FINAL EXAM

Question 1

What is Privity of Contract?

Answer 1

 A contract is a private agreement between the
parties who have created it.
 Only the parties to a contract owe obligations
to the other and also enjoy the benefits of
performance from the other.
 Unless there is a valid exception, a third party
has no rights in a contract to which he or she is
not a party.

Question 2

What is an Assignment?

Answer 2

• A party to a contract’s transfer of contractual
  rights arising under the contract to a 3rd party.
  – From the obligor to the assignee.
• Effect: Assignee has the right to demand
  performance from the original party (Obligor)
  to the contract.
• Notice of Assignment.

Question 3

Assignment Graph Visual

Answer 3

Question 4

What are the 4 rights that Cannot be Assigned

Answer 4

1. Statute Expressly Prohibits Assignment.
2. Contract is for Personal Services.
3. Assignment will Materially Change Risks or
   Duties of Obligor.
4. When Contract Itself Prohibits Assignment.

Question 5

What is a Delegation?

Answer 5

• A party to the contract’s transfer of duties
  arising under the contract to a 3rd party.
  – From the delegator to the delegatee.
• Delegator still owes duty to original party in
  contract, and is still liable for performance.

Question 6

Delegation Graph Visual

Answer 6

Question 7

What duties can be delegated?

Answer 7

Generally any duty is allowed to be delegated

Question 8

Duties that May Not be Delegated

Answer 8

1. When performance depends on personal skills or
   talents of original obligor.
2. When special trust has been placed in the obligor.
3. When 3rd party performance will materially vary.
4. When the contract expressly prohibits delegation

Question 9

Who is the Intended Beneficiary

Answer 9

• He or she is a 3rd party:
  – To whom performance is
  rendered directly, and/or
  – Who has the right to control
  the details of the
  performance, or
  – Who is designated a
  beneficiary in the contract.
• He or she may sue to
  enforce the contract

Question 10

Who is the Incidental Beneficiary

Answer 10

• He or she is a 3rd party:
  – Who benefits from the
  contract, but whose benefit
  was not the reason for the
  contract, and/or
  – Who has no rights in the
  contract.
• He or she may not sue to
  enforce the contract

Question 11

Who is the Promisor?

Answer 11

• In bilateral contracts (not assigned or
  delegated), both parties are in privity of
  contract and have duties owed to each other.
• In contracts where benefit is given directly to a
  third party (not in privity of contract), the
  court must decide who has the duty to
  perform the contract promises.

Question 12

When Do the Rights of an Intended
Beneficiary Vest?

Answer 12

• 3rd Party Intended Beneficiary (Both Creditor and
  Donee) Original parties to contract intend at the time of
  contracting that the contract performance directly
  benefit a 3rd party.
  – When rights vest:
• Third party demonstrates express consent.
• Third party materially alters her position.
• When conditions are satisfied.
  – After rights vest, third party can sue for breach.
• 3rd Party Incidental Beneficiary. Benefit is
  unintentional. 3rd party has no rights.

Question 13

Intended versus Incidental
Beneficiaries

Answer 13

• To determine whether a beneficiary is intended or
  incidental, courts use the reasonable person test.
  – Would a reasonable person in the position of the
  beneficiary believe that the promisee intended to
  confer on the beneficiary the right to enforce the
  contract?
• The presence of one or more of the following
  factors is also needed:
  – Performance is rendered directly.
  – Third party has right to control details.
  – Third party is expressly designated.

Question 14

What is Contractual Performance?

Answer 14

• Performance is that
  (doing what is
  promised) which
  discharges or ends a
  party’s contractual
  duties or obligations.
• A contract may be
  discharged in many
  ways.
  1. Full Performance.
  1. Complete or Substantial.
  2. A condition occurring or not
  occurring.
  1. Conditions Precedent;
  Subsequent; or Concurrent.
  3. Breach.
  1. Material breach; or Anticipatory
  Repudiation.
  4. Operation of Law.
  1. Material Alteration; Statute of
  Limitations; Bankruptcy;
  Impossibility or Impracticability
  of Performance; Frustration of
  Purpose
  5. Agreement of the Parties.
  1. Mutual Rescission; Novation;
  Accord and Satisfaction.

