National American University

BUSINESS L 3100

Chapter 19-DISCHARGE OF CONTRACTS

TRUE/FALSE

1)Generally, contracts are discharged by the performance of the terms of the contract.

 

                                           

 

2. A condition precedent must occur before a party to a contract has an obligation to perform.

 

                                           

 

3. A condition subsequent can alter but not terminate a contract.

 

                                           

 

4. In most bilateral contracts, the performances of the parties are concurrent conditions.

 

                                           

 

5. If a debtor with multiple debts specifies the debt to which a payment is to be applied and the creditor accepts the money, the creditor is bound to apply the money as specified.

 

                                           

 

6. Payment by check is a conditional payment.

 

                                           

 

7. An agreement that does not specify the time for performance is not binding because it is too indefinite.

 

                                           

 

8. The time for performance is typically essential in a contract for the sale of perishable property.

 

                                           

 

9. Unless a contract so provides, time is ordinarily not of the essence, and performance within a reasonable time is sufficient.

 

                                           

 

10. In a case of the sale of property, time is not regarded as of the essence when there has not been any appreciable change in the market value or condition of the property and when the person who delayed does not appear to have done so for the purpose of speculating on a change in market price.

 

                                           

 

11. A party who in good faith has provided substandard performance of a contract may sue to recover the payment specified in the contract.

 

                                           

12. The doctrine of substantial performance is concerned with the issue of whether an imperfect performance will be considered adequate to discharge one's responsibilities under a contract.

 

                                           

 

13. When a building contractor has substantially performed a contract to construct a building, the contractor is entitled to recover the full contract price.

 

                                           

 

14. A person who substantially performs a contract is liable for damages to the other party.

 

                                           

 

15. There is no exact standard or test by which to determine whether contractual performance is substantial.

 

                                           

 

16. All courts hold that when an agreement requires satisfaction of the other party regarding the acceptance of an act, a reasonable person standard is used.

 

                                           

 

17. A homeowner who supplies the specifications for poured cement walls can hold a contractor liable for damages when the walls that are poured in exact compliance with those specifications prove defective.

                                           

 

18. The parties may agree that the adequacy of performance under a contract is to be determined by a third party.

 

                                           

 

19. Contracts may be discharged by the joint action of both contracting parties or, in some cases, by the action of one party alone.

 

                                           

 

20. The federal Consumer Credit Protection Act gives the debtor the right to rescind a credit transaction within three (3) business days when the transaction would impose a lien on the debtor’s home.

 

                                           

 

21. In a mutual rescission, both parties, acting in good faith, renew their commitment to perform all obligations set forth in their original agreement.

 

                                           

 

22. For the parties to enter into an accord and satisfaction that discharges the original obligation, there must be a bona fide dispute.

                                           

 

23. Impossibility of performance applies when the debtor does not have sufficient funds to pay a debt.

 

                                           

 

24. A seller's inability to obtain from any supplier the goods called for by the contract generally discharges the contract for impossibility of performance.

 

                                           

 

25. To establish impossibility a party must show (1) the unexpected occurrence of an intervening act; (2) that the risk of the unexpected occurrence was not allocated by agreement or custom; and (3) that the occurrence made performance impossible.

 

                                           

 

26. When parties contract expressly for a particular subject matter, the contract is discharged if the subject matter is destroyed through no fault of either party.

 

                                           

 

27. A typical situation where the doctrine of economic frustration applies is when the party suffers a loss when a gain was expected.

 

                                           

 

28. A house-painting contract is discharged if continual rain makes it impossible to complete the painting by the time specified in the contract.

 

                                           

 

29. By operation of law, a party can be discharged in bankruptcy from debts.

 

                                           

 

30. A contract provision requiring that suit be brought within one (1) year does not violate public policy, although the statute of limitations would allow two (2) years in the absence of such a contract limitation.

 

                                           

 

MULTIPLE CHOICE

 

1. A                           is a condition that must occur before a party to a contract has an obligation to perform under a contract.
   1. condition precedent
   2. condition subsequent
   3. concurrent condition
   4. none of the above

                                           

2. In most bilateral contracts, the performances of the parties are                   .
   1. conditions precedent
   2. conditions subsequent
   3. recurrent conditions
   4. concurrent conditions

                                           

 

3. An offer to perform is known as a(n)                        .
   1. rendering
   2. offering
   3. tinder
   4. tender

                                           

 

4. When a debtor makes a payment to a creditor specifying how it should be applied, the creditor must apply the payment:
   1. as directed by the debtor.
   2. to the oldest outstanding debt.
   3. to the most recent outstanding debt.
   4. to the largest outstanding debt.

                                           

 

5. If no time period for performance is specified in a contract:
   1. the contract is unenforceable.
   2. time shall be of the essence.
   3. a reasonable time for performance will be implied.
   4. the time for performance will be ignored by the courts.            
6. In which case will performance on the exact date specified in the contract most likely be deemed essential?
   1. a sale of goods that fluctuate rapidly in value.
   2. a sale of goods that remain stable in value.
   3. a sale of real estate.
   4. a sale of goods where no harm results from a delay in performance.  
7. The phrase "time is of the essence" means that:
   1. the court is in a hurry to dispose of the case.
   2. performance under the contract at the times specified in the contract is vital or essential.
   3. the contract expressly states that time is of the essence.
   4. the price stated in the contract is subject to change without notice.    
8. A contract to build a house is deemed performed when:
   1. there has been substantial performance of the contract.
   2. the house is approved by the city housing inspectors.
   3. the house is approved by the owner's architect.
   4. the house is approved by the owner.

