Chapter 15 ThirdParty Rights and Discharge 25 1

Chapter 15 Third-Party Rights and Discharge 25 -1

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

Exhibit 15. 1: Assignment of a Right Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -3

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -4

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -5

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -6

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -7

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -8

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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -9

Exhibit 15. 2: Delegation of a Duty Contract No. 1 Promisee Promise to Perform (Obligee) Duty of performan ce Contract No. 1: Promisor (Obligor) Contract No. 2: Delegator Contract No. 2 Delegation of duties Delegatee Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -10

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. 15 -11

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. 15 -12

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. 15 -13

Third-Party Beneficiaries § Types § Intended beneficiaries § Donee beneficiary § Creditor beneficiary § Incidental beneficiaries Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -14

Exhibit 15. 3: Donee Beneficiary Contract Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -15

Exhibit 15. 4: Creditor Beneficiary Contract Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -16

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. 15 -17

Case 15. 1: Third Party Beneficiary § Case § Does I-XI, Workers in China, Bangladesh, Indonesia, Swaziland, and Nicaragua v. Walmart Stores, Inc. § 572 F. 3 d. 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? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -18

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. 15 -19

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. 15 -20

Types of Conditions Precedent Conditions Subsequent Concurrent Conditions Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -21

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. 15 -22

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. 15 -23

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. 15 -24

Discharge of Performance § Types § Discharge by agreement § Discharge by impossibility § Force Majeure Clause Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 15 -25

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. 15 -26

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. 15 -27

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. 15 -28

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 -29

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