CONTRACTS FINAL EXAM - PROF. FERRIELL - SPRING 1997
QUESTION 2 - 40 POINTS - 1 1/4 Hours
Confine your answer to 4 pages in a Bluebook

In the hopes of attracting more visitors to its downtown area, civic leaders of metropolitan Franklinville proposed the construction of a 30,000 seat sports arena and a similar 50,000 seat outdoor stadium in a run down warehouse district on the edge of downtown. These civic leaders believed that construction of the arena/stadium complex would attract major league hockey and soccer teams to town, and provide an excellent venue for major popular music performances and other popular attractions such as the ice capades. Construction of the arena/stadium complex would be financed through a modest sales tax increase that had to be approved by local voters. An election was scheduled for early May, 1997.

In anticipation of voter approval of the arena/stadium complex, Danny Developer purchased a 1 acre parcel of real estate ½ mile away from the site of the proposed arena/stadium complex hoping to develop it as a parking lot. When public opinion polls indicated that voter approval of the complex was likely, Danny entered into a construction contract with Parcel Paving Productions, a firm specializing in constructing parking facilities. The contract between Parcel Paving and Danny provided, among other things:

-for the construction of a three layer parking garage on Danny's property for a price of $3,000,000; and
-that performance of the contract was subject to voter approval of the arena/stadium complex.

Fortunately, the public opinion polls turned out to have been accurate and the tax increase on which the stadium/arena complex had been dependent, was approved. Following its approval by the voters Danny sold his lot and assigned his contract with Parking Parcel to Sally Speculator, who planned to earn money from operating the parking lot. Prior to entering into the contract of assignment Sally investigated Parking Parcel's business reputation. In investigating Parking Parcel's reputation for quality, Sally sought to obtain assurances that Parking Parcel was not guilty of the same poor construction techniques she had experienced with the other large parking garage construction firm in Franklinville, Technical Task Construction Co, which still owed her $200,000 for repair work that had proven necessary on a different parking garage Technical had built for her in another part of town.

When the time to begin construction arrived Parking Parcel Productions realized that it had entered into too many construction contracts and that its management team would be unable to keep track of the 10-12 parking garage construction contracts it had entered into with various developers hoping to cash in on the stadium/arena complex. Consequently, it assigned the contract to Technical Task Construction Co., which paid Parking Parcel $100,000 for the assignment.

Without giving Sally notice of the assignment, Technical Task began construction in June, 1997. By late September, 1997 the first two layers of the parking facility had been completed by Technical Task at a cost of $2.1 million. According to Technical's projections, completion would cost it an additional $800,000. In the meantime, the soccer and hockey teams Franklinville had hoped to attract to its new arena/stadium complex announced plans to locate in other cities. In addition, another new indoor arena at a nearby state University signed several long-term deals with the most important popular music production companies to stage rock & roll and other music performance at the University's new arena. The University also entered into an agreement with the ice capades for a 7 year run at the University arena. The final straw for the Franklinville public was when the Big Tent Circus Co, agreed to stage all of its Franklinville performances for the next 10 years at the already completed University arena.

Following publicity about these developments, a group of Franklinville residents who had originally opposed the sales tax increase for the downtown stadium/arena complex successfully mounted a campaign to place a repeal of the tax increase on the November ballot. An October public opinion poll indicated that the repeal was likely to succeed, dooming the downtown stadium/arena.

Upon publication of the results of the October opinion poll Sally Speculator called Danny and told him to stop work. Danny advised her of the assignment and Sally angrily called Technical and ordered it to halt work on the parking facility immediately. Sally explained that she wanted to defer additional work until the November election. Technical objected, claiming that Sally had no justification for either suspending or terminating performance of the contract, but nevertheless followed Sally's instructions and ceased work.

Several weeks later voters repealed the sales tax and development of the downtown facility was stopped. Since then, Sally has not returned calls from Technical Task.

Assume you represent Technical Tasks. Draft a memo analyzing explaining Technical's potential rights and obligations, if any, as a result of these transactions.