Presentation on theme: "Third Parties’ Contract Rights"— Presentation transcript:
1Third Parties’ Contract Rights CHAPTER 16Third Parties’ Contract Rights
2Assignment of Contract Assignment = Rights Transferred by Assignor to AssigneeCan be done orally or in writingCan be given away or sold
3Assignment of Contract Assignee May:Enforce Rights of AssignorEnforce implied Guarantees Against AssignorBe Liable for Duties with AssignmentExample: The court said that since Roberts accepted the benefits of the contracts, he had to assume their burdens. The court said that when an entire contract is assigned, this will be interpreted as including a delegation of the assignor’s duties, absent a clear intent to the contrary. Radley v. Smith, 313 P.2d 465 (Sup. Ct. Utah 1957).Note: Assignee is also subject to the same defenses as the Assignor
4Assignment of Contract Question 4 at end of chapter.Yes. A covenant not to compete is generally assignable. Special Products acquired Douglas’ contracts through assignment when it acquired all of Page-Wilson’s contract rights. Douglas’ consent was not required. The intellectual property agreement specifically states that the agreement “inure[s] to the benefit of the successors and assigns of Page-Wilson.” The second agreement does not specifically forbid assignment. Executory contracts that do not involve exceptional personal skills on the part of the assignor and that the assignee can perform without adversely affecting the rights and interests of the adverse party are freely assignable unless there is a clear, unambiguous prohibition. There is also no statutory or public policy prohibition. Special Products can enforce the agreement. Special Products Manufacturing, Inc. v. Douglas, 552 N.Y.S.2d 506 (Sup. Ct. App. Div. N.Y. 1990).
5Assignment of Contract Contracts Not AssignableIf Would Materially Alter Duties of PromisorContracts for Personal Rights/ServicesWhere Expressly Forbidden in Contract or by StatuteContra: Claremont Acquisition Corp. v. General Motors Corp., p.272A contract is found to be assignable despite a clause prohibiting assignment without the consent of GM because the dealership was in bankruptcy and assignment was necessary to the sale of the assets.The general rule is that trustees can assign executory contracts so long as the assignee provides adequate assurance of future performance.Where Contrary to Public Policy
6Assignment Relationships Original ContractObligeeObligorAssignorDuties OwedAssignment of RightsAssignee
7Consequences of Assignment Rights/Duties AssigneesAssignor has duty to promptly notify the PromisorPriority of AssigneesAmerican Rule - First in timeEnglish Rule - First to give noticeImplied Guarantees if Paid for, that:Claim in validGood title/rightsNo action to impair valueWritten instruments representing are validNote: No warranty as to solvency of promisor
8Consequences of Assignment Delegation of DutiesDelegation = Duties TransferredMay not be delegable if depends on special skill, character or judgment of promisorNot delegable if against public policyQuestion 6 at end of chapterBlocher v. DeBartolo Properties Management, Inc.A general contractor was found not to have delegated its safety duties to its subcontractor even though the sub had agreed to abide by all safety regulations.This decision is consistent with courts’ general emphasis on safety and not excusing people from their duties of care regarding others simply by delegating the work to another.
9Consequences of Assignment Delegation of DutiesRiegleman v. Kreig, p. 274A patient was found to have delegated his duty to pay to his law firm.The appeals court endorsed the trial court’s determination that the medical expenses were reasonable and necessary. It advised that rather than holding the disputed funds indefinitely, the law firm should have brought an action for declaratory judgment and sought guidance from the court as to who was entitled to the funds. As the court finds both Kreig and the law firm jointly and severally liable, this case illustrates the principle that the delegation of a duty does not extinguish the duty owed by the delegator.
