BLAW Ch 15: Third-Party Rights and Discharge

Force Majeure Clause

The parties may agree in a contract that certain events will excuse nonperformance of the contract

Successive Assignments

- American Rule (New York Rule): first assignment in time prevails, regardless of notice. - English Rule: provides that the first assignee to give notice to obligor prevails - Possession of Tangible Token Rule: provides that under either the American or 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

4. Accord and Satisfaction

- Parties to contract may agree to settle contract dispute by accord and satisfaction. Agreement whereby the parties agree to accept something different in satisfaction of the original contract is called accord. Performance of accord is called a satisfaction. - Accord does not discharge the original contract. Only suspends original contract until accord is performed. Satisfaction of accord discharges both original contract and accord.

Effect of an Assignment of a Right

- The assignee "stands in the shoes of the assignor." - The assignor is entitled performance from the obligor. - The unconditional assignment of a contract right extinguishes all the assignor's rights, including the right to sue the obligor directly for nonperformance. - An assignee takes no better rights than the assignor had. - An obligor can assert any defense he or she had against the assignor or the assignee. - An obligor can raise the defenses of fraud, duress, undue influence, minority, insanity, illegality of the contract by the assignee

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 however be assigned

Duties that Cannot be Delegated

1. Personal service contracts calling for the exercise of personal skills, discretion, or expertise. (Taylor Swift performing at a Miley concert instead of Miley) 2. Contracts whose performance would materially vary if the obligor's duties were delegated. (Person hires a complex surgeon, recent med school grad can't sub in)

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.

Distinguish between conditions and covenants

A covenant is an unconditional promise to perform. Nonperformance of a covenant is a breach of contract that gives the other party the right to sue. Some contract provisions are conditions rather than covenants. A conditional promise (or qualified promise) is not as definite as a covenant. The promisor's duty to perform or not perform arises only if the condition does or does not occur. It becomes a covenant if the condition is met.

Delegatee

A party to whom a duty has been transferred

Assignment of a Future Right

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

Conditions

A qualification of a promise that become a covenant if it is met. Three types of conditions exist: conditions precedent, conditions subsequent, and concurrent conditions.

Assumption of Duties

A situation in which a delegation of duties contain the term assumption, I assume the duties, or other similar language. In such a case, the delegatee is legally liable to the obligee for non performance. Obligee can sue delegatee and recover damages.

Intended Third-Party Beneficiary

A third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor. - may be classified as either donee or creditor beneficiaries.

Delegation of a Duty

A transfer of contractual duties by an obligor to another party for performance. No special words or formalities are required to create a delegation of duties.

Delegator

An obligor who has transferred his or her duty

Creditor Beneficiary

An original creditor who becomes a beneficiary under the debtor's new contract with another party. Arises in the following fashion: 1. Debtor (promisor) borrows money from a creditor (promisee) to purchase some item 2. The debtor signs an agreement to pay the creditor the amount of the loan plus interest 3. The debtor sells the item to another party before the loan is paid 4. The new buyer (new promisor) promises the original debtor (new promisee) that he will pay the remainder of the loan amount to the original creditor. - original creditor is now creditor beneficiary of the second contract

Covenants

An unconditional promise to perform. Nonperformance of a covenant is breach of contract that gives other party right to sue.

Implied Condition

Any of the previous types of conditions may be further classified as either express or implied conditions. An express condition exists if the parties expressly agree on it. Implied-in-fact condition is one that can be implied from the circumstances surrounding a contract and the parties' conduct.

Concurrent Conditions

Arise when parties to a contract agree to render performance simultaneously, that is, when each party's absolute duty to perform is conditioned on the other party's absolute duty to perform.

Notice of Assignment

Assignee is under a duty to notify the obligor that (1) the assignment has been made and (2) performance must be rendered to the assignee. - If assignee fails to provide notice of assignment to obligor, obligor may continue to render performance to Assignor who no longer has right to it. - Assignee cannot sue obligor to recover payment because obligor has performed according to original contract. - Assignee's only course of action is to sue the assignor for damages

Anti Delegation Clause

Clause which may be included in a contract indicating that the duties cannot be delegated. - Some courts hold that duties which are totally impersonal in nature (such as payment of money) can be delegated despite such clauses.

