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Flashcards in Chapter 17 Deck (47)
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1
Q

Once a valid and legally enforceable contract exists…

A

we look at the rights and duties in the performance of the contract.

2
Q

Rule of Privity or Privity of Contract.

A
  • A contract is a private agreement and traditionally only the parties to a contract have rights and duties under the contract.
3
Q

Third Parties or strangers to the private contract agreement, are not direct parties to the contract and thus…

A

do not ordinarily have any rights or duties under the contract.

4
Q

What are the 2 exceptions to the Rule of Privity?

A
  1. Assignments/Delegations
  2. Third-Party Beneficiary Contracts
5
Q

A party to the contract (assignor) assigns his rights under…

A

the contract to a third party (assignee).

6
Q

The assignor’s rights are extinguished upon…

A

assignment

7
Q

The assignee (third-party) may enforce…

A

the contract against the other original party (obligor)

8
Q

Effect of Assignments

A
  1. An assignee takes only those rights that the assignor originally had. They “acquire rights”.
  2. An assignee takes the claim subject to all defenses available against the assignor (the original obligee).
9
Q

Form of the Assignment

A

Consideration (don’t have to have between the Asignor and the Assignee) – past consideration is not consideration… but the assignment is still valid. You don’t have to have any special form.

10
Q

Rights that cannot be assigned

A
  1. Statute expressly prohibits an assignment
  2. Right to receive personal/confidential services may not be assigned without the consent of the person who is to perform them
  3. A contract right cannot be assigned if the assignment will materially increase or alter the risk of the obligor.
  4. Contract prohibits the assignment.
11
Q

Workers comp benefits. Military pension benefits. (Get the funds directly!) It’s for the worker and military member’s protection.

A

Statute expressly prohibits an assignment. Rights that cannot be assigned.

12
Q

Singer in a nightclub. The owner of the night club could not assign my services to sing to another night club without my consent.

A

If this was allowed it would make the singer almost an “indentured servant.”

13
Q

I have a restaurant. I need liability insurance. I have a liability policy with the insurance. The insurance company is the obligor. I am the obligee.

A

I cannot “assign” my insurance policy to a friend who also owns a restaurant.

14
Q

When the contract prohibits the assignment:

A
  • Anti-assignment clauses
  • must be reasonable
  • 4 exceptions
15
Q

What are the 4 exceptions to enforceability of anti-assignment clauses:

A
  1. can’t prevent the assignment of the right to receive funds
  2. can’t restrict the assignment of the rights to real estate
  3. can’t prohibit the assignment of negotiable instruments
  4. can’t prohibit the assignment of the right to receive damages from a breach of sale of good contracts
16
Q

Is notice of assignment legally required?

A

No, but it is wise to do so

17
Q

Problems that arise if notice of the assignment is not given:

A
  1. Priority issues
  2. If notice of an assignment is not given, the obligor may continue to render his or her performance to the assignor (original obligee) and the original contract could be discharged by performance without the assignee getting performance.
18
Q

Duty: deliver the cows. Smithy is sick and can’t drive the cows, so he calls his friend Harve. Harve says he can drive the cows to Annie. Harve rolls over and falls asleep and doesn’t actually go drop the cows off. Annie’s cows sitting at the auction barn has liability. The cows could lose weight, get injured, etc.

A

With assignment law – every right that the assignor has the assignee has.
With delegation law – there is liability with nonperformance of a duty. Smithy can delegate the duty to deliver the cows, but Smithy cannot delegate the liability for nonperformance.

19
Q

Delegation of Duties

A

Delegation does not relieve the delegator (party making the delegation) of the obligation to perform in the event the delegatee (party to whom the duty has been delegated) fails to perform – meaning delegator is legally responsible if the delegatee does NOT perform.

20
Q

Is there special form to create a valid delegation of duties?

A

No, the delegator must only express an intention to make the delegation

21
Q

What are duties that cannot be delgated?

A
  1. Personal duties that depend upon the skill or talents of the obligor without the assent of the party to whom performance is to be rendered.
  2. When special trust has been placed in the obligor, the obligor may not delegate his duties.
  3. When performance by a third party will materially vary from the performance expected by the obligee, duties may not be delegated.
  4. When contracts expressly prohibits delegation - contract includes an anti-delegation clause
22
Q

What is the effect of delegation?

A

Delegator is not relieved of liability by delegation.
Obligee must accept performance from the delegatee unless the duty is one that cannot be delegated.

23
Q

If the delegatee fails to perform, the obligee may:

A
  1. hold the delegatee liable if the delegatee has made a promise of performance that will directly benefit the obligee.
  2. hold the delegator liable.
24
Q

Assignment of “All Rights”

A

“I assign all my rights in the contract” are usually interpreted to mean an assignment of rights and a delegation of duties.

25
Q

Anti-sublease Clause in Lease

A

actually an anti-assignment clause. “Without landlord consent.” – Attempt to be reasonable. Increases risk (may not pay, could damage, etc.)
Problem with subleases – delegation issue… You are not released from your liability by subleasing.

26
Q

What is the difference between assignment/delegation and third party beneficiary contracts?

A

The timing of the rights. If we are forming a contract now and as a part of that contract we design it to benefit a third party is very different from having a contract and later down the road having the third party be benefitted.

27
Q

Third Party Beneficiary Contracts

A

The third-party beneficiary is a stranger to the contractual relationship of the parties to the contract.
1. The third-party beneficiary makes no promises and gives no consideration to the promisor who is to render performance.
2. The intention of the parties to the contract is to confer a benefit upon the third-party beneficiary.

28
Q

In a third party beneficiary contract who is the promisor?

