Chapter 14: the Termination of Contracts: Breach of Contract 1

Chapter 14: The Termination of Contracts: Breach of Contract 1

CHAPTER 14

The Termination of Contracts: Breach of Contract

KEY POINTS IN THE CHAPTER

Contracts are usually breached after the performance date. To breach a contract means that one party without excuse fails to perform his or her obligations under the terms of the contract. This type of breach would be labeled as an actual breach. Sometimes a contract is breached before the performing date. This type of breach is called an anticipatory breach. The party obligated to perform simply says: “I am not going to perform for whatever reason.”
Money damages, the most frequently granted remedy for breach of contract in a court of law, may be (1) compensatory, (2) liquidated, (3) nominal, or (4) punitive. However when money alone does not provide satisfaction to the injured party, courts provide equitable remedies called rescission, specific performance, and injunction.
Breaches are of two types: material (failure to perform substantially the obligations required by a contract), and minor (less significant than a material breach). When a minor breach occurs both parties must still perform but with the injured party legally free to seek damages. A material breach allows the injured party to end the contract. He or she is excused from further performance and may pursue money damages.
As soon as a breach occurs, the injured party has a duty to mitigate (minimize) the damages.
The defendant in a breach-of-contract suit may claim such defenses as fraud, duress, undue influence, and mutual mistake. These four acts also make a contract void or voidable by the victim.
Other defenses for a breach of contract suit include bankruptcy and the statute of limitations.

MULTIPLE-CHOICE QUESTIONS

Circle the letter of the best answer.

1.In seeking damages, the victim of a breach of contract has a duty to

a.increase the amount of the damages.

b.mitigate the damages.

c.liquidate the damages.

d.rescind the contract.

2.Aman had a written employment contract with Bagden for one year at a $48,000 salary, payable at the rate of $4,000 a month. Aman worked for five months, collected $20,000, and then was discharged without cause. Within a few days, he found another job at a lower salary and sued Bagden for breach of contract. The greatest amount that Aman can recover legally is

a.$48,000.

b.$28,000.

c.$28,000 minus his earnings on the new job.

d.$20,000 minus his earnings on the new job.

3.Marriott agreed to do some electrical work for Bastiuk for $500. The terms of the contract called for one-half of the contract price to be paid once the work began. When Marriott began work and requested $250, Bastiuk offered only $175. Bastiuk’s action would be considered

a.substantial performance.

b.an alteration.

c.a breach of contract.

d.a rescission.

4.Manix sued Cartright for breach of contract. The court awarded Manix damages of $1. This award is known as

a.liquidated damages.

b.nominal damages.

c.premeditated damages.

d.mitigated damages.

5.Falvo entered into a contract with Mathis to build an addition to Mathis’s house. The price agreed on was $25,000. Falvo failed to do the work, so Mathis contracted with Baily to do the work for $24,000. Mathis then sued Falvo for breach of contract and sought $1,000 in damages. The court probably will rule in

a.Mathis’s favor for $1,000 because Falvo breached the contract.

b.Mathis’s favor but only for nominal damages.

c.Falvo’s favor because Mathis did not suffer a loss.

d.Falvo’s favor because Mathis saved money as a result of the breach.

6.The statute of limitations

a.specifies the time within which a lawsuit can be filed.

b.requires that certain contracts be in writing.

c.requires the use of written evidence of an action at a trial.

d.contains the same provisions in all of the United States.

7.Feingold contracted to sell Betz an original letter written by George Washington, for $25,000. Both thought the letter was authentic, but it turned out to be a reproduction. Betz now wants to avoid the contract. The most appropriate remedy is

a.punitive damages.

b.compensatory damages.

c.specific performance.

d.rescission of the contract.

8.The basis of fraud is

a.a misrepresentation of opinion.

b.an act of violence.

c.a threat of force.

d.concealment or misrepresentation of a material fact.

9.Perry sold an old ring to Weeks for $10. Later Perry learned that the ring was worth $500. If Perry sues, she legally is entitled to recover

a.$500.

b.the ring.

c.$490.

d.nothing.

10.All of the following are legal reasons for exercising the right to rescind a contract except

a.duress.

b.minority.

c.unilateral mistake.

d.fraud.

TRUE- FALSE QUESTIONS

Indicate whether each statement below is true or false by circling T or F in the column on the left.

1.TFOne of the elements necessary to establish fraud is a false statement or concealment of a material fact.

2.TFMoney damages awarded to an injured party by law should place the person in the same position he or she would have been in if the contract had been carried out.

3.TFUndue influence renders a contract voidable by either party.

4.TFA mutual mistake about the identity of the subject matter does not affect the validity of the contract.

5.TFGugel, a used-car dealer, told Billings, a prospective customer, “This is the best used-car value in town.” Relying on this statement, Billings bought the car but soon discovered that it had been substantially overpriced. Billings can avoid the contract on the basis of fraud.

6.TFWhen money damages do not adequately and fairly compensate for a loss, the injured party can sue for specific performance or request a court to issue an injunction.

7.TFNeilson requested a catalog from Noom Brothers. She used an order form to order some jewelry but entered an incorrect catalog number. As a result, she received jewelry she did not want. Neilson has a legal right to return the jewelry because her mistake voided the contract.

8.TFSpecific performance generally is granted in contracts for the sale of real property.

9.TFA person who conceals a material fact is guilty of fraud if the concealment prevents the victim from discovering the truth.

10.TFA court will not enforce a liquidated damages clause if the stated amount appears to be a penalty.

SHORT-ANSWER QUESTIONS

Answer each of the following questions in the space provided.

1.Describe the two major types of remedies allowed by the courts to the victims of a breach of contract.

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2.If a breach is material, what rights does the injured party have?

______

3.Explain the meaning of the following: “As soon as a breach occurs, the injured party has a duty to mitigate the damages.”

______

4.The injured party can waive his or her rights when the other party to the contract breaches the contract. What is the legal effect of this waiver?

______

5.Under what conditions can an injured party demand specific performance when a contract has been breached?

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