1. © 2007 West Legal Studies in Business, A Division of Thomson Learning Chapter 11 Contracts: Third Party Rights and Discharge

2. © 2007 West Legal Studies in Business, A Division of Thomson Learning 2 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 condition, and how might a condition affect contractual obligations? Learning Objectives

3. © 2007 West Legal Studies in Business, A Division of Thomson Learning 3 Assignments Transfer of contractual rights to a 3 rd party (assignee). The assignee has the right to demand performance from the other original party (Obligor) to the contract. Cannot Assign rights for personal services or when obligor’s performance changes. CASE 11.1 Forest Commodity Corp. v. Lone Star Industries, Inc. (2002).

4. © 2007 West Legal Studies in Business, A Division of Thomson Learning 4 Delegations Transfer of duties to a 3 rd party (Delegatee) by Delegator. Delegatee owes duty to original party in contract. Delegator is still liable for performance of duty.

5. © 2007 West Legal Studies in Business, A Division of Thomson Learning 5 Third Party Beneficiaries 3P Intended Beneficiaries (Creditor and Donee) Original parties to K intend at the time of contracting that the contract performance directly benefit a 3rd party. After rights vest, 3P can sue for breach. 3P Incidental Beneficiaries. Benefit is unintentional. 3P has no rights. CASE 11.2 Vogan v. Hayes Appraisal Associates, Inc. (1999).

6. © 2007 West Legal Studies in Business, A Division of Thomson Learning 6 Discharge: Conditions of Performance Conditions to 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: occur simultaneously.

7. © 2007 West Legal Studies in Business, A Division of Thomson Learning 7 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.

8. © 2007 West Legal Studies in Business, A Division of Thomson Learning 8 Discharge by Performance 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. –CASE 11.3 Kim v. Park (2004). Anticipatory Repudiation –One party gives notice of refusal to perform. –Innocent party treats AR as material breach.

9. © 2007 West Legal Studies in Business, A Division of Thomson Learning 9 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.

10. © 2007 West Legal Studies in Business, A Division of Thomson Learning 10 Discharge by Operation of Law Contract Alteration. –Statutes of Limitations. –Bankruptcy. –Impossibility of Performance (Objective). Party’s incapacitation. Subject matter is destroyed. Performance becomes illegal. Commercially impracticable.