Business Law: Ch 11 Contracts: Third Party Rights and Discharge
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Privity of Contract: only ___________ have rights and liabilities under the contract | original parties to a contract
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What are exceptions to the privy of contract? | Assignments, delegations, and third party beneficiary contracts
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In a bilateral contract 1 party has a right to _____________________ and the 2nd (other) party has a __________________ | require the other party to perform; duty to perform
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The transfer of a first party's right is an _________ | assignment
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Define: Assignor | party assigning rights to third party.
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Define: Assignee | party receiving rights.
(the third party)
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Define: Obligor | person who is obligated to perform the duty.
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Define Obligee | person to whom a duty or obligation is owed.
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When rights of assignor are unconditionally assigned, their rights are _________ | extinguished.
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________________ has right to demand performance from original party to contract. | The third party (assignee)
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[Assignments] What are examples of rights that cannot be assigned? | 1.When a statute expressly prohibits an assignment
2.what a contract is personal in nature
3.When the assignment will significantly change the risk or duties of the obligor
4.When contract prohibits assignment
5.Notice of assignment
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[Assignments] What are some examples of when rights can be assigned regardless of contract prohibiting assignment? | 1.Cannot prevent right to receive money.
2.Cannot prevent rights in land.
3.Negotiable instruments.
4.Rights to receive Damages in sales of goods (breach or for payment).
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[Assignments] Describe notice of assignment | Once a valid assignment has been made notice should be given to obligor of assignment (person with duty to perform); Assignment is effective immediately, notice not legally required.
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[Assignments] Describe issues with notice of assignment | right assigned to two difference parties --- Some jurisdictions first assignment gets priority, in others first to give notice to obligor gets priority; or obligor discharges performance before receiving notice of assignment
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Contractual duties in a contract that are ________ to a third party. | delegated
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Define delegator: | Delegator (obligor): party making the delegation of duty.
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Define delegatee: | Delegatee (third-party): party to whom the duty is owed.
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[Delegations] __________ remains liable (to obligee), even after delegation. | Delegator
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[Delegations] Delegatee is _______ if delegation contract creates a third party beneficiary relationship in the obligee. | liable
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[Delegations] “Assignment of All Rights.” in contract today generally assumes ____________________ | assignment of rights and assumption of duties
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__________: contract is made for the express purpose of a promisor giving a gift to a third party (donee), the donee can sue the promisor directly if the promisor breaches the contract. | Intended Beneficiary
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________ – party making the promise which benefits the third party | Promisor
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What are the different types of intended beneficiaries? | 1.Incidental
2.Creditor
3.Donee
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[Third Party Beneficiaries] Define: Incidental | If a third party is not an intended beneficiary they are an incidental beneficiary. ---a third party beneficiary’s benefit from contract between two parties is unintentional.
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[Third Party Beneficiaries] Define: Creditor | Contract where promisor promises another party (promisee) to pay a debt the promisee owes to a third party (creditor beneficiary)
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[Third Party Beneficiaries] Define: Donee | a third party’s benefit is a gift.
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[Third Party Beneficiaries] Define: vesting | When a right is conveyed to third party
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[Third Party Beneficiaries - vesting] When the third party demonstrates express consent to the agreement, such as by sending a letter or note acknowledging awareness of, and consent to, _________________ | a contract formed for her benefit
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[Third Party Beneficiaries - vesting] When the third party _______________________________________,such as when a donee beneficiary contracts to have a home built in reliance on the receipt of funds promised to him or her in a donee beneficiary contract. | materially alters his or her position in detrimental reliance on the contract
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[Third Party Beneficiaries - vesting] When the conditions for vesting are satisfied. For example, the rights of a beneficiary under a life insurance policy vest _________________. | when the insured person dies
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3rd P _______ Beneficiaries (Creditor and Donee) Original parties to contract intend at the time of contracting that the contract performance directly benefit _____________________ a 3rd party. After rights vest, 3rd P can sue for breach. | Intended; Intended
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3rd P _________ Beneficiaries. Benefit is unintentional. 3rd P has no rights | Incidental
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A party may be discharged from a valid contract by: [4 things] | 1.A condition occuring
2.full performance or material breach
3.agreement of the parties
4.operation of law
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Describe Conditions precedent | A 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.
