1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1 Chapter 13: Third Party Rights and Discharge

2. 2 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives What is the difference between an assignment and a delegation? What rights can be assigned despite a contract clause expressly prohibiting assignment? What factors indicate that a third party is an intended beneficiary? How are most contracts discharged? What is a contractual obligation, and how might a condition affect contractual performance?

3. 3 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Assignments Transfer of contractual rights to a 3 rd party (assignee). Effect: Assignee has the right to demand performance from the original party (Obligor) to the contract. Notice of Assignment.

4. 4 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Assignments When Rights Cannot Be Assigned: –Statute Expressly Prohibits Assignment. –Contract is for Personal Services. –Assignment will Materially Change Risks or Duties of Obligor. –When Contract Itself Prohibits Assignment.

5. 5 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Delegations Transfer of duties to a 3 rd party (Delegatee) by Delegator. Delegatee still owes duty to original party in contract, and is still liable for performance.

6. 6 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Delegations Generally any duty can be delegated except: –When performance depends on personal skills or talents of original obligor. –When special trust has been placed in the obligor. –When 3 rd party performance will materially vary. –When the contract expressly prohibits delegation.

7. 7 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Summary

8. 8 Third Party Beneficiaries

9. 9 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Beneficiaries 3P Intended Beneficiary (Both Creditor and Donee) Original parties to K intend at the time of contracting that the contract performance directly benefit a 3rd party. –When rights vest: Third party demonstrates express consent. Third party materially alters her position. When conditions are satisfied. –After rights vest, third party can sue for breach. 3P Incidental Beneficiary. Benefit is unintentional. 3P has no rights.

10. 10 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Intended vs. Incidental Beneficiaries To determine whether beneficiary is intended or incidental, courts use the reasonable person test, plus factors: –Performance is rendered directly. –Third party has right to control details. –Third party is expressly designated. Case 13.1 Revels v. Miss America Organization. Revels was an incidental beneficiary under the MAO contract because she didn’t prove the contract was executed for her direct benefit.

11. 11 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contract Discharge

12. 12 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contract Discharge Discharge is the full performance of all contractual duties. Conditions of Performance: –Condition is a possible future event that may or may not happen. –Triggers or terminates performance. –Condition Precedent: prior to performance –Condition Subsequent: follows initial performance. –Concurrent Conditions: occur simultaneously.

13. 13 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Discharge By Performance: Complete vs. Substantial Performance Complete Performance: perfect performance under the contract. Substantial Performance: technically a minor breach but as long as in good faith, the non- breaching party remains liable to pay. Satisfaction Contract: performance is conditioned on reasonable satisfaction. Case 13.2 Wisconsin Electric Power Co. Union Pacific Railroad. In this case, 84% work constituted substantial performance.

14. 14 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Breach of Contract Material Breach. –When performance is not substantial. –Innocent party is excused from performance and has the right to sue for damages. –A minor breach may be cured. Anticipatory Repudiation –One party gives notice of refusal to perform. –Innocent party treats AR as material breach.

15. 15 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Discharge by Agreement Discharge By Mutual Rescission: parties must make another agreement. Discharge by Novation: new contract with substitution of a third party for one of the original parties. Accord and Satisfaction: settlement to discharge original contract.

16. 16 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Discharge By Operation of Law Contract Alteration. –Material alteration discharges innocent party. Statutes of Limitations. –Automatically discharges. Bankruptcy. Impossibility. 

17. 17 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Discharge by Operation of Law Objective Impossibility. –Party with required personal performance dies or becomes incapacitated prior to performance. –Specific subject matter is destroyed. –Change in law renders performance illegal. Temporary Impossibility. –Performance is suspended until impossibility ceases.

18. 18 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Discharge by Operation of Law Commercial Impracticability. –Parties may be excused when performance becomes extremely expensive than originally agreed and not known or foreseeable. Frustration of Purpose: supervening circumstances make it impossible to attain the purpose both parties had in mind. Case 13.3 Facto v. Pantagis. Power failure was unforeseen and beyond control of Pantagis. The law does not require absolute unforeseeability of the event.