Contract Law Module 6 Concepts

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Questions and Answers

What constitutes a valid contract?

A deliberate agreement between competent parties, supported by mutual consideration. (correct)

An informal agreement made over a verbal discussion.

Any arrangement where at least one party benefits.

An agreement that is signed by a notary public.

Which of the following can result in a contract not being created voluntarily?

An agreement reached after careful review.

Undue Influence exerted on one party. (correct)

Mutual consent by both parties.

Assistance from a legal advisor.

What does the principle of privity of contract entail?

Anyone can be held liable for a contract.

Contracts can be enforced by third parties at any time.

Contracts are valid only if they are notarized.

Only parties named in a contract can incur liabilities. (correct)

Which of the following is NOT a reason for a lack of voluntary action in contract formation?

Mutual consent. Signup and view all the answers

What is implied by the rights and responsibilities in a contract?

Rights create responsibilities for others not involved. Signup and view all the answers

Which scenario demonstrates a violation of the privity of contract principle?

A non-party attempting to sue for breach based on a contract they weren't part of. Signup and view all the answers

Which of the following represents a voluntary action in contract formation?

Both parties agreeing to the terms independently. Signup and view all the answers

In terms of contract law, what is mutual consideration?

An exchange where both parties provide something of value. Signup and view all the answers

What characterizes statutory rights in a contractual context?

They always extend to third parties regardless of contract privity. Signup and view all the answers

In a construction contract, which of the following best defines primary rights?

Entitlements arising from the contract's direct terms. Signup and view all the answers

Which of the following is an example of a secondary obligation in a construction contract?

Providing a building permit. Signup and view all the answers

What is required for an assignment of rights to be valid?

It must be made in writing. Signup and view all the answers

Which of the following actions can ABC Construction take if Smith goes bankrupt?

Terminate the contract. Signup and view all the answers

What rights are granted to the assignee in an assignment of rights?

They have the same rights as the original creditor. Signup and view all the answers

What is meant by 'assignment of rights' in a contract?

It is the transfer of rights to a third party not involved in the original contract. Signup and view all the answers

Which document typically contains the primary rights and responsibilities of a contract?

Articles of Agreement. Signup and view all the answers

When assigning obligations, what is a requirement regarding the debtor?

The debtor's consent is necessary. Signup and view all the answers

Which of the following statements is true regarding the assignment of obligations?

The original obligee remains responsible for performance. Signup and view all the answers

Which is NOT considered a statutory right?

The right to negotiate terms of agreements arbitrarily. Signup and view all the answers

Which of the following statement is true regarding statutory rights?

They are inherent and cannot be contracted away. Signup and view all the answers

What happens in the provided example of 'Don’t pay a cent event'?

A financial company collects the debt after one year. Signup and view all the answers

Why might someone choose to assign their obligations under a contract?

To avoid potential risks. Signup and view all the answers

Which of the following does NOT correctly describe a requirement of an assignment of rights?

The original creditor's rights must be diminished. Signup and view all the answers

In an assignment of obligations, what role does the assignee play?

They are responsible for ensuring the original obligations are met. Signup and view all the answers

What term is used in the construction industry to refer to hiring another party to fulfill part of a contract?

Subcontracting Signup and view all the answers

When can you not assign your obligations under a contract?

When the performance is dependent on the qualifications of the performer Signup and view all the answers

What may be required before assigning obligations to another party?

The other party's consent Signup and view all the answers

What must be specified in a contract to prevent unreasonable withholding of consent for an assignment?

A written consent clause Signup and view all the answers

What could be a reasonable objection to an assignment of obligations?

Previous bad experience with the new party Signup and view all the answers

Which statement about primary responsibility in a contract is true?

It continues to lie with the original party to the contract Signup and view all the answers

What does 'Vicarious Performance' refer to in contractual obligations?

Performance by a party not directly involved in the contract Signup and view all the answers

What is a potential obligation of an owner looking to change a subcontractor?

To pay for the change to a new subcontractor Signup and view all the answers

Study Notes

### Module 6 Concepts

Contracts must be legal and voluntary
Legality refers to statues, public good, restraint of trades, and unlicensed or unpermitted activities
Contracts not created voluntarily when:
- Misrepresentation
- Undue influence
- Threat of violence
- Mistake
Unilateral negligent mistakes are also important to consider
A valid contract consists of:
- A deliberate agreement.
- Two or more competent parties.
- Mutual consideration.
- Voluntary legal act.

### Rights and Responsibilities

Our rights are associated with others, creating a duty to not interfere.
In contracts, rights create responsibilities (or obligations) on the other party (parties) and vice versa
Privity of contract: A person is not liable under a contract they are not a party to.
Contractual rights and responsibilities extend only to those who are explicitly named in the agreement.

Contractual Rights and Responsibilities

Statutory Rights: Are always in existence, one cannot contract away basic statutory rights, and they often extend to third parties regardless of privity of contract
- Example: Life insurance, statutory right to demand performance

Types of Obligations in Contracts

Primary Rights and Obligations are the core aspects of the agreement
Example: ABC Construction contracts with Smith to build a home for $200,000.
- Smith's primary right: To receive a completed home.
- Smith's primary obligation: To pay $200,000.
- ABC’s primary right: To be paid $200,000
- ABC’s primary obligation: To build the home.
Secondary Rights and Obligations/Responsibilities: Are additional clauses added to the contract beyond core responsibilities
- Generally captured within the "Terms and Conditions" of the contract.
- Example:
  - ABC agrees to provide a building permit, clean up the jobsite, provide sanitary facilities, insure the job, secure the site, and connect to utilities.
  - ABC has the right to terminate the contract if Smith goes bankrupt, or to pursue alternate means to resolve a dispute.
- This type of obligation is important because it reflects the specific requirements of the contract and helps create a more comprehensive agreement.

Assignment of Rights and Obligations

Assignment of Rights: One party in a contract transfers their benefits or rights to a third party not initially included in the contract.
- Must be done in writing.
- Assignee must have the same rights as the original creditor.
- Debtor must be notified in writing.
- Cannot create an increased burden on the debtor.
- Example: A customer purchases an appliance with a one-year payment delay. The debt is then assigned to a financial company, who will collect the debt after one year.
Assignment of Obligations: One party transfers their contractual responsibilities and benefits to a third party.
- Requires the consent of the debtor.
- Original obligee remains responsible for the performance of the obligation and for the actions of the assignee.
- Example: Subcontracting in construction.
Assignment of Obligations Exceptions:
- You cannot assign your obligations if:
  - The performance depends on the qualifications of the performer.
  - The contract specifically prohibits assignment.
  - The other party has a right of refusal.
- Example: You cannot hire a "bar band" to play a concert in lieu of a "headliner" band.
- In a construction contract, the owner may have a “right of refusal” if a subcontractor wants to be changed.

Assignment of Obligations: Construction Industry

Construction Contracts often include clauses that limit assignment of obligations without written consent of the other party.
The consent should not be unreasonably withheld.
Example: CCDC2e - GC 1.4 and CCDC2e - GC 3.7

Primary Covenant and Vicarious Performance

Primary Responsibility for the contract remains with the original party.
Read about Vicarious Performance to understand further implications.

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Description

This quiz covers the essential concepts of contract law as presented in Module 6. It discusses the legality and voluntary nature of contracts, the importance of mutual consideration, and the rights and responsibilities that arise from contractual agreements. Test your understanding of valid contracts, privity, and statutory rights.