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Describe conditions subsequent | Condition that serves to terminate a party’s absolute promise to perform; The condition follows the absolute duty to perform; if the condition occurs the party need not perform further
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Describe concurrent conditions | Each party’s duty to perform is conditioned upon the other party’s duty to perform --- normally SIMULTANEOUS duties
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What are the different categories of Discharge by performance? | 1. Tender
2.Complete performance
3.Substantial Performance
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[Contract discharge - discharge by performance] Describe tender | unconditional offer to perform by a person who is ready, willing, and able
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[Contract discharge - discharge by performance] Describe Complete performance | Parties perform exactly as agreed, or ‘perfect' -- "All conditions satisfied"
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[Contract discharge - discharge by performance] Describe Substantial Performance | Party in good faith performs substantially all of the terms, can enforce the contract. ---- Confers Most of the Benefits Promised: performance must not vary greatly from what was promised
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[Contract discharge - discharge by substantial performance] Can damages be awarded? | Yes
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[Contract discharge - discharge by substantial performance] Measure of damages is ___________________________ | cost to bring object of contract into compliance.
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Describe discharge by performance to satisfaction of another | Requirement in contract --- subject matter of the contract dictates if actual person satisfaction or reasonable person standard
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[Discharge by performance to satisfaction to another] If personal in nature ______ | then actual personal satisfaction discharges
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[Discharge by performance to satisfaction to another] Usually if contract doesn’t expressly state actual personal satisfaction required ___________ | reasonable person standard used
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[Discharge by performance to satisfaction to another] If contract requires approval by third party, _______ | either actual person satisfaction or reasonable person standard depending on jurisdiction
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What is a material breach of contract? | A material breach occurs when performance is not substantial
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In a material breach of contract, nonbreaching party is ___________________ | excused from performance and entitled to damages
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In a minor (non-material) breach, the duty to perform is _____________________________ | not excused and the non-breaching party must resume performance of the contractual obligations undertaken.
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What is anticipatory repudiation? | when one party refuses to perform his contractual obligation, before performance is due
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Anticipatory repudiation is treated as a ________, and __________ party may sue for damages immediately, even though performance is not due | material breach; nonbreaching
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[Anticipatory Repudiation] Notice by repudiating party may _____________________________ | restore parties to original obligations.
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What are the two reasons why anticipatory repudiation is treated as an immediate material breach? | 1.The NB party should not have to remain ready to perform with other party already repudiated contract
2.NB party should have opportunity to try to mitigate damages
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Anticipatory Repudiation may occur when Market Prices drive _____________________________ | one party to extreme disadvantage
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[Discharge by Agreement] Describe Discharge by Mutual Rescission | For an executory contract, parties must make a new contract, oral or written. Under UCC, contracts must be in writing; If one party has performed, agreement to rescind must have additional consideration.
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[Discharge by Agreement] Describe Discharge by Novation | parties agree to substitute a third party for an original party. Revokes and discharges a previous contract
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What are the requirements for discharge by novation? | 1.previous valid obligation
2.Agreement by all parties
3.Extinguishment of all old obligations
4.Valid Contract
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[Discharge by Agreement] Describe Discharge by Accord and Satisfaction | parties agree to accept performance different from performance originally promised [i.e. car instead of cash payment]
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[Discharge by Agreement] Discharge by Accord and Satisfaction - Define Accord | contract to perform existing contractual duty not yet discharged
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[Discharge by Agreement] Discharge by Accord and Satisfaction - Define Satisfaction | Satisfaction: performance of the accord
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[Discharge by Operation of Law] What are examples? | 1.Material Alteration
2.Statutes of Limitations
3.Bankruptcy
4.Impossibility of Performance
5.Temporary Impossibility
6.Commercial Impracticability
7.Frustration of purpose
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[Discharge by Operation of Law] Describe Material Alteration | The Contract: innocent party is discharged after material alteration
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[Discharge by Operation of Law] Describe Bankruptcy | generally bars enforcement of non-exempt transactions
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[Discharge by Operation of Law] Describe Impossibility of Performance | Objective Impossibility: the supervening event was not foreseeable: i.e. Death or incapacitation in personal contract prior to performance; destruction of the subject matter; change in law renders performance illegal
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[Discharge by Operation of Law] Describe Commercial Impractiability | Performance becomes extremely difficult or costly, and must not have been known by parties when contract made
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[Discharge by Operation of Law] Describe Frustration of Purpose | Supervening event make it impossible to attain purpose both parties had in mind.
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[Discharge by Operation of Law - Frustration of purpose] Event must not have been reasonably foreseeable, and ___________ value of what a party receives under contract. | decreases
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