25-1 Chapter 15 Third-Party Rights and Discharge

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 15.1: Assignment of a Right 15-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 15.2: Delegation of a Duty Contract No. 1: Promisor (Obligor) Contract No. 2: Delegator Promisee(Obligee) Delegatee Contract No. 1 Promise to Perform Duty of performance Contract No. 2 Delegation of duties Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Third-Party Beneficiaries  Types  Intended beneficiaries  Donee beneficiary  Creditor beneficiary  Incidental beneficiaries Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 15.3: Donee Beneficiary Contract Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 15.4: Creditor Beneficiary Contract Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Covenants  Covenant: An unconditional promise to perform  Nonperformance of covenant is breach of contract that gives the other party the right to sue Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Types of Conditions Conditions Precedent Conditions Subsequent Concurrent Conditions Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Discharge of Performance  Types  Discharge by agreement  Discharge by impossibility  Force Majeure Clause Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

15-30 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.