A

Courts must determine which party made the promise to the 3P so that the 3P can sue the Promisor directly.

29
Q

Jennifer Orr is suing her father, Mr. Orr, because when her parents got a divorce, in the divorce decree, the dad agreed to pay for the kids’ college. Jennifer is suing to enforce the contract and get money to pay for college.

A

The divorce decree has to be designed to benefit her. They are talking about “standing.” The court says that she is a third party beneficiary. She wins her case.

30
Q

What are two types of intended beneficiaries?

A

Creditors and Donees

31
Q

Intended Beneficiary

A

Has rights and therefore, may enforce contractual promises, even though not a party to the contract.

32
Q

Creditor Beneficiary

A

Promisor promises to pay a debt that promisee owes to a third party (creditor beneficiary). The creditor beneficiary can enforce the promisor’s promise.

33
Q

Donee Beneficiary

A

A contract is made for the express purpose of giving a gift to a third party (donee beneficiary). The donee beneficiary can enforce the promisee’s promise.

34
Q

The classic case that gave third party beneficiaries the right to bring a suit directly against a promisor was decided in 1859. The case involved three parties—Holly, Lawrence, and Fox. Holly had borrowed $300 from Lawrence. Shortly thereafter, Holly loaned $300 to Fox, who in return promised Holly that he would pay Holly’s debt to Lawrence on the following day. When Lawrence failed to obtain the $300 from Fox, he sued Fox to recover the funds. The court had to decide whether Lawrence could sue Fox directly (rather than suing Holly).

A

The court held that when “a promise [is] made for the benefit of another, he for whose benefit it is made may bring an action for its breach.”

35
Q

Ang (the promisee) pays premiums to Standard Life, a life insurance company. Standard Life (the promisor) promises to pay a certain amount upon Ang’s death to anyone Ang designates as a beneficiary.

A

The designated beneficiary is a donee beneficiary under the life insurance policy and can enforce the promise made by the insurance company to pay her or him on Ang’s death.

36
Q

When does the third-party have the right to sue?

A

An intended beneficiary has a legal right to enforce the contract against the promisor after the beneficiary’s rights vest.

37
Q

The third party intended beneficiary’s rights vest so that the original contracting parties cannot modify, alter, change, rescind, or terminate the contract when the beneficiary:

A
  1. Demonstrates manifest assent to the contract;
  2. Materially changes his or her position in detrimental reliance on the contract; or
  3. When conditions for vesting are satisfied.
38
Q

the parties to the contract expressly reserve the right to cancel, rescind, or modify the contract, the intended third-party beneficiary is…

A

subject to any change, rescission, or cancellation.

39
Q

What is an example of third-parties expressley reserving the right to cancel, rescind, or modify the contract?

A

In most life insurance contracts, for instance, the policyholder reserves the right to change the designated beneficiary.

40
Q

Do indidental beneficiaries have the right to enforce the contract?

A

No if there was no intent to confer a benefit upon them

41
Q

What standard is applied to incidental beneficiaries?

A

The reasonable person standered

42
Q

What are other factors courts consider when assessing incidental beneficiaries?

A
  1. Whether the performance is rendered directly to the third party.
  2. Whether the third party has the right to control the details of the performance.
  3. Whether the third party is expressly designated as the beneficiary of a contract.
43
Q

Building a house…I prefer a certain company who makes the brick I like and I write their name in my contract with the builder. If that company is not used to get the brick I like…

A

the company cannot sue to enforce the contract and get the business.

Seeing a name in a contract does not in itself give intent to benefit.

44
Q

Spectators at the infamous boxing match in which Mike Tyson was disqualified for biting his opponent’s ear sued Tyson and the fight’s promoters for a refund on the basis of breach of contract. The spectators claimed that they were third party beneficiaries of the contract between Tyson and the fight’s promoters.

A

The court, however, held that the spectators could not sue because they were not in contractual privity with the defendants. Any benefits they received from the contract were incidental to the contract. According to the court, the spectators got what they paid for: “the right to view whatever event transpired.

45
Q

5 years ago, Hensley purchased a house. At that time, she borrowed funds from Thrift Savings and Loan, which in turn took a mortgage at 6.5% interest on the house. The mortgage contract did not prohibit the assignment of the mortgage. Then Hensley secured a new job in another city and sold the house to Sylvia. The purchase price included payment to Hesley of the value of her equity.

A

Equity: the amount of house owned by Hensley
Assumption of the debt: the remainder of the debt to be paid has been delegated to Sylvia

Thrift’s rights if Sylvia fails to pay… sue both of them.

46
Q

Older couple moved from Caldwell to Kentucky. They sold their dream home to a Sylvia. For the last 4 months they have been getting default notices from their bank. Because of the nature of an assumption mortgage…

A

they are still liable for everything that wasn’t paid

47
Q

Alexander has been accepted as a freshman at a college 200 miles from his home for the fall semester. Alexander’s wealthy uncle, Michael, decides to give Alexander a car for Christmas. In November, Michael makes a contract with Jackson Auto Sales to purchase a new car for $28,000 to be delivered to Alexander just before the Christmas holidays, in mid-December. The title to the car is to be in Alexander’s name. Michael pays the full purchase price, calls Alexander and tells him about the gift, and takes off for a 6-month vacation in Europe. Is Alexander an intended third party beneficiary (donee beneficiary) of the contract between Michael and Jackson Auto Sales? Why or Why not?

A

The contract has been designed to benefit Alexander – Third Party Beneficiary.

What tells you we designed the contract for Alexander? title to the car is to be in Alexander’s name, calls Alexander and tells him about the gift

If Jackson Auto Sales never delivers the car to Alexander, Alexander has the right to sue for breaching the contract.