                                           

 

9. A homeowner who refinances her home mortgage may cancel the transaction:
   1. if the terms of the contract were less favorable than anticipated.
   2. within three business days.
   3. only if she was the victim of fraud.
   4. upon payment of a $1,000 penalty, as required by a Federal Trade Commission rule.   
10. A Federal Trade Commission regulation gives a buyer three (3) business days in which to cancel a home-solicited sale of goods or services costing more than:

a.    $25.

b.   $50.

c.     $100.

d.   $500.

                                           

 

11. Through which of the following circumstances may a contract be discharged?
    1. mutual cancellation
    2. mutual rescission
    3. accord and satisfaction
    4. all of the above

                                           

 

12. If the parties to a contract agree to undo the agreement and return any consideration involved, the contract is discharged by:
    1. mutual cancellation
    2. mutual rescission.
    3. novation
    4. accord and satisfaction

                                           

 

13. The parties may decide that their contract is not the one they want. They may then replace it with another contract. If they do, the original contract is discharged by                      .
    1. solution
    2. elocution
    3. retribution
    4. substitution

                                           

 

14. Which of the following is not an element of an accord and satisfaction?
    1. a bona fide dispute
    2. a proposal to settle the dispute
    3. performance of the agreement to settle the dispute
    4. reservation of rights under the federal Consumer Credit Protection Act            
15. Which of the following events excuses a promisor from performing his or her contractual obligations?
    1. a riot
    2. a shortage of materials necessary for production of goods and/or provision of services

called for under the contract

15. 3. an unanticipated increase in the cost of performance
    4. destruction of the subject matter through no fault of either party       
16. A change of law discharges a contract if the new law:
    1. requires a license and none was required before.
    2. requires the use of fireproof materials.
    3. requires the use of antipollution devices.
    4. prohibits the act called for by the contract.      
17. The death or disability of a party to a contract discharges the contract when:
    1. personal services requiring peculiar skill are involved.
    2. the payment of money is involved.
    3. a house is to be painted.
    4. all of the above.

                                           

 

18. V3 was a successful singing group that contracted to perform at the “Metalsubstance” rock concert. V3 was aware that the promoter would sustain a substantial loss if the group failed to perform. The members of the group were stricken with a virus that confined them to their beds. The promoter sued for breach of contract. What is the probable result?
    1. V3 is liable for damages for breach of contract.
    2. The contract was discharged by impossibility of performance.
    3. In order to avoid liability for breach of contract, V3 must arrange for another group of comparable quality and reputation to perform on the scheduled date.
    4. V3 will be deemed to have substantially performed the contract.         
19. To avoid litigation over impossibility and impracticability issues, modern contracting parties often contract around the doctrine of impossibility, specifying the failures that will excuse performance in their contracts. The clauses in which they do this are called                                                        clauses, and they are generally enforced by courts as written.
    1. delta force
    2. force majeure
    3. magnum force
    4. force corporeal

                                           

 

20. When performance is impeded due to the occurrence of an event whose nonoccurrence was a basic assumption of the contract, the contract may be discharged on the grounds of:
    1. commercial impracticability.
    2. commercial impossibility.
    3. economic frustration.
    4. economic stability.

                                           

21. The frustration of purpose doctrine:
    1. is based on common law.
    2. requires that both parties were aware of the purpose.
    3. temporarily suspends contract performance.
    4. all of the above.

                                           

 

22. Ordinarily, a temporary impossibility                           the duty to perform.
    1. suspends
    2. excuses
    3. discharges
    4. none of the above

                                           

 

23. Sales of goods transactions are subject to a statute of limitations period of:
    1. one (1) year.
    2. two (2) years.
    3. three (3) years.
    4. four (4) years.

                                           

 

24. Bankruptcy results in a discharge of contractual obligations by                        .
    1. default
    2. equity
    3. operation of law
    4. oath or affirmation

                                           

 

CASE

 

1. An art collector commissioned an artist to create a sculpture for the collector. The artist wanted a substantial amount of money for the sculpture. This caused the collector some worry regarding possible dissatisfaction with the artwork once it was completed. To ensure that payment would be made only if the collector was satisfied with the sculpture, a condition was written into the commission contract. It required that the collector would have to be satisfied with the artwork, relying on the collector's taste and judgment, before an obligation of payment would be created.

 

The artist never imagined that a collector could possibly refuse a creation of his and allowed the condition to be placed within the contract. At the completion of the sculpture, the collector claimed that she did not care for the artwork and therefore refused to pay. Can the artist force payment in this situation? Would it help if the artist could establish that the collector actually approves of the sculpture but has temporarily run short on funds, and that this is the true motivating factor in refusing to accept the sculpture?