10Consequences of Assignment Delegation of DutiesNot delegable if against public policyQuestion 7 at end of chapter.No. The payments on the second mortgage were in lieu of child support. Providing shelter is an important part of support and Ricky could not afford to both make mortgage payments and monetary payments. Thus, the mortgage payments were, in effect, child support payments. Public policy does not allow a parent to delegate his obligation to support his children to another party. The duty could not be delegated to Ostendorf, nor could the duty to pay under the second mortgage contract be discharged in bankruptcy. Ricky is still obligated to make the payments. In re LaShelle, 572 N.E. 2d 1190 (Ct. App. Ill. 1991).
11Consequences of Assignment Promisor who delegates is still liable to the promisee unless new, separate release agreement (Novation).Rosenberg v. Son, Inc., p.275The court finds that no novation was intended, and that the buyer of the Dairy Queen is still liable on the sale contract despite her sale of the facility to a third party.Pratt’s duty was unaffected by time; Merit paid the Rosenbergs for 6 years before defaulting.If the law did not hold delegating parties liable, they could escape liability simply by delegating to anyone, no matter how irresponsible he or she was.The duty to pay was unaffected by the Rosenbergs agreeing to the assignment.If the courts did not require good evidence of novation, parties could also easily escape their contractual duties by arguing novation. Having the ability to collect against either the original party to the contract or the assignee increases the chances that the promisor will not be harmed by the delegation.
12Third-Party Beneficiaries Intended - Can Enforce RightsDonee - promisee’s primary purpose to make a gift toDonee can recover value ofPromisee can recover damagesCaba v. Barker, p. 276Residual beneficiaries of a will are held to be donee beneficiaries of the contract between the testator and her attorney to make the will invulnerable to contest. The beneficiaries also brought a legal malpractice claim, arguing that the attorney assumed a duty to make the will invulnerable and pleaded twelve specifications of negligence. The court explained that because under third-party analysis the contract creates a 'duty' not only to the promisee, the client, but also to the intended beneficiary, negligent nonperformance may give rise to a negligence action as well. Not every such contract will support either claim. Contrast this case with the Mortise case which appears later in the chapter.
13Third-Party Beneficiaries Intended - Can Enforce RightsDonee - promisee’s primary purpose to make a gift toDonee can recover value ofPromisee can recover damagesQuestion 10 at end of chapterCherry v. CrowA deceased county jail inmate is held to be a donee beneficiary of the contract between the county and the company hired to provide health care services for the inmates.The estate sued on three theories: violation of Cherry’s civil rights, negligence, and breach of contract.Note: Members of the public are usual incidental beneficiaries of contracts entered into by the government to carry out normal governmental functions.
14Third-Party Beneficiaries Intended - Can Enforce RightsCreditor - Performance satisfies a legal duty promisee owed to a third partyQuestion 8 at end of chapter.Yes. When a person sells his business or other property, and the buyer agrees to pay the seller’s debts, those to be paid are creditor beneficiaries. As such, they can sue the buyer if he does not pay the debts. Spiklevitz is a typical creditor beneficiary whom Markmill agreed to pay when it bought the Herons’s business. Spiklevitz v. Markmill Corp., 357 N.W.2d 721 (Ct. App. 1984).Once accepted and relied on, cannot cancel or modify without consent, unless contract gives right to do so (e.g. life insurance)
15Third-Party Beneficiaries Incidental cannot enforce rightsMortise v. United States, p.278All terrain vehicle riders who were assaulted by Army National Guardsmen during a field training exercise are deemed incidental beneficiaries of a contract between the Guard and the United States.The doctrine of sovereign immunity prevents suits against government unless expressly permitted. .
16Third-Party Beneficiaries Determining intentPerformance directly to beneficiary?Question 9 at end of chapter.Yes. The discussions Anderson had with Monahan identified Warren as the beneficiary of the contract, and Warren’s subsequent dealings with Monahan clearly establish Warren as the intended beneficiary. Monahan breached the contract with Anderson when it failed to deliver a diamond ring, as promised. This breach deprived Warren of the benefit of owning a diamond ring, which was the purpose of the sale. She can sue for the breach. Warren v. Monahan Beaches Jewelry Center, Inc, 548 So.2d 870 (Fla. Ct. App. 1989).