Module 7 Module Quiz - CL611 Contracts II

Module 7 Module Quiz - CL611 Contracts II

Attempt Score: 4.5 / 5 - 90%

Overall Grade (Highest Attempt): 4.5 / 5 - 90%

Question 1 (0.5 / 0.5 points)

Owner hires Contractor to build and landscape an in-ground swimming pool, with half of the price payable upfront and the balance due on completion. After receiving the upfront payment and months of delays, but before commencing work, Contractor abandons the job. If Owner decides not to have someone else build the pool, when Owner sues Contractor, Owner will recover:

a) the difference between the market price and the contract price.

b) the amount of the upfront payment. (Selected - Correct)

c) incidental expenses related to Contractor's breach.

d) both B and C.

Feedback/Explanation:

B is correct; Owner will recover the amount of the upfront payment. A is incorrect because Owner has not sought substitute performance; there is no market price to compare the contract to, making the standard measure of damages ineffective as a remedy. C is incorrect because nothing in the facts indicates that Owner had any incidental expenses related to Contractor's breach. See Hornbook Section 13.04.

Question 2 (0 / 0.5 points)

Owner hires Contractor to build and landscape an in-ground swimming pool, with half of the price payable upfront and the balance due on completion. Contractor receives the upfront payment, clears the site, and excavates the hole for the pool before abandoning the job. It costs Owner $2,000 to fill the hole. If Owner decides not to have someone else build the pool, when Owner sues Contractor, Owner will recover:

a) the amount of the upfront payment.

b) the upfront payment amount, plus the cost of filling the hole. (Selected - Incorrect)

c) the amount of the upfront payment, plus the cost of filling the hole, offset by the value of having the site cleared.

d) none of the above.

Feedback/Explanation:

C is the best answer. Owner will recover the upfront payment amount plus the cost of filling the hole as expenses incidental to Contractor's breach, offset by the value of having the site cleared. A is correct as far as it goes, but leaves out Owner's ability to recover incidental damages and the offset for the value of having the site cleared. B is correct as far as it goes but leaves out the offset for the value of having the site cleared. See Hornbook Sections 13.05 and 13.06.

Question 3 (0.5 / 0.5 points)

Musician ordered Store's best-selling piano model. With the options that Musician selected, delivery took six weeks. When Store emailed to inform Musician that the piano had arrived, Musician was no longer interested in buying the piano. Store can resell the piano for the same price. If Store sues Musician for breach of contract, Store will be able to recover:

a) the profits lost from the sale to Musician.

b) the difference between the market price and the contract price.

c) any incidental expenses incurred to resell the piano.

d) both A and C. (Selected - Correct)

Feedback/Explanation:

D is correct. As a lost volume seller, Store will recover the profits lost from the sale to Musician together with any incidental expenses incurred to resell the piano. B is incorrect; since the piano was resold for the same price, the standard measure of damages would provide no remedy for Store. See Hornbook Section 12.05[B] and Neri v. Retail Marine Corporation.

Question 4 (0.5 / 0.5 points)

Dairy contracts with Packer to package all of Dairy's ice cream output for a year. The contract provides that Dairy will pay Packer for a minimum stated amount of packaging, regardless of whether Diary actually ships that amount of ice cream for packaging. Due to production problems, Dairy's annual ice cream production is less than half of the stated amount. When Packer sues Dairy for payment of the minimum stated amount, Packer will:

a) prevail because the parties agreed that Dairy would pay Packer for a minimum stated amount of packaging.

b) prevail because Dairy has breached the contract.

c) not prevail because the provision that Dairy would pay Packer for a minimum stated amount of packaging is an unenforceable penalty. (Selected - Correct)

d) not prevail because Dairy provided a lesser amount in good faith.

