Thursday, March 29, 2012

Business Law Texts and Cases 11th Ed, Chapter 17 Multiple Choice, T/F Essay


Chapter 17


Performance and Discharge



true/false questions

A1.      A promise to perform under a contract is never absolute.

            answer:    f                              PAGE:     337                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B1.      The most common way to discharge a contract is by breach.

            answer:    F                              PAGE:     337                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

A2.      When a condition operates to terminate a party’s absolute promise to per­for­m, it is a condition precedent.

            answer:    t                              PAGE:     337                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B2.      If a contract condition is not satisfied, the obligations of the contracting parties are discharged.

            answer:    T                              PAGE:     337                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

A3.      An event must be certain to occur to constitute a contractual condition.

            answer:    F                              PAGE:     337                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B3.      A promise to perform under a contract may be absolute.

            answer:    t                              PAGE:     337                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A4.      Most contracts are discharged by rescission.

            answer:    F                              PAGE:     337                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B4.      A condition precedent must be met before a party’s performance can be required.

            ANSWER:    T                              PAGE:     337                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A5.      A condition subsequent must be met before a party’s performance can be required.

            answer:    f                              PAGE:     338                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B5.      Conditions subsequent are more common than conditions precedent.

            answer:    f                              PAGE:     338                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Critical Thinking

A6.      Concurrent conditions occur only when the parties to a contract are re­quired to per­form their respective duties simultaneously.

            answer:    t                              PAGE:     338                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B6.      A buyer’s duty to pay becomes absolute once a contract is formed.

            answer:    f                              PAGE:     338                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A7.      A seller’s duty to deliver becomes absolute once a contract is formed.

            answer:    F                              PAGE:     338                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B7.      A party normally satisfies its duties under a contract by novation.

            answer:    F                              PAGE:     338                          TYPE:      +
                        NAT: AACSB Analytic                     AICPA Legal

A8.      A party who substantially performs his or her duties under a con­tract can enforce the contract against the other party.

            ANSWER:    T                              PAGE:     339                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B8.      Complete performance occurs when conditions in a contract are fully satisfied.

            answer:    t                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A9.      A contract is substantially performed when performance creates sub­stan­tially the same benefits as those promised in the contract.

            answer:    t                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B9.      Performance that provides a party with most of the benefits of a con­tract, in spite of a deviation from the terms, is substantial performance.

            answer:    T                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A10.    Despite deviations from the specifications in a construction con­tract, a builder can be considered to have substantially per­formed.

            answer:    T                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B10.    An intentional variation from a contract prevents substantial performance.

            answer:    f                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A11.    A contract that involves mechanical fitness is a contract in which per­formance must per­sonally satisfy the party to whom per­formance is owed.

            answer:    F                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B11.    If a contract requires performance to the personal satisfaction of a party, the party to be satisfied must act honestly and in good faith.

            answer:    T                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A12.    Any breach excuses the nonbreaching party’s duty to perform.

            ANSWER:    F                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B12.    Anything less than complete performance is a material breach of contract.

            answer:    F                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A13.    Any breach allows the nonbreaching party to sue for damages.

            answer:    T                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B13.    Any breach discharges the nonbreaching party from the contract.

            answer:    F                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A14.    A breach of contract occurs only when a party fails to perform all of his or her duties under a contract.

            answer:    f                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B14.    Any breach allows the nonbreaching party to cancel the contract.

            ANSWER:    F                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A15.    Anticipatory repudiation discharges a contract.

            answer:    F                              PAGE:     343                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B15.    A party’s refusal to perform an executory contract is a rescission.

            answer:    F                              PAGE:     343                          TYPE:      +
                        NAT: AACSB Analytic                     AICPA Legal

A16.    A settlement agreement that arises out of a dispute over the obligations under a contract may be substituted for the original contract.

            answer:    t                              PAGE:     344                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B16.    To rescind a contract, the parties must make a second agreement that includes consideration.

            answer:    t                              PAGE:     344                          TYPE:      +
                        NAT: AACSB Analytic                     AICPA Legal

A17.    Contracts that are executory on both sides can be rescinded by agreement.

