Ch17-TB1-WBL-10e

Chapter 17

Performance and Discharge

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. A promise to pay in exchange for a promise of performance becomes an absolute duty when the agreement is formed.

ANSWER: F PAGE: 324 TYPE: =

2. When a condition operates to terminate a party’s absolute promise to perform, it is a condition precedent.

ANSWER: T PAGE: 324 TYPE: =

3. A condition subsequent must be met before a party’s performance can be required.


4. Conditions precedent are more common than conditions subsequent.

ANSWER: T PAGE: 325 TYPE: N

163

164 TEST BANK 1: UNIT THREE: CONTRACTS AND E-CONTRACTS

5. Concurrent conditions occur only when the parties to a contract are required to perform their respective duties simultaneously.


CHAPTER 17: PERFORMANCE AND DISCHARGE 165

6. A seller’s duty to deliver becomes absolute once a contract is formed.


7. Most contracts are discharged by operation of law.


8. When one party substantially performs his or her duties under a con-tract, the other party is required to fully perform.

ANSWER: F PAGE: 326 TYPE: +

9. A contract is substantially performed when performance creates sub-stantially the same benefits as those promised in the contract.


10. Despite deviations from the specifications in a construction contract, a builder can be considered to have substantially performed.


11. A contract that involves mechanical fitness is a contract in which performance must personally satisfy the party to whom performance is owed.


12. Any breach excuses the nonbreaching party’s duty to perform.

ANSWER: F PAGE: 328 TYPE: N

13. Any breach allows the nonbreaching party to sue for damages.


14. A breach of contract occurs only when a party fails to perform all of his or her duties under a contract.

ANSWER: F PAGE: 328 TYPE: N


15. Anticipatory repudiation often occurs when price fluctuations render performance of a contract extremely unfavorable to one of the parties.


16. Anticipatory repudiation discharges a contract.


17. Contracts that are executory on both sides can be rescinded by agreement.


18. The formation of a contract whose performance will discharge a previous contract is a novation.


19. An innocent party is discharged when the other party alters a written contract without consent.


20. Foreseeable bad weather conditions can excuse a party from performing a contract on the ground of commercial impracticability.


MULTIPLE CHOICE QUESTIONS

1. Don agrees to buy Ed’s Bicycle Store on the condition that First State Bank approves the financing. This approval is

a. a concurrent condition.b. a condition precedent.c. a condition subsequent.d. a solvent condition.

ANSWER: B PAGE: 324 TYPE: +


2. Jay and Kim enter into a contract by which Jay agrees to sell Kim his laptop computer for $500. The contract will be fully discharged when

a. Jay and Kim sign the contract.b. Jay gives possession of the computer to Kim.c. Kim pays Jay $500.d. both b and c.

ANSWER: D PAGE: 325 TYPE: =

3. Fred and Ed sign a contract by which Fred agrees to deliver a washing machine on July 31 in exchange for Ed’s promise to pay the $500 purchase price on July 31. The delivery of the washing machine and the payment of $500 are examples of

a. conditions precedent.b. concurrent conditions.c. conditions subsequent.d. illegal conditions.

ANSWER: B PAGE: 325 TYPE: =

4. Quality Contractors contracts to build a warehouse for Retail Storage Company. Quality completely performs. Retail Storage is entitled to

a. damages.b. rescission.c. specific performance.d. nothing more.

ANSWER: D PAGE: 325 TYPE: =

5. Protective Finishes, Inc. (PFI), agrees to paint Quinn’s house, using a particular brand of “discount” paint. PFI completes the job but uses a different brand of discounted paint. This is most likely

a. a complete excuse for Quinn’s refusal to pay.b. a material breach.c. complete performance.d. substantial performance.

ANSWER: D PAGE: 326 TYPE: N


6. AAA Autos contracts to sell a customized car to Barb. AAA installs a slightly used engine in the car, arguing that a new engine would be too costly. Barb sues AAA. The court will most likely rule in favor of

a. AAA, because a used engine is the same quality as a new engine.

b. AAA, if the difference between the used and new engines is trivial.

c. Barb, because the engine is not precisely what Barb wanted.d. Barb, if there is any difference between the used and new

engines.



7. In Case 17.1, Jacob & Youngs, Inc. v. Kent, the court held that

a. once a contractor substantially performs the tasks that the contractor contractually agreed to perform, the contractor has no further obligation to the other party to the contract.

b. substantial performance is never a substitute for perfect and complete performance.

c. once a contractor substantially performs the tasks that the contractor contractually agreed to perform, the contractor is not obligated to complete performance but must compensate the other party for the difference in value between substantial and complete performance of the contract.

d. in the construction business, all performance is substantial performance.

ANSWER: C PAGE: 326 TYPE: N

8. Digital Data Company and E-Services, Inc., enter into a contract. A material breach of their contract will occur

a. if a party’s performance is complete, but not substantial.b. if a party’s performance is substantial, but not complete.c. if a party’s performance is neither complete nor substantial. d. only if a party completely fails to perform.

ANSWER: C PAGE: 328 TYPE: =

9. Jean contracts to sell her car to Kyla for $2,000. Before performing, Jean and Kyla decide to cancel the deal. This is an example of

a. a material breach.b. an anticipatory repudiation.c. a novation.d. a rescission.

