1 Unit 3: Conditions and Third Party Contracts

2 Introduction Only the Parties to a contract have rights and liabilities under the contract. Exceptions: Assignment or Delegation. Third party beneficiary contract.

3 Conditions How does a party know when his or her obligations under the contract are at an end? 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.

4 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.

5 Assignments and Delegations Transfer of contractual rights is an assignment. Transfer of contractual duties is a delegation.

6 Assignments Transfer of rights in a bilateral contract to a third party. Obligee/ Assignor Obligor Assignee Original Contract Formed Assignment Duties Owed After Assignment

7 Assignments Rights that cannot be assigned: If the assignment is contrary to statute. When a contract is personal in nature. Assignment materially changes rights or duties of obligor. If the contract stipulates the right cannot be assigned. Notice of Assignment.

8 Delegations Contractual duties in a bilateral contract that are delegated to a third party. ObligeeObligor Delagatee Original Contract Formed Duties Owed After Delegation

9 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.

10 Effect of a Delegation Delegator remains liable.

11 Assignment of “All Rights” Assignment of rights and a delegation of duties.

12 Third Party Beneficiaries Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person.

13 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.

14 The Vesting of an Intended Beneficiary’s Rights For 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.

15 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.

16 Intended v. Incidental Beneficiaries Incidental. Contract between two parties is unintentional. Incidental beneficiary cannot sue to enforce the contract.

17 Practice Question # 1 The transfer of contract rights to a third person is known as: a. a delegation. b. an assignment. c. a restitution d. a reformation.

18 Answer to Practice Question # 1 B

19 Practice Question # 2 Marta owes a contract debt to Kayla in the amount of $10,000. Kayla assigns to John her right to receive this $10,000 from Marta. Marta is: a. the obligee. b. the obligor. c. the assignor d. the assignor.

20 Answer to Practice Question # 2 B

21 Practice Question # 3 As a general rule, which rights can be assigned? a. Only rights to receive negotiable instruments. b. Only rights to receive monetary damages. c. All rights, with a few exceptions. d. No rights may be assigned, only duties may be assigned.

22 Answer to Practice Question # 3 C

23 Practice Question # 4 Sally agrees to work as a chef for Fred. If Fred assigns his right to Sally's services to Don, this assignment: a. generally will not be allowed because it involves personal services. b. generally will be allowed because it is an assignment rather than a delegation. c. generally will be allowed because it involves personal services. d. will be allowed only if Don agrees.

24 Answer to Practice Question # 4 A

25 Practice Question # 5 When someone transfers his or her contractual rights to you in an assignment, you would be well advised to: a. provide the obligor with a huge money payment. b. always do nothing; this is safest. c. tell the assignee what has happened. d. notify the obligor of the assignment.

26 Answer to Practice Question # 5 D

27 Practice Question # 6 As a general rule, which of the following is a duty that MAY NOT be delegated? a. A duty to transport paper in a tractor trailer. b. A duty to paint a portrait. c. A duty to supply paper clips. d. A duty to supply ice to a concession stand.

28 Answer to Practice Question # 6 B

29 Practice Question # 7 If Carlos contracts with Maryann to paint her house and if Carlos (with Maryann's approval) delegates his duties to James, what happens if James fails to paint the house? a. Nothing. Maryann is out of luck. b. Maryann may sue both Carlos and James. c. Maryann may sue only James. d. Maryann may sue only Carlos.

30 Answer to Practice Question # 7 B

31 Practice Question # 8 If your father enters into a life insurance contract that states that you will receive $75,000 when he dies, you are: a. a substantial performer. b. an assignor. c. an intended third party beneficiary. d. a delegator.

32 Answer to Practice Question # 8 C

33 Practice Question # 9 Melissa promises to pay Jane $1,000 for a pure-bred, champion Bearded Collie named Sir Josh. When Melissa discovers that she really doesn't have the $1,000, Bob promises Melissa that he will pay Jane the $1,000. In this case, Jane is: a. out of luck. b. a creditor beneficiary. c. a donee beneficiary. d. a lapsed beneficiary.

34 Answer to Practice Question # 9 B