            answer:    T                              PAGE:     344                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B17.    A novation revokes and discharges a prior contract.

            answer:    T                              PAGE:     344                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

A18.    The formation of a contract whose performance will discharge a previous contract is a novation.

            answer:    f                              PAGE:     344                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

B18.    The formation of a substituted agreement that does not involve a third party is a novation.

            answer:    f                              PAGE:     344                          TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A19.    When a contract party alters a written contract, the other party must adapt his or her performance accordingly.

            answer:    F                              PAGE:     345                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B19.    Performance of an accord discharges an original contractual obligation.

            answer:    T                              PAGE:     345                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

A20.    A contract will be discharged if foreseeable circumstances make it impossible to attain the contract’s purpose.

            answer:    F                              PAGE:     348                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

B20.    After a contract is made, a supervening event may make performance impossible and discharge the contract.

            answer:    T                              PAGE:     345                          TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal



multiple choice questions

A1.      Lon enters into a contract to mine limestone in Mica’s quarry, sell it, and share the profits on its sale with Mica. If the duties under this contract are discharged like those under most contracts, the duties will be

a.         assigned.
b.         breached.
c.         performed.
d.         rescinded.

            ANSWER:    C                        PAGE:           337                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B1.      Yvon enters into a contract to manage the operations of Zack’s bank for one year, renewable for subsequent one-year terms. If this contract is discharged like most contracts, it will be

a.         canceled.
b.         delegated.
c.         litigated.
d.         performed.

            ANSWER:    D                        PAGE:           337                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A2.      Belle enters into a contract to subdivide and sell housing lots in Cole’s hillside field if Dell City annexes the property within the next year. Belle’s duty to perform is

a.         absolute.
b.         conditional.
c.         illusional.
d.         irresolute.

            ANSWER:    B                        PAGE:           337                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B2.      Jill contracts to sell Ken her MP3 player for $50. This contract will be fully discharged when Jill and Ken

a.         agree to sign a bill of sale.
b.         exchange the player for the $50.
c.         sign a receipt.
d.         shake hands and go their separate ways.

            ANSWER:    B                              PAGE:     337                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A3.      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:     337                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B3.      Dina contracts to repair a computer for Earl for $100. If Dina does not per­form, Earl must pay

            a.         $100.
            b.         $50.
            c.         $10.
            d.         $0.

            answer:    D                              PAGE:     337                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A4.      Eton and Fiona sign a contract by which Eton agrees to deliver a washing machine on July 31 in exchange for Fiona’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:     338                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B4.      Xavier enters into a contract to operate a Yummy Yogurt franchise, which Yummy agrees to support as long as Xavier maintains his business license. Yummy’s duty to perform is

a.         absolute.
b.         conditional.
c.         licentious.
d.         operational.

            ANSWER:    B                        PAGE:           338                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A5.      Lake Port Services enters into a contract to load Max’s Great Lakes barges with the cargo that Max designates. Lake Port’s offer to perform, when Lake Port is ready, willing, able to do so, is

a.         complete.
b.         substantial.
c.         tender.
d.         tough.

            ANSWER:    C                        PAGE:           338                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B5.      Candy enters into a contract to pay Dino for a business survey and review of Candy’s competitors, which Dino agrees to deliver by July 1. Candy’s offer, on the specified date, to pay Dino is

a.         complete.
b.         substantial.
c.         tender.
d.         tough.

            ANSWER:    C                        PAGE:           338                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A6.      Safe-T Guard Services enters into a contract to secure Taylor’s Business Park from vandalism and theft between 6 p.m. and 6 a.m. nightly for six months. At the end of the term, if there has been no vandalism or theft in the Park, Safe-T’s performance will have been

a.         absolute.
b.         complete.
c.         conditional.
d.         substantial.