ANSWER: D PAGE: 332 TYPE: +

10. Nora and Owen decide to rescind their contract. They must form

a. an accord.b. a novation.c. a second agreement that includes an offer, acceptance, and

consideration.


d. a second agreement that includes an offer and acceptance, but no consideration.

ANSWER: C PAGE: 332 TYPE: =


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

a. accord and satisfaction.b. novation.c. reinvention.d. specific performance.


12. Hal contracts with Internet Services, Inc. (ISI), to pay $500 for its services. After ISI performs, they sign an accord, in which Hal promises to pay $400 within ten days instead of the $500. Hal does not pay. ISI can sue Hal under

a. neither the accord nor the contract.b. the accord only.c. the accord or the contract.d. the contract only.

ANSWER: C PAGE: 333 TYPE: +

13. Standard Construction, Inc. (SCI), contracts to build a store for Totally Chocolate Company (TCC), with TCC’s payment due on June 1. On June 1, TCC’s bank is closed, and for this reason, TCC claims it cannot pay SCI on time. In this situation

a. SCI is in breach of contract.b. TCC is in breach of contract.c. the contract is discharged.d. the contract is suspended.


14. Ruth contracts to provide Stan with fifty hours of telepathic personal coaching. The state legislature subsequently passes a law making telepathic personal coaching illegal. This law will

a. discharge the contract.b. fulfill the contract.c. not affect the contract.d. require immediate performance of the contract.


ANSWER: A PAGE: 334 TYPE: N

15. Luke is a farmer. When bad weather destroys Luke’s crop, his obliga-tion to deliver that crop under an outstanding contract with Macro Food Corporation is

a. discharged.b. enforced completely.c. enforced only to the extent of finding an alternative supply.d. enforced only to the extent of transferring to the next year’s

crop.

ANSWER: A PAGE: 334 TYPE: +

Fact Pattern 17-1 (Questions 16-18 apply)Eve, who owns and operates Eve’s Garden, agrees to sell Fresh Produce Company ten bushels of apples.

16. Refer to Fact Pattern 17-1. Eve dies before the apples are delivered to Fresh Produce. This circumstance

a. breaches the contract.b. discharges the contract.c. has no effect on the contract.d. suspends the contract.


17. Refer to Fact Pattern 17-1. Through no fault of Eve’s Garden, a fire destroys the apples before they are delivered to Fresh Produce. This circumstance

a. breaches the contract.b. discharges the contract.c. has no effect on the contract.d. suspends the contract.


18. Refer to Fact Pattern 17-1. A strike delays delivery of the apples by ten days. This circumstance

a. breaches the contract.


b. discharges the contract.c. has no effect on the contract.d. suspends the contract.

ANSWER: D PAGE: 336 TYPE: +

19. Frank agrees to lease an apartment from Gina for one day to see Harry, the president of the United States, deliver a speech in the street below. The speech is canceled ten days before its delivery date. The contract

a. is discharged.b. is not affected.c. is postponed until another event is scheduled.d. must be performed immediately.

ANSWER: A PAGE: 336 TYPE: N

20. Sam contracts to harvest Tina’s crop on August 1. Due to bad weather, Sam cannot perform on the specified date. In this situation

a. Sam is in breach of contract.b. the contract is discharged.c. the contract is suspended.d. Tina is in breach of contract.


ESSAY QUESTIONS

1. Investment Properties, Inc., hires Commercial Construction Company (CCC) to renovate the interior of Investment’s office building. CCC submits plans that Investment approves. CCC completes the major reconstruction, paints the interior, and buys the fixtures and furnishings. Investment rejects some of the furnishings because they do not match the plans, and subsequently refuses to allow CCC to finish the work or to collect payment. Could CCC sue successfully for payment for the entire contract?

ANSWER: No, but CCC could sue successfully to collect for the value of the work actually performed. When the performance on a construction contract is substantial, the deviations are minor, and


the failure to perform completely is not willful (that is, the performance is in good faith), the party who substantially performed is entitled to collect payment for that performance. The amount of the payment is the contract price less the costs to make the performance complete. When the cost to complete the performance is high in relation to the contract price, the party is entitled to the contract price less the amount by which the object of the contract is diminished in value by the failure to completely perform. In this problem, the “breach” may have been so minor that it was no breach at all, because Investment was not denied the benefit of its bargain by CCC’s conduct. In that case, Investment rejected CCC’s good faith tender of complete performance, and this rejection would allow CCC to collect payment for the work.

PAGES: 326–327 TYPE: =

2. Quest Resources, Inc, contracts with Ring Communications Corporation (RCC) for RCC to design and build an all-weather communications system for Quest’s field operations. RCC builds the system, but it functions effectively only in good weather. Is this a breach of the contract? If so, what remedies does Quest have?

ANSWER: Performance far below reasonable expectations is not substantial. When performance is not substantial, a breach is material. The nonbreaching party is excused from performing and can sue for damages caused by the breach. Any breach entitles the nonbreaching party to sue for damages, but only a material breach discharges the nonbreaching party from the contract. In this question, the contract asked for an all-weather communications system, but the system functioned effectively only in good weather. Thus, Quest is excused from paying for the system and can sue for damages caused by the breach.

PAGES: 328–330 TYPE: N

Ch17-TB1-WBL-10e

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