Chapter 15 Third-Party Rights and Discharge 25-1

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1 Chapter 15 Third-Party Rights and Discharge 25-1

2 Assignment of a Right Assignment: The transfer of contractual rights by obligee to another party Assignor: An obligee who transfers a right Assignee: The party to whom a right is transferred 15-2

3 Exhibit 15.1: Assignment of a Right 15-3

4 Assignment of a Right Rights that cannot be assigned Personal service contracts Future rights Contracts where an assignment would materially alter the risk Legal action 15-4

5 Assignment of a Right Effect of assignment of rights The assignee is entitled to performance from the obligor The unconditional assignment of a contract right extinguishes all the assignor s rights 15-5

6 Assignment of a Right Notice of assignment To protect his or her rights, the assignee should immediately notify the obligor that: The assignment has been made, and Performance must be rendered to the assignee 15-6

7 Assignment of a Right Anti-assignment clause Prohibits assignment of rights under the contract Used when obligor doesn t want to deal with or render performance to an unknown third party Approval clause Permits the assignment of the contract only upon receipt of an obligor s approval Approval cannot be unreasonably withheld 15-7

8 Assignment of a Right Successive assignment of the same right American rule: The first assignment in time prevails English rule: The first assignee to give notice to the obligor prevails Possession of tangible token rule: The first assignee who receives a tangible token prevails 15-8

9 Delegation of a Duty Delegation of duties: A transfer of contractual duties by the obligor to another party for performance Delegator: An obligor who transferred his or her duty Delegatee: The party to whom the duty has been transferred 15-9

10 Exhibit 15.2: Delegation of a Duty Promisee (Obligee) Duty of performance Contract No. 1 Promise to Perform Contract No. 2 Delegation of duties Contract No. 1: Promisor (Obligor) Contract No. 2: Delegator Delegatee 15-10

11 Delegation of a Duty Duties that cannot be delegated Personal service contracts calling for the exercise of personal skills, discretion, or expertise Contracts whose performance would materially vary if duties delegated 15-11

12 Delegation of a Duty Effect of delegation of duties The liability of the delegatee is determined by the following rules Assumption of duties Declaration of duties 15-12

13 Delegation of a Duty Anti-Delegation Clause: A clause that prohibits the delegation of duties under the contract Assignment and Delegation: Occurs when there is a transfer of both rights and duties under a contract 15-13

14 Third-Party Beneficiaries Types Intended beneficiaries Donee beneficiary Creditor beneficiary Incidental beneficiaries 15-14

15 Exhibit 15.3: Donee Beneficiary Contract 15-15

16 Exhibit 15.4: Creditor Beneficiary Contract 15-16

17 Third-Party Beneficiaries Incidental beneficiary: A party unintentionally benefited by other people s contracts Incidental beneficiary has no rights to enforce or sue under other people s contracts 15-17

18 Case 15.1: Third Party Beneficiary Case Does I-XI, Workers in China, Bangladesh, Indonesia, Swaziland, and Nicaragua v.walmart Stores, Inc. 572 F.3d. 677, Web 2009 U.S. App. Lexis (2009) United States Court of Appeals for the Ninth Circuit Issue Are the foreign workers intended third-party beneficiaries under Walmart s contracts with its foreign suppliers? 15-18

19 Covenants Covenant: An unconditional promise to perform Nonperformance of covenant is breach of contract that gives the other party the right to sue 15-19

20 Conditions Condition: A qualified or conditional promise that becomes a covenant if met Indicated by language such as if, on the condition that, provided that, when, after, as soon as 15-20

21 Types of Conditions Conditions Precedent Conditions Subsequent Concurrent Conditions 15-21

22 Conditions Condition Precedent: A condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract Contract may provide that performance must meet party s satisfaction Personal satisfaction test Reasonable person test 15-22

23 Conditions Conditions subsequent: A condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform Concurrent Conditions: A condition that exists when the parties to a contract must render performance simultaneously Each party s absolute duty to perform is conditioned on the other party s absolute duty to perform 15-23

24 Conditions Express and Implied Conditions Express conditions exist if parties expressly agree to terms Implied-in-fact conditions are implied from the circumstances surrounding the contract and conduct of the parties 15-24

25 Discharge of Performance Types Discharge by agreement Discharge by impossibility Force Majeure Clause 15-25

26 Discharge of Performance Discharge by agreement The parties mutually agree to discharge or end their contractual duties Mutual Rescission Substituted Contract Novation Accord and Satisfaction 15-26

27 Discharge of Performance Discharge by Impossibility Objective impossibility discharges both parties Death or incapacity of promisor prior to performance of personal service contract Destruction of subject matter Supervening illegality Subjective impossibility does not discharge parties 15-27

28 Discharge of Performance Force majeure clause: A clause in a contract in which the parties specify certain events that will excuse nonperformance Natural disasters Labor strikes Shortages of raw materials 15-28

29 Statute of Limitations Statute of limitations: A statute that establishes the time period during which a lawsuit must be brought If the lawsuit is not brought within this period, the injured party loses the right to sue 15-29

30 15-30

PRIVITY OF CONTRACT. An assignment of all rights implies both an assignment and a delegation.

PRIVITY OF CONTRACT. An assignment of all rights implies both an assignment and a delegation. PRIVITY OF CONTRACT As a general rule, only the parties to a contract the promisor and the promisee owe any duties and enjoy any rights arising from the contract. Common law recognizes three exceptions: