1,000 by whichever party commits a material breach of the contract that creates damages difficult to estimate but approximately $1,000." This is
A) a liquidated damages clause.
B) a mitigation of damages clause.
C) a nominal damages clause.
D) a penalty clause.

Accepted Answer

This is a liquidated damages clause because it sets a predetermined amount of damages to be paid in the event of a breach that creates damages that are difficult to estimate.

Question 2

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
A) $1,000.
B) $1,000 plus incidental damages.
C) incidental damages only.
D) $0.

Accepted Answer

Dondi's measure of damages is the difference between the contract price and the cost of cover, plus any incidental damages. In this case, the contract price was $4,500 and Dondi had to buy elsewhere for $5,500, resulting in a difference of $1,000. Therefore, Dondi is entitled to $1,000 in damages, plus any incidental damages.

Question 3

Refined Commodities, Inc., agrees to deliver ten tons of sheet metal to Select Builders Corporation. The agreement states that delivery is to be within "3" days, although the parties intend "30" days. Refined cannot convince Select to amend the contract. Refined should seek
A) damages.
B) reformation.
C) rescission.
D) specific performance.

Accepted Answer

Refined should seek reformation of the contract. Reformation allows the court to modify a contract to reflect the true intentions of the parties. In this case, the parties intended a 30-day delivery period, but the contract mistakenly states 3 days. Reformation would allow the court to correct this mistake and enforce the contract as the parties intended.

Question 4

Vacation Vistas, Inc., agrees to sell certain acreage to Umiko, who intends to develop a destination resort. Vacation Vistas repudiates the deal. Umiko sues Vacation Vistas and recovers damages. She can now obtain
A) an amount in a quasi-contractual recovery.
B) damages representing restitution.
C) specific performance of the deal.
D) nothing more.

Accepted Answer

The answer of Vacation Vistas, Inc., agrees to sell certain...

Question 5

Rural Power Utility, Inc., enters into a contract with Shovel Excavation Service to dig up, replace, and rebury Rural's cables in a certain location. Rural advances Shovel 10 percent of its cost. The parties rescind the contract. Shovel's refund of the payment is
A) a penalty.
B) liquidated damages.
C) restitution.
D) a breach of contract.

Accepted Answer

Restitution is the act of returning something to its original owner or state. In this case, Rural Power Utility, Inc. paid Shovel Excavation Service 10 percent in advance for a service that was not completed. Upon rescinding the contract, Shovel must return the payment received as restitution. It is not a penalty or liquidated damages since it was not a predetermined or agreed-upon amount, and it is not a breach of contract if the parties mutually agreed to rescind the contract.

Question 6

Lester and Myrtle want to rescind their contract under which Lester sold an MP3 player for $40. To rescind the contract
A) Lester must return the $40 and Myrtle must return the player.
B) Lester must return the $40 only.
C) Myrtle must return the player only.
D) the parties can keep the "benefits" of their bargain.

Accepted Answer

In order to rescind the contract, both parties must return what they received in the transaction. Lester must return the $40 and Myrtle must return the player. This restores the status quo and nullifies the original agreement. Option D is not valid as keeping the benefits of the bargain would not be rescinding the contract.

Question 7

Consumer Credit Union pays Derby $10,000 to design an ad campaign. The next day, Derby tells the credit union that he has accepted a job in Boston and cannot design the campaign. As compensatory damages, the credit union can recover
A) $100,000.
B) $10,000.
C) $1,000.
D) $0.

Accepted Answer

The credit union can recover the amount paid to Derby as compensatory damages, which is $10,000. The fact that Derby accepted a new job in Boston does not negate his obligation to complete the work for which he has already been paid. However, the credit union would not be entitled to recover any additional damages beyond the amount paid to Derby.

Question 8

To avoid liability for intentional injuries, Northwest Power Corporation includes in its contracts an exculpatory clause. This is
A) enforceable if the other parties are protected from liability.
B) enforceable if the other parties consent to it.
C) enforceable if the other parties have equal bargaining power.
D) not enforceable.

Accepted Answer

Exculpatory clauses that attempt to release a party from liability for intentional harm or gross negligence are generally not enforceable as a matter of public policy.

Question 9

Ray breaches his lease with Sunny Properties and vacates the premises six months before the end of the term. In some states, Sunny would have to
A) avoid reletting the premises to recover damages from Ray.
B) make reasonable efforts to relet the premises to mitigate damages.
C) relet the premises to recover damages from Ray.
D) sell the premises to recover damages from Ray.

Accepted Answer

In most states, the landlord has a duty to mitigate damages by making reasonable efforts to relet the premises after a tenant breaches their lease and vacates early. This means that the landlord cannot just sit back and do nothing while still expecting the tenant to pay rent for the remainder of the lease term. However, the landlord is not required to relet the premises if doing so would result in lower rental income than what the tenant was paying.