            ANSWER:    B                        PAGE:           339                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B6.      Tia signs a lease that states any change in the zoning law that affects the lease will cause its termination. Union City’s zoning board adopts an affecting zoning classification. This adoption satis­fies

            a.         no condition.
            b.         the condition precedent.
            c.         the concurrent condition.
            d.         the condition subsequent.

            answer:    D                              PAGE:     338                          TYPE:      +
                        NAT: AACSB Reflective                                                   AICPA Legal

A7.      Quality Contractors contracts to build a warehouse for Retail Sales Company. Quality completely performs. Retail Storage is entitled to

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

            answer:    D                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B7.      City Restoration Corporation substantially performs its contract with Downtown Apartments, Inc. Downtown is entitled to

            a.         damages.
            b.         nothing.
            c.         specific performance.
            d.         substitute performance.

            answer:    A                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A8.      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:     339                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B8.      Bob signs a five-year contract with CSB, a television station, to host a TV show. One year later, CSB re­places Bob with a younger host. Bob is paid, but does not appear on TV. Bob sues CSB for breach of contract. The court is most likely to rule in favor of

a.         Bob, because he lost the opportunity to build and maintain his pro­fessional marketability.
b.         Bob, only if he was at the top of the ratings when he was replaced.
c.         CSB, because it continues to pay Bob.
d.         CSB, because there is no breach of contract.

            answer:    A                              PAGE:     339                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-A1 (Questions A9–A10 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.

A9.      Refer to Fact Pattern 17-A1. Neil’s performance is most likely

a.         a material breach.
b.         a minor breach.
c.         Mutual’s breach.
d.         no breach.

            ANSWER:    A                        PAGE:           341                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B9.      Building Restoration, Inc. (BRI), enters into a contract to refurbish an old train depot for Casual Dining, Inc., to open as Eat Up Restaurant. If BRI completes most of the work promised in the contract, its performance will be

a.         absolute.
b.         complete.
c.         material.
d.         substantial.

            ANSWER:    D                        PAGE:           339                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-A1 (Questions A9–A10 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.

A10.    Refer to Fact Pattern 17-A1. With respect to Mutual’s duties, Neil’s performance most likely

a.         discharges Mutual from the contract.
b.         has no effect on Mutual’s performance.
c.         increases Mutual’s duties under the contract.
d.         suspends Mutual’s duty to perform.

            ANSWER:    A                        PAGE:           341                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-B1 (Questions B10–B11 apply)
Kip sells an apartment building to Lacy with a promise to repair the roof, which violates the local housing code, within six months. One year later, Kip sends Milo, a carpenter, to fix the roof. Lacy orders Milo to leave and refuses to make further payments to Kip, who files a suit against Lacy.

B10.    Refer to Fact Pattern 17-B1. Kip’s late attempt to fix the roof is most likely

a.         a material breach.
b.         complete performance.
c.         excused by Lacy’s refusal to make further payments.
d.         substantial, but not complete, performance.

            answer:    A                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A11.    Hu contracts with Internet Service, Inc. (ISI), to pay $500 for its serv­ices. After ISI performs, they sign an accord, in which Hu promises to pay $400 within ten days instead of $500. Hu does not pay. ISI can sue Hu 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:     344                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-B1 (Questions B10–B11 apply)
Kip sells an apartment building to Lacy with a promise to repair the roof, which violates the local housing code, within six months. One year later, Kip sends Milo, a carpenter, to fix the roof. Lacy orders Milo to leave and refuses to make further payments to Kip, who files a suit against Lacy.

B11.    Refer to Fact Pattern 17-B1. Lacy’s refusal to make further payments is most likely

a.         a material breach.
b.         complete performance.
c.         excused by Kip’s failure to fix the roof.
d.         substantial, but not complete, performance.

            answer:    C                              PAGE:     341                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A12.    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.

            ANSWER:    B                              PAGE:     344                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-B2 (Questions B12–B13 apply)
Bell Medical Education Service enters into a contract to employ Chris as an instructor for two years to begin May 1. One month before the term begins, Bell is underbid by a competitor and loses a major client, Delta Hospital Center. Bell now refuses to hire Chris.

B12.    Refer to Fact Pattern 17-B2. Under the circumstances, with respect to damages, Chris can

a.         bring an action immediately.
b.         bring an action only after the contract’s two-year term begins.
c.         bring an action only after the contract’s two-year term ends.
d.         do nothing.

