Chapter 14

condition

A qualification, provision, or clause in a contractual agreement, the occurrence or nonoccurrence of which creates, suspends, or terminates the obligations of the contracting parties.

intended beneficiary

A third party for whose benefit a contract is formed. An intended beneficiary can sue the promisor if the contract is breached.

condition precedent

A condition in a contract that must be met before a party's promise becomes absolute.

condition subsequent

A condition in a contract that, if it occurs, operates to terminate a party's absolute promise to perform.

frustration of purpose

A court-created doctrine under which a party to a contract will be relieved of her or his duty to perform when the objective purpose for performance no longer exists due to reasons beyond that party's control.

commercial impracticability

A doctrine that may excuse the duty to perform a contract when performance becomes much more difficult or costly due to forces that neither party could control or foresee at the time the contract was formed.

impossibility of performance

A doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes objectively impossible or totally impracticable.

delegatee

A party to whom contractual obligations are transferred, or delegated.

assignee

A party to whom the rights under a contract are transferred, or assigned.

assignor

A party who transfers (assigns) his or her rights under a contract to another party (the assignee).

delegator

A party who transfers (delegates) her or his obligations under a contract to another party (the delegatee).

tender

An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.

incidental beneficiary

A third party who benefits from a contract even though the contract was not formed for that purpose. An incidental beneficiary has no rights in the contract and cannot sue to have it enforced.

anticipatory repudiation

An assertion or action by a party indicating that he or she will not perform a contractual obligation.

concurrent conditions

Conditions that must occur or be performed at the same time—they are mutually dependent. No obligations arise until these conditions are simultaneously performed.

third party beneficiary

One who is not a party to the contract but who stands to benefit from the contract's performance.

obligor

One who owes an obligation to another.

obligee

One to whom an obligation is owed.

breach of contract

The failure, without legal excuse, of a promisor to perform the obligations of a contract.

performance

The fulfillment of one's duties under a contract—the normal way of discharging one's contractual obligations.

privity of contract

The relationship that exists between the promisor and the promisee of a contract.

novation

The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated.

discharge

The termination of an obligation, such as occurs when the parties to a contract have fully performed their contractual obligations.

alienation

The transfer of title to real property (which "alienates" the real property from the former owner).

delegation of duties

The transfer to another of a contractual duty.

assignment

The transfer to another of all or part of one's rights arising under a contract.

When you transfer contractual duties to someone else, this is known as: a. a delegation. b. an assignment. c. a revitalization. d. a differentiation.

a. a delegation.

Jane and Kelly want Lucy to replace Kelly as a party to their contract. They can best accomplish this by: a. a novation. b. a mutual agreement to rescind. c. an accord and satisfaction. d. an alteration of the contract.

a. a novation.

A breach of contract occurs when: a. a promisor fails—without legal excuse—to perform the obligations of a contract. b. a condition precedes the absolute duty of a promisor to perform. c. parties cancel a contract and are returned to the positions they occupied prior to the contract's formation. d. performance of a contract becomes impossible through no fault of either party.

a. a promisor fails—without legal excuse—to perform the obligations of a contract.

John Castle and Leonard Harlan headed Castle Harlan, Inc., an investment firm. They entered into an agreement with the federal government to buy Western Empire Federal Savings and Loan (Western). Castle and Harlan invested $2,000; their client investors supplied the $26.2 million balance. In order to encourage Castle Harlan to make the purchase, the government agreed not to impose certain federal regulations on Western for two years. All the investors were identified in the contract as intended beneficiaries, but only Castle and Leonard actually signed the purchase contract. Federal law changed after the purchase took place, and the government, while keeping its agreement not to impose the regulations listed in the contract, nevertheless imposed new, similar regulations on Western. The bank went out of business as a result. Castle, Harlan, and the other investors filed a lawsuit in a federal court alleging that the government had breached the contract. The government brought a motion to dismiss all the investors except Castle and Harlan from the lawsuit, because no one but Castle and Harlan had signed the contract. The court most likely: a. denied the motion, because the investors were intended third party beneficiaries of the contract. b. granted the motion, because the investors had not signed the contract. c. granted the motion, because third party beneficiaries have no rights under a contract to which they were not parties. d. denied the motion, because the investors were incidental third party beneficiaries of the contract.

a. denied the motion, because the investors were intended third party beneficiaries of the contract.

An intended third-party beneficiary: a. may be determined by a court using the reasonable person test. b. is never expressly designated as the beneficiary in the contract. c. cannot have the performance stipulated in the contract rendered directly to him or herself. d. all of these choices.

a. may be determined by a court using the reasonable person test.

Generally, third-party rights vest when: a. the third party materially alters his or her position in detrimental reliance on the contract. b. the third party decides to demonstrate assent to the contract. c. a donee sends a letter of notification that she or he will be materially altering her or his position in detrimental reliance on the contract. d. the third party sends a letter acknowledging awareness of a contract formed for his or her benefit. Hide Feedback Correct

a. the third party materially alters his or her position in detrimental reliance on the contract.

Rural Development Corporation (RDC) and Sid enter into a contract for the clear-cutting of RDC's fifty-acre tract for which RDC agrees to pay Sid. Sid transfers his duty to log the tract under the contract to Timber Logging Company. Timber is: a. an assignee. b. a prohibitee. c. a delegatee. d. an obligee.

c. a delegatee.