Feedback/Explanation:

C is correct. The provision of the contract under which Dairy would pay Packer for a minimum stated amount of packaging is an unenforceable penalty because it is not reasonably related to the actual amount of loss suffered (which is why A is incorrect). B is incorrect. Dairy has not breached the contract. D is incorrect because while Dairy did provide a lesser amount in good faith, this fact is irrelevant to whether the stated minimum amount of compensation is a penalty. See Lake River Corp. v. Carborundum Co.

Question 5 (0.5 / 0.5 points)

Hoping to build on his fame as a three-time winner of the Tour de France, Cyclist decides to go into the bicycle business and enters into a five-year lease with Owner for retail space for Cyclist's new bicycle shop. In the lease, the parties agree that in the event of breach by Owner, damages shall be $50,000. On the date for move in, Owner has leased the premises to another party and refuses to give Cyclist access to the premises. Cyclist is able to lease other premises and, six months later, opens the business; in the first six months of business, Cyclist's net profit is $53,000. When Cyclist sues Owner for breach of contract, Cyclist will recover:

a) the profits from Owner's lease of the premises to another party.

b) $53,000.

c) $50,000. (Selected - Correct)

d) both A and B.

Feedback/Explanation:

C is correct. Cyclist will be able to recover liquidated damages of $50,000. The liquidated damages clause will be enforceable because (a) damages were difficult to estimate at the time of contract formation (Cyclist had never operated a bicycle shop before) and (b) the amount of liquidated damages ($50,000) is reasonably related to the actual losses suffered — profits from the first six months of business ($53,000). A and B are incorrect; where there is an enforceable liquidated damages clause, it will be the exclusive remedy for any breach to which it is applicable. See the "Liquidated Damages and Limitations on Damages" video in Module 6 and Hornbook Section 14.03.

Question 6 (0.5 / 0.5 points)

After analyzing the market in City, Velodrome, a national chain of bicycle shops, enters into a five-year lease with Owner for retail space in City for Velodrome's latest location. In the lease, the parties agree that in the event of breach by Owner, damages shall be $500,000. Velodrome spends $50,000 ordering signs and advertising for the location. On the date for move in, Owner has leased the premises to another party and refuses to give Velodrome access to the premises. Velodrome decides not to open a location in City. When Velodrome sues Owner for breach of contract, Velodrome will recover:

a) $500,000.

b) Consequential damages arising from Owner's breach.

c) Incidental damages arising from Owner's breach. (Selected - Correct)

d) none of the above.

Feedback/Explanation:

C is correct; Velodrome will be able to recover $50,000 in incidental damages arising from Owner's breach (incidental damages include expenses made in reliance on the contract), which is why D is incorrect. A is incorrect; Velodrome will not be able to recover liquidated damages because (a) damages were not difficult to estimate at the time of contract formation (Velodrome is a national chain that had done a market analysis, making it easy to estimate the losses that would arise from Owner's breach), and (b) the amount of liquidated damages ($500,000) is not reasonably related to the actual losses suffered ($50,000). B is incorrect. Consequential damages are only recoverable if foreseeable; there is no information regarding consequential damages, much less their foreseeability. See Hornbook Section 14.02.

Question 7 (0.5 / 0.5 points)

Giant contracts to buy Parts, a regional chain of auto parts stores, from Mega for $100,000,000, intending to re-brand the stores and add them to Giant's competing auto parts store chain, Gasket. Because of the risk of brand dilution and potential for loss of goodwill and customers, Giant insists that the contract include a provision capping Giant's liability at $25,000,000 if the deal falls through. After numerous delays and much bad publicity from social media speculation over possible store closures, Giant is unable to obtain favorable financing terms and cancels the deal. A few months later, Mega is able to sell Parts to another buyer for $70,000,000. In a suit for breach of contract, Mega will be able to recover:

a) $25,000,000. (Selected - Correct)

b) $30,000,000.

c) $70,000,000.

d) $100,000,000.

