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Friday, March 30, 2012
ISU HDFS 276 Quiz 3 SPRING 2012
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
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
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
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
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
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
B13. Refer to Fact Pattern 17-B2. Bell
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
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
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
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
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
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
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
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