Assignment, Delegation, and Breach of Contract

Objectives  Define assignment and identify when a right has been assigned  Define delegation and differentiate between the delegation of duty, and the assignment of a right  Identify duties that can not be assigned  Define Privity of Contract  Understand third-party beneficiary and describe a situation in which they can enforce a contract

Transfer of Rights  Assignment: the legal transfer of a right under contract.

Class case study # 1 Anthony entered into a contract with Cathy to paint her house for $2,000. Anthony owes $2,000 to his landlord, and stated in the contract that Cathy should make the $2,000 payment out to his landlord upon completion of the job. Can Anthony do this?

Yes…Why? The law allows a party to a contract to legally transfer his or her rights under a contract unless otherwise stated in the contract. Class case study # 1

Assigning a Contract  No, consideration is necessary for the assignment to be valid.  The third party of the contract being assigned is entitled to notice of the assignment  Assignment can occur in writing or verbally

Class case Study # 2 Although Cathy receives notice that she is to make payment out to Anthony’s landlord, she inadvertently makes the $2,000 check out to Anthony. Does Cathy’s payment fulfill the contract?

Class case Study # 2 No… Cathy was notified of the assignment of the contract. She is legally bound to pay Anthony’s landlord. Payment to Anthony does not discharge the debt to the landlord.

Not all Rights can be Assigned  Assignment cannot materially or significantly change the original right  Assignment that changes the obligations of the other party in an important way are void  Rights to receive personal services usually are not assignable

Class case study #3 James entered into a contract with Sally to paint her house for $3,000. Can Sally assign the contract to her neighbor so that her neighbor can get their house painted at the price quoted to Sally?

Class case study #3 No… This is a significant change to the contract. The assignment would be void although the original contract is still valid.

Transfer of Duties A transfer of duties in a contract is called a delegation.  Party of contract “ delegates” another to perform the duty (obligation) in his/her place  Delegation does not release the original party from responsibility

Class case study #4 Mr. Smith, owner of Eastern Print Shop, had overextended himself financially. Because he was not able to meet all of his printing contracts, he asked Mr. Brown, owner of Western Print to do the printing for him. How is Mr. Brown’s responsibility affected?

Class case study #4 Mr. Smith is still “responsible” for the contracts even though he has “delegated” his printing duty to someone else. Mr. Smith has “subcontracted” the printing

Duties that cannot be delegated:  When a party agrees to perform a service personally  Contract calls for use of personal skill or judgment  Artists  Writers  Teachers  Entertainers  Contract itself prohibits delegation

Class Case Study #5 Ryan contracted to build a garage for Susie. The contract says that Ryan would do the work himself and he would not assign or delegate the contract to any outside third party. Is Ryan obligated to fulfill this contract?

Class Case Study #5 Yes… In this instance Ryan is obligated to fulfill the contract because the contract specifically stipulates that it can not be assigned.

Transfer of Duties Can duties be transferred to others without approval of the original party? Yes… One party of a contract does not need permission of the other party to assign his or her rights to delegate his/her duties

Novation  An agreement whereby an original party to a contract is replaced by a new party  The original terms of the contract remain  Permission is obtained from the original party.

One of Mr. Smith’s printing jobs involved printing a book for Ms. Parker. Mr. Smith assigned the right to receive the money and delegated the printing to Mr. Brown. Ms. Parker agreed to deal solely with Mr. Brown. How is Mr. Smith’s responsibility affected? Class case study #6

Mr. Brown is released from his contractual obligation. Novation allows for replacement of parties, releasing original party from a contract. Class case study #6

Privity of contract  The relationship between the parties of a contract  Determines who can sue whom  Each party has “standing to sue”

Mr. Brown, owner of Western Print shop was not able to complete the job for Ms. Parker. Ms. Parker’s daughter was angry and thought her mother was being cheated. She decided to sue Mr. Brown for breach of contract. Can Ms. Parker’s daughter do this? Class case study #7

No…. The daughter has no privity of contract. The contract does not establish a relationship between the daughter and Mr. Brown. Only between Mr. Brown and Ms. Parker. Class case study #7

Third-Party Beneficiary A person who is not a party to a contract but who benefits from it. Most common in insurance

Class case study #8 Uncle Leo bought a life insurance policy, naming his nephew, Paul as his beneficiary. When Uncle Leo died, the insurance company refused to pay claiming that Uncle Leo had not disclosed to them that he had cancer. Paul claimed that his Uncle did not know he had the illness when he took the policy. Can Paul sue for breach of contract?

Class case study #8 Yes… Paul was the intended beneficiary of the insurance policy; he has standing to bring suit

Review  Can duties of a contract be transferred others, without the approval of the original party?  How does an assignment differ from a delegation?  Can the beneficiary of a life insurance policy bring suit against the insurance company to enforce the rights granted under the policy?