Cheeseman blaw8e ch15

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

15-2Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 15.1: 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



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



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



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



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


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


Exhibit 15.2: Delegation of a Duty

Contract No. 1: Contract No. 1: Promisor Promisor (Obligor)(Obligor)

Contract No. 2: Contract No. 2: DelegatorDelegator

PromiseePromisee

(Obligee)(Obligee)

DelegateeDelegatee

Contract No. 1Contract No. 1

Promise to PerformPromise to Perform

Duty of Duty of performanceperformance

Contract No. 2 Contract No. 2 Delegation of Delegation of

dutiesduties



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



Effect of delegation of duties The liability of the delegatee is determined by the

following rules Assumption of duties Declaration of duties



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


Third-Party Beneficiaries

Types Intended beneficiaries

Donee beneficiary Creditor beneficiary

Incidental beneficiaries


Exhibit 15.3: Donee Beneficiary Contract


Exhibit 15.4: Creditor Beneficiary Contract


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


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 15279 (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?


Covenants

Covenant: An unconditional promise to perform Nonperformance of covenant is breach of contract

that gives the other party the right to sue


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


Types of Conditions

Conditions Conditions PrecedentPrecedent

Conditions Conditions SubsequentSubsequent

Concurrent Concurrent ConditionsConditions


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


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


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


Discharge of Performance

Types Discharge by agreement Discharge by impossibility Force Majeure Clause



Discharge by agreement

The parties mutually agree to discharge or end

their contractual duties

Mutual Rescission

Substituted Contract

Novation

Accord and Satisfaction



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



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


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



Business

Cheeseman blaw8e ch15