Question 10

Grady enters into a contract to buy 440 acres from Hollis to expand Grady's ranch. Hollis breaches the contract. Grady's normal remedy is
A) damages.
B) reformation.
C) rescission.
D) specific performance.

Accepted Answer

The best choice for Grady's remedy is specific performance. This is because the subject matter of the contract (440 acres of land) is unique and cannot be easily replaced with damages. Therefore, Grady can seek a court order requiring Hollis to complete the sale as agreed upon in the contract.

Question 11

Karif orally agrees to buy a unique collection of sports memorabilia for $1,000 from Jane and sends her $250 as a down payment. When Karif sends her the rest of the price, Jane refuses to ship the collection. Karif should seek
A) damages.
B) reformation.
C) rescission.
D) specific performance.

Accepted Answer

Karif can seek specific performance because the sports memorabilia is unique and cannot be easily replaced, and Jane is refusing to ship it even though they had a valid oral agreement. This means that Karif can ask a court to order Jane to complete the sale by shipping the collection to him.

Question 12

Even-Flo Hydraulics enters into a contract to repair valves and fittings in Fiesta Company's plant. If Even-Flo breaches the contract, Fiesta can
A) do nothing but make a deal with .a different service provider.
B) do nothing but temporarily suspend operations and wait.
C) file a criminal complaint against Even-Flo.
D) sue Even-Flo for damages.

Accepted Answer

If Even-Flo breaches the contract, Fiesta can sue Even-Flo for damages. This is the most common remedy for breach of contract, as it allows the party that has suffered harm to recover financial compensation for their losses.

Question 13

Rite Contractors, Inc., agrees to build a motel for Sleep Inn Corporation. The project proceeds according to plan, but before it is done, Sleep tells Rite to quit. Rite may recover
A) the contract price less costs of materials and labor.
B) the contract price.
C) the costs needed to complete construction.
D) profits plus the costs incurred up to the time of the breach.

Accepted Answer

The answer of Rite Contractors, Inc., agrees to build a...

Question 14

Pure Oil Company enters into a contract with QuikBilt, Inc., to construct an offshore oil pipeline to withstand specific conditions. If QuikBilt fails to meet this standard, which is construed as a breach of contract and a breach of a duty of care, Pure might be awarded punitive damages to
A) establish, as a matter of principle, that QuikBilt acted wrongfully.
B) provide Pure with funds for a foreseeable loss beyond the contract.
C) provide Pure with funds for its loss of the bargain.
D) punish QuikBilt and deter others from similar acts.

Accepted Answer

Punitive damages are designed to punish the wrongdoer and deter others from engaging in similar acts. In this case, if QuikBilt breached their duty of care and the contractual standard, they may be subject to punitive damages as a means of punishing them and sending a message to other contractors that this sort of behavior will not be tolerated. A and B are incorrect because punitive damages are not awarded as a matter of principle or to compensate for a foreseeable loss beyond the contract. C is incorrect because compensatory damages would be the appropriate remedy for Pure's loss of the bargain, not punitive damages.

Question 15

Development Associates (DA) agrees to buy five acres of land from Eastside Properties for $15,000. Eastside fails to go through with the deal on the agreed date, when the market price of the land is $17,000. DA may recover
A) $17,000.
B) $15,000.
C) $2,000.
D) $0.

Accepted Answer

The answer of Development Associates (DA) agrees to buy five...

Question 16

Damon contracts to repair the turf on a soccer field for Carousel Sports Park. Damon knows that without the repair, Carousel will have to cancel an upcoming game. Damon does not perform as promised. As consequential damages, Carousel can recover
A) the cost of new turf.
B) the difference between Damon's price and the actual cost of repair.
C) the loss of profit from the canceled game.
D) nothing.

Accepted Answer

Since Damon's failure to repair the turf caused Carousel to cancel a game, they would be able to recover the loss of profit from that game as consequential damages. The cost of new turf or the difference between Damon's price and the actual cost of repair are not necessarily relevant to the damages incurred in this situation.

Question 17

Clear Creek Corporation enters into a contract with Brightside Management Associates to manage and maintain Clear Creek's apartment complex. Their contract provides that neither party can recover damages for a non-fraudulent or unintentional breach. This is
A) a limitation-of-liability clause.
B) an exculpatory clause.
C) a liquidated damages clause.
D) a quasi contract.

Accepted Answer

The clause in the contract that states neither party can recover damages for a non-fraudulent or unintentional breach is a limitation-of-liability clause. This type of clause is commonly used in contracts to limit the amount of liability one party can incur in the event of a breach of contract.

Question 18

Fashion Retail Center enters into a contract with Great Promotions, Inc., to provide Fashion with a plan to retool its merchandising strategy. If Great Promotions breaches the contract, Fashion has a duty to
A) reduce the damages that Fashion might otherwise suffer.
B) reduce the loss that Great Promotions might otherwise suffer.
C) punish Great Promotions and deter others from similar acts.
D) take no action.

