Contract Law Module 6 Concepts

### 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.