            ANSWER:    A                        PAGE:           343                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A13.    Ruth contracts to provide Shelly 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:     346                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-B2 (Questions B12–B13 apply)
Bell Medical Education Service enters into a contract to employ Chris as an instructor for two years to begin May 1. One month before the term begins, Bell is underbid by a competitor and loses a major client, Delta Hospital Center. Bell now refuses to hire Chris.

B13.    Refer to Fact Pattern 17-B2. Bell’s repudiation is most likely

a.         a material breach.
b.         a minor breach.
c.         Chris’s breach.
d.         no breach.

            ANSWER:    A                        PAGE:           343                          TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-A2 (Questions A14-A16 apply)
Eve, who owns and operates Eve’s Garden, agrees to sell Fresh Produce Company ten bush­els of apples.

A14.    Refer to Fact Pattern 17-A2. 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.

            ANSWER:    C                              PAGE:     346                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B14.    Super Toolmakers, Inc., contracts to sell its business to True Hardware Corpo­ration. Before either party has performed, rescission of this con­tract requires

a.         a mutual agreement to rescind.
b.         consideration.
c.         performance by all of the parties.
d.         none of the choices.

            ANSWER:    A                              PAGE:     344                         TYPE:      =
                        NAT: AACSB Reflective                  AICPA Legal

Fact Pattern 17-A2 (Questions A14-A16 apply)
Eve, who owns and operates Eve’s Garden, agrees to sell Fresh Produce Company ten bush­els of apples.

A15.    Refer to Fact Pattern 17-A2. Through no fault of Eve’s Garden, a fire de­stroys the apples before they are delivered. This circumstance

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

            ANSWER:    B                              PAGE:     346                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B15.    Roy and Sheila are parties to a contract. They subse­quently agree that Tony should take Roy’s place and assume all of his rights and duties under the contract. This is

            a.         a novation.
            b.         an accord and satisfaction.
            c.         an assignment.
            d.         a modification.

            answer:    a                              PAGE:     344                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

Fact Pattern 17-A2 (Questions A14-A16 apply)
Eve, who owns and operates Eve’s Garden, agrees to sell Fresh Produce Company ten bush­els of apples.

A16.    Refer to Fact Pattern 17-A2. 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:     346                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B16.    Mona and Nero want to discharge their contract by executing and per­forming a new agreement. They can best accomplish this by

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

            ANSWER:    A                              PAGE:     344                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A17.    Standard Construction, Inc. (SCI), contracts to build a store for Tasty Confection 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.

            ANSWER:    B                              PAGE:     346                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B17.    On April 1, KO Contractors, Inc., contracts to build a store for Lo-Cost Jewelry at a specific location in Metro City. On May 1, Metro changes its zoning laws to prohibit the construction of a commercial building at that location. Lo-Cost files a suit against KO. In this situation

a.         KO is in breach of contract.
b.         Lo-Cost is in breach of contract.
c.         the contract is discharged.
d.         the contract is suspended.

            ANSWER:    C                              PAGE:     346                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A18.    Luke is a farmer. When bad weather destroys his crop, his obliga­tion to deliver that crop un­der an existing 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:     346                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B18.    Diners Restaurant signs an agreement with Eagle Bank to borrow $10,000 at 20 percent interest. Later, the state legislature passes a law lowering the maximum permissible rate of interest from 15 per­cent. Diners’ best argument for avoiding payment to Eagle is that

            a.         performance of the contract is commercially impossible.
            b.         the agreement violates the mirror image rule.
            c.         the law has rendered performance of the contract illegal.
            d.         the specific subject matter of the contract has been destroyed.

            answer:    C                              PAGE:     346                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A19.    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.