Feedback/Explanation:

A is correct. While Mega's losses from the breach are $30,000,000, because this is a commercial contract between private parties, the limitation on damages will be enforceable, and Mega's recovery will be limited to $25,000,000 (which is why B is incorrect). C and D are incorrect; the correct measure of damages (absent a limitation on damages) would be the contract price minus the market price (in this case, $30,000,000), not either the market price or the contract price. See Wedner v. Fidelity Security Systems, Inc.

Question 8 (0.5 / 0.5 points)

Singer contracts with Casino to perform two shows a night, six days a week, for a year for $15,000,000. In anticipation of Singer's performances, Casino spends $3,000,000 on advertising and publicity, including modifications to Casino's marquee to display Singer's name and likeness. Before opening night, Casino learns that Singer has signed a $25,000,000 deal with one of Casino's competitors and won't be performing at Casino. When Casino sues Singer for breach of contract, the court will order Singer to:

a) perform as promised.

b) pay Casino $3,000,000. (Selected - Correct)

c) pay Casino $10,000,000.

d) both A and B.

Feedback/Explanation:

B is correct; Casino will be able to recover incidental damages for Singer's breach (including expenses made in reliance on the contract). A is incorrect because the contract is for personal services; the court will not order specific performance. C is incorrect; Casino will not be able to recover Singer's additional compensation from the other contract. See Hornbook Sections 15.03 and 15.03[C].

Question 9 (0.5 / 0.5 points)

Martin enters into a contract to sell Lindenwald, his home, to William with a 10% down payment. Lindenwald was William’s childhood home that the family had been forced to sell when William’s mother’s business failed. When the day comes for the closing (the meeting at which the price is paid and ownership is transferred), Martin refuses to sell. When William sues Martin for breach of contract, the court will order Martin to:

a) refund William's 10% deposit.

b) transfer ownership of Lindenwald to William.

c) transfer ownership of Lindenwald to William, with William paying the remaining 90% of the price. (Selected - Correct)

d) pay William the difference between the market price and the contract price.

Feedback/Explanation:

C is the best answer. As a contract for the purchase of real property as singular as William's childhood home, money damages and restitution are both unlikely to be adequate remedies, meaning that the buyer will be able to receive specific performance. C is the best answer because it articulates the responsibility of the buyer when specific performance is ordered (that is, to complete performance if performance is incomplete). A is incorrect; restitution in the amount of William's deposit is an inadequate remedy for a buyer seeking to purchase real property with such a deep personal attachment; restitution may also be an adequate remedy absent such a personal connection. B is correct as far as it goes, but C more fully articulates the approach that specific performance will require and is the best answer. D is incorrect, as William cannot purchase his childhood home of Lindenwald from anyone else, there is no market price with which to compare to the contract price, and the standard measure of damages will not provide an adequate remedy. See Hornbook Sections 15.03 and 15.03[A].

Question 10 (0.5 / 0.5 points)

Martin enters into a contract to sell Lindenwald, his home, to William with a 10% down payment. After signing the contract but before the closing, William emails to let Martin know that he is no longer interested in Lindenwald and wants his money back. Martin is able to sell Lindenwald to Andrew, but for substantially less than William had agreed to pay. When Martin sues William for money damages for breach of contract, the court will order:

a) Martin to refund William's 10% deposit.

b) William to pay the remaining 90% of the price.

c) William to pay the remaining 90% of the price, with Martin transferring ownership of Lindenwald to William.

d) William to pay Martin the difference between the contract price and the price paid by Andrew. (Selected - Correct)

Feedback/Explanation:

D is correct. Although the contract is for real property, the non-breaching party is the seller (who would have received money had the contract been performed as planned), meaning that money damages will also be an adequate remedy (in addition to specific performance) — and because Martin was able to find a substitute buyer, the standard measure of damages will be used. A is incorrect. Martin is the non-breaching party and will not be required to pay restitution to William. B and C are incorrect. Because monetary damages are an adequate remedy, specific performance will not be awarded. See Hornbook Section 15.03.