P A R T P A R T Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

P A R T P A R T Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Rights of Third Parties PA E TR HC 17 “The best minute I spend is the one I invest in people.” Kenneth Blanchard, The One Minute Manager (1993)

Learning Objectives  Assignment of Contracts  Delegation of Duties  Third-Party Beneficiaries

 Sometimes a person who entered into a contract must transfer contract rights or duties to another person (third party)  Transfer of a right under a contract is called an assignment  Appointment of another person to perform a duty under a contract is called a delegation Overview

 Assignment will not be effective if it:  Is contrary to public policy  Violates a non-assignment clause in a contract  See Managed Health Care Associates v. Kethan  Adversely affects obligor in significant way  Involved a personal relationship or element of personal skill or character Limitations on Assignment

 Assignment extinguishes assignor’s right and transfers it to assignee, but delegation of a duty does not extinguish the duty owed by delegator to obligee  Delegator remains liable to the obligee unless obligee agrees to substitute new party for delegator by novation  In an effective delegation, performance by the delegatee will discharge the delegator Limitations on Delegation

 Duties not delegable if delegation:  Is contrary to public policy  Violates non-assignment clause in contract  Adversely affects obligee in significant way  Involved a personal relationship or element of personal skill or character Limitations on Delegation

 If parties to a contract intended to benefit a third party, courts permit third party ( third- party beneficiary ) to enforce the contract  Referred to as third-party beneficiary  See Locke v. Ozark City Board of Ed.  Incidental beneficiary is one obtaining a benefit as unintended by-product of a contract  No rights under contract Third-Party Beneficiaries

Test Your Knowledge  True=A, False = B  A person who assigns a right is an obligee  All duties may be delegated  Non-assignment clauses are enforceable  If a contract contains a non-assignment clause, the clause actually means that duties may not be delegated

Test Your Knowledge  True=A, False = B  Sheila assigned her right to the proceeds of a prize to a charity. Sheila is an assignee and the charity is the assignor.  Joshua contracted with Bigg Homes to build a two-story house that will improve the value of nearby homes. Joshua’s neighbor is an incidental beneficiary

Test Your Knowledge  Multiple Choice  James financed car purchase with CarCo, then sold the car to Marsha. Marsha agreed to pay remaining amount of the car loan, but failed to make payments. CarCo may sue:  (a) James only since he contracted with CarCo  (b) James and Marsha since CarCo is a creditor beneficiary of the contract between James and Marsha  (c) Marsha only since Marsha was substituted for James

Test Your Knowledge  Multiple Choice  Mack contracted with Dept. Store to play piano and holiday songs in the store during December. Contract had a “non-assignment” clause. Mack got another job and delegated his duties to Sarah. Does Dept. Store have a claim against Mack?  (a) Yes. Mack breached the non-assignment clause by delegating his duties to Sarah  (b) No. Mack found someone to replace him  (c) No. Contract didn’t have non-delegation clause

Thought Question  If public policy favors freedom of contract, then should courts enforce non-assignment and non-competition clauses?