Accepted Answer

If Great Promotions breaches the contract, Fashion has a duty to mitigate their damages by taking reasonable steps to minimize the harm caused by the breach. This may include finding another company to retool their merchandising strategy or seeking compensation for any losses incurred. Reducing the damages that Fashion might otherwise suffer is the best course of action in this scenario.

Question 19

Office Accounting, Inc., hires Perry to repair a computer on site for $400, but Perry does not show up as agreed. Office Accounting hires Raul to do the job for $350. Office Accounting may recover from Perry
A) compensatory damages.
B) consequential damages.
C) nominal damages.
D) punitive damages.

Accepted Answer

The answer of Office Accounting, Inc., hires Perry to repair...

Question 20

Fidelio Corporation enters into a contract with Equi Insurance, Inc., to obtain health insurance for Fidelio employees. Equi breaches the contract. If Fidelio is awarded compensatory damages, the purpose would be to
A) establish, as a matter of principle, that Equi acted wrongfully.
B) provide Fidelio with funds for a foreseeable loss beyond the contract.
C) provide Fidelio with funds for its loss of the bargain.
D) punish Equi and set an example to deter others from similar acts.

Accepted Answer

The answer of Fidelio Corporation enters into a contract with...

Quiz 18: Breach of Contract and Remedies

SFX Paintball Games, Inc., and Truck & Trailer Delivery Corporation sign an agreement that provides for the payment of "$1,000 by whichever party commits a material breach of the contract that creates damages difficult to estimate but approximately $1,000." This is

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

Refined Commodities, Inc., agrees to deliver ten tons of sheet metal to Select Builders Corporation. The agreement states that delivery is to be within "3" days, although the parties intend "30" days. Refined cannot convince Select to amend the contract. Refined should seek

Vacation Vistas, Inc., agrees to sell certain acreage to Umiko, who intends to develop a destination resort. Vacation Vistas repudiates the deal. Umiko sues Vacation Vistas and recovers damages. She can now obtain

Rural Power Utility, Inc., enters into a contract with Shovel Excavation Service to dig up, replace, and rebury Rural's cables in a certain location. Rural advances Shovel 10 percent of its cost. The parties rescind the contract. Shovel's refund of the payment is

Lester and Myrtle want to rescind their contract under which Lester sold an MP3 player for $40. To rescind the contract

Consumer Credit Union pays Derby $10,000 to design an ad campaign. The next day, Derby tells the credit union that he has accepted a job in Boston and cannot design the campaign. As compensatory damages, the credit union can recover

To avoid liability for intentional injuries, Northwest Power Corporation includes in its contracts an exculpatory clause. This is

Ray breaches his lease with Sunny Properties and vacates the premises six months before the end of the term. In some states, Sunny would have to

Grady enters into a contract to buy 440 acres from Hollis to expand Grady's ranch. Hollis breaches the contract. Grady's normal remedy is

Karif orally agrees to buy a unique collection of sports memorabilia for $1,000 from Jane and sends her $250 as a down payment. When Karif sends her the rest of the price, Jane refuses to ship the collection. Karif should seek

Even-Flo Hydraulics enters into a contract to repair valves and fittings in Fiesta Company's plant. If Even-Flo breaches the contract, Fiesta can

Rite Contractors, Inc., agrees to build a motel for Sleep Inn Corporation. The project proceeds according to plan, but before it is done, Sleep tells Rite to quit. Rite may recover

Pure Oil Company enters into a contract with QuikBilt, Inc., to construct an offshore oil pipeline to withstand specific conditions. If QuikBilt fails to meet this standard, which is construed as a breach of contract and a breach of a duty of care, Pure might be awarded punitive damages to

Development Associates (DA) agrees to buy five acres of land from Eastside Properties for $15,000. Eastside fails to go through with the deal on the agreed date, when the market price of the land is $17,000. DA may recover

Damon contracts to repair the turf on a soccer field for Carousel Sports Park. Damon knows that without the repair, Carousel will have to cancel an upcoming game. Damon does not perform as promised. As consequential damages, Carousel can recover

Clear Creek Corporation enters into a contract with Brightside Management Associates to manage and maintain Clear Creek's apartment complex. Their contract provides that neither party can recover damages for a non-fraudulent or unintentional breach. This is

Fashion Retail Center enters into a contract with Great Promotions, Inc., to provide Fashion with a plan to retool its merchandising strategy. If Great Promotions breaches the contract, Fashion has a duty to

Office Accounting, Inc., hires Perry to repair a computer on site for $400, but Perry does not show up as agreed. Office Accounting hires Raul to do the job for $350. Office Accounting may recover from Perry

Fidelio Corporation enters into a contract with Equi Insurance, Inc., to obtain health insurance for Fidelio employees. Equi breaches the contract. If Fidelio is awarded compensatory damages, the purpose would be to