Question 15

What Are Conditions of
Performance?

Answer 15

• A condition is a possible future event that
  triggers the:
  1. performance of a legal obligation; or
  2. terminates an existing obligation under a
  contract.

Question 16

What happens when the condition is not satisfied?

Question 17

Conditions of Performance

Answer 17

• Three types of Conditions:
  1. Conditions Precedent: an event that must
  occur (happen) or not occur before a party is
  required to perform.
  2. Conditions Subsequent: occurrence or
  nonoccurrence of an event that end a party’s
  obligation to perform.
  3. Conditions Concurrent: each party must
  render performance simultaneously.

Question 18

Examples of Conditions of
Performance

Answer 18

• DOW Chemical offers to sell a
  plant to DuPont.
• DuPont accepts, only if its
  engineers inspect the plant
  and certify it to be free of
  dioxin contamination.
• What type of condition is this?
• What effect does it have on the
  contract?
• 1.
• 2.
• UPS hires Millie to drive a
  truck.
• Her employment contract
  states that she must maintain
  her driver’s license and not be
  convicted of a moving violation
  to keep her job.
• What type of condition is this?
• Millie is convicted of drunk
  driving.
• What type of condition is this?
• What effect does it have on the
  contract?

Question 19

Example of A Condition of
Performance

Answer 19

• Allegheny Power contracts with Westmoreland
  Coal for the delivery of 17 tons of coal to its
  electric plant.
• Allegheny promised to pay when Westmoreland
  delivers the coal.
• What type of condition is this?
• What effect does it have on the contract?

Question 20

Discharge by Performance

Answer 20

• The contract comes to an end when both
  parties do what they have promised.
• Types of Performance:
  1. Complete or Full Performance.
  2. Substantial Performance (minor breach).
  3. Performance to the Satisfaction of One of
  the Parties or a Third Party.

Question 21

Substantial Performance: Minor
Breach of Contract

Answer 21

• Substantial Performance is performance
  by a party that deviates only slightly from
  complete performance.
• Good faith is required.
• What remedies does the non-breaching
  party have?
• 1.
• 2.

Question 22

Performance to the Satisfaction
of Another

Answer 22

• Completed performance must satisfy the
  party to the contract or a third party.
• Personal services – contract performed to
  the satisfaction of the party.
• Most other contracts – performed to the
  satisfaction of a reasonable person
  (majority rule), unless:
  – expressly stated in the contract (minority rule).

Question 23

Inferior Performance: Material
Breach of Contract

Answer 23

• Material breach occurs when a party
  renders inferior performance of his or her
  contractual duties.
• What remedies does the non-breaching
  party have?
  – 1.
  – 2.

Question 24

Is This Event A Material
Breach of Contract?
* Penn State contracts with Nittany Builders to
construct a dorm for 600 students.
* Contractor used cheap materials. An
engineering report states that the building can
support the weight of only 300 students.
* The defect cannot be repaired without rebuilding
the entire structure.
* What are Penn State’s remedies?
* 1.
* 2.

Question 25

What is Anticipatory
Breach of Contract?

Answer 25

• Anticipatory breach occurs when:
  1. a party tells the other that
  2. he or she will not perform his or her
  contractual duties
  3. before that performance is due.
• How is anticipatory breach treated?
• What remedies does the non-breaching party
  have?
  1.
  2.

Question 26

What is Discharge by
Agreement?

Answer 26

• Parties can discharge by agreement by way of:
  – the terms of the original contract, or
  – the creation of a new contract for the purpose of
  discharging the original contract.
  1. Discharge by Rescission.
  – Cancellation of original contract.
  2. Discharge by Novation.
  – Substitution of one of the original parties.
  3. Discharge by Accord and Satisfaction.
  – Acceptance of performance different from originally
  promised performance.