©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law 6 th Edition Chapter 11 Contracts: Third Party Rights and Discharge

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 2 Assignments Assignment - Transfer of rights in bilateral contract to 3rd party. Obligee/ Assignor Obligor Assignee Original Contract Formed Assignment Duties Owed After Assignment

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 3 Assignments Rights cannot be assigned: –Assignment is contrary to statute. –Contract is personal in nature. –Changes the rights or duties of the obligor. –Contract stipulates right cannot be assigned. Case 11.1 Forest Commodity Corp. v. Lone Star Industries, Inc. (2002). Valid notice must be given to all parties. –Case 11.2 Gold v. Ziff Communications, Inc. (2001). Rights cannot be assigned: –Assignment is contrary to statute. –Contract is personal in nature. –Changes the rights or duties of the obligor. –Contract stipulates right cannot be assigned. Case 11.1 Forest Commodity Corp. v. Lone Star Industries, Inc. (2002). Valid notice must be given to all parties. –Case 11.2 Gold v. Ziff Communications, Inc. (2001).

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 4 Delegation Contractual duties in a bilateral contract that are delegated to a 3 rd party. ObligeeObligor Delagatee Original Contract Formed Duties Owed After Delegation

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 5 Duties That Cannot be Delegated When special trust has been placed on the obligor. When performance requires personal skill or talents. When performance will vary materially from obligee expectations. When the contract expressly prohibits delegation. When special trust has been placed on the obligor. When performance requires personal skill or talents. When performance will vary materially from obligee expectations. When the contract expressly prohibits delegation.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 6 Effect of a Delegation Delegator remains liable. Delegatee liable if delegation contract creates a third party beneficiary relationship in the obligee. Delegator remains liable. Delegatee liable if delegation contract creates a third party beneficiary relationship in the obligee.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 7 Third Party Beneficiaries Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 8 Types of Intended Beneficiaries Creditor Beneficiaries. Donee Beneficiaries. Modern View: Does not draw such clear lines and distinguishes only between intended beneficiaries and incidental beneficiaries. Creditor Beneficiaries. Donee Beneficiaries. Modern View: Does not draw such clear lines and distinguishes only between intended beneficiaries and incidental beneficiaries.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 9 The Vesting of Intended Beneficiary’s Rights For a third party beneficiary contract to be effective, rights under the contract must vest: –Third party’s manifesting assent to the contract. –Third party’s materially altering position in detrimental reliance on the contract. For a third party beneficiary contract to be effective, rights under the contract must vest: –Third party’s manifesting assent to the contract. –Third party’s materially altering position in detrimental reliance on the contract.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 10 Intended v. Incidental Beneficiaries Intended. –Promisee intended to confer on the beneficiary the right to bring suit to enforce the contract. –Factors: Performance is rendered directly to 3rd party. 3rd party’s right to control contract details. 3rd party expressly designated as beneficiary. Intended. –Promisee intended to confer on the beneficiary the right to bring suit to enforce the contract. –Factors: Performance is rendered directly to 3rd party. 3rd party’s right to control contract details. 3rd party expressly designated as beneficiary.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 11 Incidental. –Contract between two parties is unintentional. –Incidental beneficiary cannot sue to enforce the contract. Case 11.3 Vogan v. Hayes Appraisal Associates, Inc. (1999). Incidental. –Contract between two parties is unintentional. –Incidental beneficiary cannot sue to enforce the contract. Case 11.3 Vogan v. Hayes Appraisal Associates, Inc. (1999). Intended v. Incidental Beneficiaries

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 12 Contract Discharge A party may be discharged from a valid contract by: –A condition occurring or not occurring. –Full performance or material breach by the other party. –Agreement of the parties. –Operation of law. A party may be discharged from a valid contract by: –A condition occurring or not occurring. –Full performance or material breach by the other party. –Agreement of the parties. –Operation of law.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 13 Conditions Possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract. Types of Conditions: –Conditions Precedent. –Conditions Subsequent. –Conditions Concurrent. Possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract. Types of Conditions: –Conditions Precedent. –Conditions Subsequent. –Conditions Concurrent.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 14 Discharge by Performance The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Complete vs. Substantial Performance: –Complete: strict performance. –Substantial: performance does not vary greatly and create substantial benefit. Other party must pay. –Performance to the Satisfaction of One of the Parties or a Third Party. The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Complete vs. Substantial Performance: –Complete: strict performance. –Substantial: performance does not vary greatly and create substantial benefit. Other party must pay. –Performance to the Satisfaction of One of the Parties or a Third Party.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 15 Material Breach of Contract The nonperformance of a contractual duty. –Material breach occurs when there has been a failure of consideration. –Discharges the non breaching party from the contract. The nonperformance of a contractual duty. –Material breach occurs when there has been a failure of consideration. –Discharges the non breaching party from the contract.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 16 Anticipatory Repudiation If before performance is due, one party refuses to perform his or her contractual obligation. Results in material breach. –The nonbreaching party should not be required to remain ready and willing to perform.The nonbreaching party should have the opportunity to seek a similar contract elsewhere. If before performance is due, one party refuses to perform his or her contractual obligation. Results in material breach. –The nonbreaching party should not be required to remain ready and willing to perform.The nonbreaching party should have the opportunity to seek a similar contract elsewhere.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 17 Discharge by Agreement Rescission. Novation. Substituted Agreement. Accord and Satisfaction. Rescission. Novation. Substituted Agreement. Accord and Satisfaction.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 18 Discharge by Operation of Law Alteration of a contract. Statutes of Limitations. Bankruptcy. Impossibility. Impracticability of Performance. Alteration of a contract. Statutes of Limitations. Bankruptcy. Impossibility. Impracticability of Performance.

©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 19 Impossibility of Performance Objective Impossibility discharges contract: Death or incapacitation prior to performance; Destruction of the Subject Matter; or Illegality in performance. Commercial Impracticability (not foreseeable). Frustration of Purpose. Temporary Impossibility. Objective Impossibility discharges contract: Death or incapacitation prior to performance; Destruction of the Subject Matter; or Illegality in performance. Commercial Impracticability (not foreseeable). Frustration of Purpose. Temporary Impossibility.