Anti-Assignment Clause

Clause which prohibits the assignment of rights under the contract. - Used if obligor doesn't want to deal with or render performance to unknown third party.

Approval Clause

Clause which requires that obligor approve any assignment of contract. - Many states prohibit obligor from unreasonably withholding approval

Condition Precedent

Condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract. - if event does not occur, no duty to perform the contract arises because there is a failure of condition

Personal Service Contract

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

Condition Subsequent

Exists when there is a condition in a contract that provides that the occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing duty to perform. Failure to meet condition subsequent relieves the other party from obligation under the contract.

Time is of the Essence Contract

If contract expressly provides that time is of the essence, or similar language, performance by the stated time is an express condition. There is breach of contract if the contracting party does not perform by the stated date.

1. Mutual Rescission

If contract is wholly or partially executory on both sides, the parties can agree to rescind the contract. Parties must enter into second agreement that expressly terminates first one. Unilateral rescission is not allowed, and is considered breach of contract.

Discharge by Impossibility

Impossibility must be objective impossibility (It cannot be done, as opposed to I cannot do it). - 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

Assignor

Obligee who transfers the right to receive performance

Assignment and Delegation

Occurs when there is a transfer of both rights and duties under a contract. - If transfer of contract to third party contrains only language of assignment, modern view holds that there is corresponding delegation of the duties of contract

Obligee

Owed a right under a contract.

Obligor

Owes a duty of performance.

Discharge by Agreement

Parties to contract may mutually agree to discharge their contractual duties under contract. Methods for mutually discharging contract are: 1. Mutual Rescission 2. Substituted Contract 3. Novation 4. Accord and Satisfaction

What formalities are required for a valid assignment of rights?

No formalities are required for a valid assignment of rights.

When is nonperformance by a contractual party excusable?

Nonperformance is excused if a contract becomes impossible to perform. It must be objective impossibility, not subjective. 1) the death or incapacity of the promisor prior to the performance of a personal service contract 2) the destruction of the subject matter of a contract prior to performance 3) a supervening illegality that makes performance of the contract illegal

3. Novation

Novation agreement (novation) substitutes a third party for one of the original contracting parties. New substituted party is obligated to perform contract. All three parties must agree to the substitution. Exiting party is relived of liability on the contract.

Declaration of Duties

Situation where there is a valid delegation of duties but the delegatee has not assumed the duties under a contract. Here, the delegatee is not liable to the obligee for nonperformance or negligent performance and the obligee cannot recover damages from the delegatee.

Condition Precedent Based on Satisfaction

Some contracts reserve the right to a party to pay for services provided by the other only if the services meet the first party's "satisfaction" Satisfaction based on: 1. Personal Satisfaction Test: subjective test that applies if the performance involves personal taste and comfort. Person given right to reject must act in good faith 2. Reasonable Person Test: objective test used to judge contracts involving mechanical fitness and most commercial contracts.

Statute of Limitations

Statute that establishes time period during which a lawsuit must be brought. If lawsuit not brought within this period, injured party loses right to sue.

2. Substituted Contract

The parties to a contract may enter into a new contract that revokes and discharges an existing contract. The new contract is called a substituted contract. If one of the parties fails to perform his or her duties under a substituted contract, the nonbreaching party can sue to enforce its terms against the breaching party. Prior contract cannot be enforced against the breaching party because it has been discharged.

Incidental Beneficiary

The parties to a contract unintentionally benefit a third party when a contract is performed. Incidental beneficiary has no rights to enforce or sue under other people's contracts.

Privity of Contract

The state of two specified parties being in a contract.

Assignment

The transfer of contractual rights by an obligee to another party.

Donee Beneficiary

Third party on whom a benefit is to be conferred. Three persons involved: 1. Promisee: party who directs that the benefit be conferred on another 2. Promisor: contracting party who agrees to confer performance for the benefit of the third person 3. Donee beneficiary: the third person on whom the benefit is to be conferred

Assignee

the party to whom the right has been transferred.