What rights can be assigned? a. Only rights to receive negotiable instruments b. All rights, with a few exceptions c. Only rights to receive monetary damages d. No rights can be assigned; only duties can be assigned

b. All rights, with a few exceptions

A-One Construction Company enters into a contract with Ben to remodel Carol's Home Store, using products from Delta Building Supplies. Eats Cafe is next to Carol's Home Store. The remodeling is a gift from Ben to Carol. The value of Eats' property will increase after Carol's store is remodeled. Eats is: a. a delegatee. b. an incidental beneficiary. c. an intended beneficiary. d. an assignee.

b. an incidental beneficiary.

For mutual rescission to take place there must be: a. an offer and consideration only. b. an offer, an acceptance and consideration c. an offer only. d. an offer and an acceptance only.

b. an offer, an acceptance and consideration

Discharges by agreement would include: a. discharge by conversion. b. discharge by novation. c. discharge by appropriation. d. None of these choices.

b. discharge by novation

Nick and Roberta contract for the sale of computer equipment, reserving the right to alter a particular provision in the contract. The rights of any third party beneficiary of that contract are: a. not affected by the reservation. b. limited to the extent of the reservation. c. limited only if the beneficiary agrees to the reservation. d. none of the choices.

b. limited to the extent of the reservation.

Jennifer and Lynn enter into a contract for Jennifer to sell her car to Lynn for $8,000. The next day Lynn finds a car that she would rather have. Jennifer tells her it is okay if she wants to cancel the contract. The cancellation of the contract would be by: a. novation. b. mutual rescission. c. accord and satisfaction. d. breach of contract.

b. mutual rescission.

Solid Toolmakers, Inc., contracts to sell its business to Titan Hardware Corporation. Before either party has performed, rescission of this contract requires: a. performance by all of the parties. b. an accord and satisfaction c. a mutual agreement to rescind. d. consideration.

c. a mutual agreement to rescind.

Xtra Finance Company is a creditor beneficiary in a deal that involves Yvon and Zack. Xtra, like most creditor beneficiaries, is: a. a donee beneficiary. b. an incidental beneficiary. c. an intended beneficiary. d. none of the choices.

c. an intended beneficiary.

When a third party is substituted for one of the original parties involved in a contract the process is called: a. mutual rescission. b. substitution. c. novation. d. consideration.

c. novation.

Candy enters into a contract under which she agrees to pay Dino for a business survey and review of her competitors. Dino agrees to deliver the survey by July 1. Candy's offer, on July 1, to pay Dino is: a. substantial. b. tough. c. tender. d. complete.

c. tender.

Morgan runs an organic foods grocery store. She contracts with Cara for a shipment of oranges. They both sign all of the necessary documents. The total cost of the shipment is $4,000. Morgan promises to pay Cara when the oranges are delivered. The delivery is scheduled for Wednesday. On Tuesday, Cara demands that Morgan pay the $4,000. A court would say that: a. Morgan has a duty to pay Cara on Tuesday due to conditions subsequent. b. Morgan has a duty to pay Cara on Tuesday because they had both signed the contract. c. Morgan has a duty to pay Cara on Tuesday due to conditions precedent. d. Morgan does not have a duty to pay Cara until the delivery of the oranges is made on Wednesday because Morgan's absolute duty to perform depends on Cara's absolute duty to deliver the goods.

d. Morgan does not have a duty to pay Cara until the delivery of the oranges is made on Wednesday because Morgan's absolute duty to perform depends on Cara's absolute duty to deliver the goods.

Contractual duties may NOT be discharged by operation of law under which of the following circumstances? a. Impossibility of performance b. Bankruptcy c. Material alteration of the contract d. Unilateral dissatisfaction

d. Unilateral dissatisfaction

Jon promises to paint Key's house in exchange for Lila's promise to plant trees on Jon's property. This is: a. an assignment. b. a delegation. c. not a delegation, an assignment, or a third party beneficiary contract. d. a third party beneficiary contract.

d. a third party beneficiary contract.

Musica Production Company and Nora enter into a contract for Nora to write six songs for which Musica agrees to pay her. Nora transfers her right to payment under the contract to Omni Entertainment Agency. Nora is: a. a righter. b. a delegator. c. a payor. d. an assignor.

d. an assignor.

Chaz and Dolly enter into a contract under which Chaz agrees to provide maintenance services for Dolly's Ski Resort. Duties under the contract may not be transferred if: a. performance by a third party will vary materially from the performance expected by the obligee under the contract. b. performance depends on the personal skills or talents of the obligor. c. special trust has been placed in the obligor. d. any of the choices.

d. any of the choices.

Haley and Susanna enter into a contract to create a line of party dresses using crystal beading, so long as the price of the crystal beading does not rise above a set amount. They begin creating the line of party dresses. However, the price rises significantly beyond their original contemplation. In this case, their contract is terminated by a: a. concurrent condition. b. condition that must be fulfilled before a party's promise becomes absolute. c. condition precedent. d. condition subsequent.

d. condition subsequent.

The assignment of rights to another person gives that individual only those rights that the: a. party owing performance originally had. b. obligor originally had. c. assignee originally had. d. obligee originally had.

d. obligee originally had.

An intended third party beneficiary cannot enforce a contract against the original parties: a. unless one of the parties that formed the contract consents to the action. b. unless both of the parties that formed the contract consent to the action. c. for two years after the contract was formed. d. until the rights of the third party have vested.

d. until the rights of the third party have vested.