Business Law 1 - Chap 15: Third-Party Rights and Discharge

force majeure clause

A clause in a contract in which the parties specify certain events that will excuse nonperformance.

Anti-Assignment Clause

A clause that prohibits the assignment of rights under the contract.

Approval Clause

A clause that require the obligor approve any assignment of a contract. Where there is an approval clause, many states prohibit the obligor from unreasonably withholding approval.

Implied-in-fact Condition

A condition that can be implied from the circumstances surrounding a contract and the parties' conduct.

Concurrent Condition

A condition that exists when the parties to a contract must render performance simultaneously; each party's absolute duty o perform is conditioned on the other party's absolute duty to perform.

Condition Precedent

A condition that requires the occurrence or nonoccurrence of an event before a party is obligated to perform a duty under a contract

Condition Subsequent

A condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform.

Contract Where an Assignment Would Materially Alter the Risk

A contract cannot be assigned if the assignment would materially alter the risk or duties of the obligor.

Conditional Promise (qualified promise)

not as definite as a covenant

Anti-Delegation Clause

A clasue that prohibits the delegation of duties under the contract.

Creditor Beneficiary

An original creditor who becomes a beneficiary under the debtor's new contract with another party.

Covenant

An unconditional promise to perform

Types of Objective Impossibility excuse nonperformance

- the death or incapacity of the promisor prior to the performance of a personal service contract. - The destruction of the subject matter of a contract prior to performance. - A supervening illegality that makes performance of the contract illegal.

Donee beneficiary contract

A contract entered into with the intent to confer a benefit or gift on an intended third party. 3 persons involved: 1. Promisee = the contracting party who directs that the benefit be conferred on another 2. Promisor = the contracting party who agrees to confer performance for the benefit of the third person 3. Donee beneficiary = a third party on whom a benefit is to be conferred. if the promisor fails to perform the contract, the donee beneficiary can sue the promisor directly.

Delegatee

A party to whom a duty has been transferred

Assignee

A party to whom a right has been transferred. An assignnee can assign the right to yet another person (called a subsequent assignee, or subassignee).

Incidental Beneficiary

A party who is unintentionally benefited by other people's contracts

Condition

A qualification of a promise that becomes a covenant if it is met. There are 3 types of conditions: - conditions precedent - conditions subsequent - concurrent conditions

Assumption of duties

A situation in which a delegation of duties contains the term assumption, I assume the duties, or other similar language. In such a case, the delegatee is legally liable to the obligee for nonperformance.

Statute of Limitation

A statute that establishes the time period during which a lawsuit must be brought; if the lawsuit s not brought within this period, the injured party loses the right to sue.

Personal Satisfaction Test

A subjective test that applies to contracts involving personal taste and comfort.

Intended third-party benficiary

A third party who is not in privity of contract but who has rights under the contract and can enforce the contract and can enforce the contract against the promisor.

Delegation of a Duty

A transfer of contractual duties by an obligor to another party for performance.

Novation Agreement (Novation)

An agreement that substitutes a new party for one of the original contracting parties and relieves the existing party of liability on the contract.

Reasonable Person Test

An objective test that applies to commercial contracts and contracts involving mechanical fitness.

Assignor

An obligee who transfers a right

Delegator

An obligor who has transferred his or her duty

Personal Service Contract

Contracts for the provision of personal services are generally not assignable. The parties may agree that a personal service contract may be assigned.

Mutual Rescission

If a contract is wholly or partially executory on both sides, the parties can agree to rescind (cancel) the contract. Requires parties to enter into a second agreement that expressedly terminates the first one. Unilateral rescission (a contract by one parties without the other parties' consent is not effective) of a contract constitutes a breach of that contract.

Duties that can and cannot be delegated

If an obligee has a substantial interest in having an obligor perform the acts required by a contract, there duties cannot be transferred. This restriction includes obligations under the following types of contracts: 1. Personal service contracts calling for the exercise of personal skills, discretion, or expertise 2. Contracts whose performance would materially vary if the obligor's duties were delegated.

Impossibility of Performance (Objective Impossibility)

Nonperformance that is excused if a contract becomes impossible to perform. It must be objective, not subjective, impossibility.

Condition Precedent Based on Satisfaction

Some contracts reserve the right to a party to pay or services provided by the other only if the services meet the first party's "satisfaction." The courts have developed two tests: Personal Satisfaction Test and the Reasonable Person Test to determine whether this special form of condition precedent has been met.

Creditor Beneficiary Contract

The contract that arises in the following situations: 1. a debtor borrows money 2. the debtor signs an agreement to pay back the money plus interest 3. the debtor sells the item to a third arty before the loan is paid off 4. the third party promises the debtor that he or she will pay the remainder of the loan to the creditor.

Successive Assignments

The following rules apply if there has been a successive assignment of a contract right: - American Rule ( New York Rule) - English Rule - Possession of tangible token rule

Substituted Contract

The parties to a contract may enter into a new contract that revokes and discharges an existing contract.

Discharge by Agreement

The parties to a contract may mutually agree to discharge their contractual duties under a contract. Methods of discharge: - Mutual Rescission - Substituted Contract - Novation Agreement (Novation - Accord and Satisfaction

Assignment of a Legal Action

The right to sue another party for a violation of personal rights cannot usually be assigned. A legal right that arises out of a breach of contract may be assigned.

Accord and Satisfaction

The settlement of a contract dispute.

Privity of Contract

The state of two specified parties being in a contract. 2 Exceptions include: 1. assignees to whom rights are subsequently transferred and 2. intended third-party beneficiaries to whom the contracting parties intended to give rights under the contract at the time of contracting.

Assignment of a Right (Assignment)

The transfer of contractual rights by an obligee to another party obligor - a party who owes a duty of performance under a contract obligee - a party who is owed a right under a contract

Third-Party Benficiary

Third parties who claim rights under others' contracts. Such third parties are either intended or incidental beneficiaries.

Assignment of a Future Right

Usually, a person cannot assign a currently nonexistent right that he or she expects to have in the future.

Notice of Assignment

When an assignor makes an assignment of a right under a contract, the assignee is under duty to notify the obligor that: 1. the assignment has been made and 2. performance must be rendered to the assignee. If the assignee fails to provide notice of assignment to the obligor, the obligor may continue to render performance to the assignor, who no longer has a right to it. The assignee cannot sue the obligor to recover payment bc the obligor has performed according to the original contract. The assignee's onlu course of action is to sue the assignor for damages. The result changes if the obligor is notified of the assignment but continues to render performance to the assignor. In such situations, the assignee can sue the obligor and recover payment. The obligor then will have to pay twice- once wrongfully to the assignor and then rightfully to the assignee. The obligor's only recourse is to sue the assignor for damages.

Declaration of duties

When there is a valid delegation of duties but the delegatee has not assumed the duties under a contract.

Effect of Delegation of Duties

Where there has been a delegation of duties, the liability of the delegatee is determined by the following rules: 1. Assumption of duties 2. Declaration of duties

Possession of tangible token rule

provides that (under either the American or the English rule, if the assignor makes successive assignments of a contract right that is represented by a tangible token, such as a stock certificate or a savings account passbook,) the first assignee who receives delivery of the tangible token prevails over subsequent assignees.

English Rule

provides that the first assignee to give notice to the obligor (the person who owes the performance, money, duty, or other thing of value) prevails.

American Rule (New York Rule)

provides that the first assignment in time prevails, regardless of notice. Most states follow this rule.