            ANSWER:    C                              PAGE:     346                         TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B19.    Rod operates a scrap metal business and contracts to provide ten tons of scrap steel at $50 per ton to be delivered to Pablo in six months. An un­fore­seen shortage of scrap steel suddenly develops, making it impossible for Rod to fulfill his contract for less than $500 per ton. Rod’s best de­fense against performing the contract would be

            a.         the mirror image rule.
            b.         impossibility of performance.
            c.         commercial impracticability.
            d.         none of the choices.

            answer:    c                              PAGE:     346                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A20.    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:     348                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B20.    Flo agrees to work as Gary’s personal accountant for one year but dies in the sixth month of the contract. Flo’s estate

a.         is discharged from any contractual liability.
b.         must find a competent accountant to fulfill the contract.
c.         must pay liquidated damages.
d.         must refund any money paid to Flo on the contract.

            answer:    a                              PAGE:     346                          TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal



Essay Questions

A1.  Elin contracts to buy six cases of vintage Fertile Valley wine from Grapes & Vines Winery for $1,200. The contract states that delivery is to be made at Elin’s residence "on or before May 1, to be used for daughter's wedding reception on May 2." On May 1, Grapes & Vines’s delivery van is involved in an accident, and no wine is delivered that day. On the morning of May 2, Elin buys the wine from Happy Hill Winery. That afternoon, just before the reception, Grapes & Vines tenders delivery of the wine at Elin’s residence. Elin refuses tender. Grapes & Vines sues Elin for breach of contract. How is the court most likely to rule?

ANSWER:    In most courts, the decision will rest on whether the inclusion of the contract clause “to be used for daughter’s wedding reception on May 2” created an ex­press condition render­ing the time of performance vital to the purpose of the contract.  If the time stated is of the essence, the time for performance must be strictly complied with.  Any failure of full per­formance constitutes a material breach and discharges any duty or liability of the other party.  If the time for per­formance is not of the essence, a reasonable time for perfor­mance is allowed.  A late performance in such a case does not constitute a material breach, but the party rendering late performance is liable for damages caused by the de­lay.  In this case, although May 2 would ordinarily be a reasonable time for perfor­mance, the inclusion of the phrase giving the use of the wine and date of the recep­tion would render the time vital to performance and would require strict compliance. Grapes & Vines’s failure to deliver on May 1 is a material breach releasing Elin from any liability under the contract.

PAGES:         338–343                    type:   N
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

B1.      Able Builders, Inc., contracts with Beach Investment Company to build a Cool Juice ‘n Fruit stand near Delta Beach. The work is to begin on April 1 and be done by June 1, so that the stand can open for the summer. Able does not finish until June 14. The stand opens but Beach Investment loses two weeks’ early summer sales due to the delay. Is Beach Investment’s duty to pay for the construction of the stand discharged?

ANSWER:    No. Able substantially per­formed its du­ties under the con­tract with Beach Investment. Assuming the performance and the delay was in good faith, Able could successfully sue Beach Investment for the value of the work performed if Beach Investment attempts to avoid pay­ing under their contract. For the sake of fairness, Beach Investment will be held to the contractual duty to pay, but may be able to deduct reason­able damages for the missed contract dead­line.

            PAGES:         339–341                 type:      =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

A2.  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:         339–341                    type:   =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

B2.      Fred, the owner and manager of Green Grocer Store, contracts to buy sixty crates of fresh peaches from Holly, the owner and manager of Ideal Farms. Suppose that Holly dies before she can harvest and deliver the peaches. How does Holly’s death affect their contract? If Holly does not die, but does not deliver, and Fred suffers a loss, is there any limit to the time within which Fred can file a suit against Holly for breach of con­tract? If so, how might Fred extend this time?

ANSWER:    Holly’s death, before fulfilling the contract, dis­charge both the contract and Holly’s estate’s liability for her nonperformance. If Holly does not die, but does not deliver, there is a limit on how long Fred has to file a suit for breach of contract. Statutes of limitations limit the period during which a party can sue on a cause of action. The running of a limi­tations statute does not extinguish the contrac­tual obligation, how­ever—the obligor can revive it by making a new promise to perform. Thus, if the time has run out, the breaching party can make a new prom­ise to perform, for which it can be held liable.

            PAGE:           345                          type:      =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling


2 comments:

  1. Do you know how can I get the rest of the test bank? Or if you have it; can you please upload more ASAP? Thanks, much appreciated.

    ReplyDelete