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26 Cards in this Set

  • Front
  • Back
privity of contract
the relationship that exists between the promisor and promisee of a contract
- both parties entered in the contract have rights and liabilities under it
-3rd parties generally don't have rights under the contract
assignment
-the transfer of contractual rights to a third party
-occurs in business financing
-loans, mortgages, etc. often the bank tells payer to pay the 3rd party instead of the bank
assignor
the party assigning the rights to a third party
assignee
the party receiving the rights
obligee
the person to whom a duty or obligation is owed
obligor
the person who is obligated to perform the duty
effect of an assignment
when the rights under a contract are assigned unconditionally, the rights of the assignor are extinguished
-the third party has a right to demand performance from the other original party to the contract
rights assigned are subject to the same defenses
the assignee's rights are subject to the defenses that the obligor has against the assignor
EX: Brower owed Horton $1000 under contract whre Brower bought Horton's laptop. Brower relied on Horton's fraud misrep that comp had 160 GB harddrive. it only had 80 GB. Brower returns the laptop and cancels contract. Horton assigned his "right" to receive the $1000 to Kuhn, Brower need not pay Kuhn - Brower can raise the defense of Horton's fraud misre
form of the assignment
an assignment can take any form (oral or written)
- if covered by Statute of Frauds, must be in writing
Rights that cannot be assigned
-when a statute expressly prohibits assignment
-when a contract is personal in nature (contract for personal service, the rights can't be assigned unless all that remainds is monetary payment - personal services are unique to the person rendering them)
-when an assignment will significantly change the risk or duties of the obligor
-When the contract prohibits assignment
when a contract prohibits assignment, exceptions
1. contract can't prevent an assignment of the right to receive monetary payments - encourages the free flow of funds and credit
2. assignment of rights in real estate often can't be prohibited because such a prohibition is contrary to public policy, restraints against alienation (transfer of land ownership)
3. The assignment of negotiable instruments can't be prohibited
4. in a contract for the sale of goods, the right to receive damages for breach of contract or payment of an account owed may be assigned even though the sales contract prohibits such an assignment
notice of assignment
once a valid assignment of rights has been made, the assignee (the third party to whome the rights have been assigned) should notify the obligor (the one owing performance) of the assignment
-assignment effective immediately once assigned, not legally necessary to establish the validity of the assignment
Problems arised when the assignment is not given to the obligor
1. If the assignor assigns the same right to two different persons, which has priority?
-generally: the first assignment in time (US), gives priority to the first assignee who gives notice (English/UK)
2. Until the obligor has notice of an assignment, the obligor can discharge his or her obligation by performance to the assignor, and performance by the obligo to the assignor (obligee) constitutes a discharge to the assignee.
delegation
the transfer of contractual duties to a third party
delegations
normally, a delegation of duties does not relieve the party making the delegation (delegator) of the obligation to perform in the event that the party to whom the duty has been delegated (delegatee) fails to perform
-no special form is required to create a valid delegation of duties, as long as the delegator expresses an intention to make the delegation, it is effective
Duties that cannot be delegated
-when the duties are personal in nature
-when performance by a third party will vary materially from that expected by the obligee
-when the contract prohibits delegation (includes an anti-delegation clause)
effect of delegation
if a delegation of duties is enforceable, the obligee (the one to whom performance is owed) must accept performance from the delegatee (the one to whom the duties have been delegated)
-an "assumption of duty" on the part of the delegatee, and breach of this duty makes the delegatee liable to the obligee
assignment of "all rights"
creates both an assignment of rights and a delegation of duties
third party beneficiary
One for whose benefit a promise is made in a contract but who is not a party to the contract
(type of intended beneficiary)
intended beneficiary
a third party for whose benefit a contract is formed; an intended beneficiary can sue the promisor if such a contract is breached
-middle man = promisee
-3rd party can skip "middle man" and sue the promisor directly
creditor beneficiary
one who benefits from a contract in which one party (the promisor) promises to pay another party (the promisee) to pay a debt that the promisee owes to a third party
-as an intended beneficiary, the creditor beneficiary can sue the promisor directly to enforce the contract and obtain payment on the debt
donee beneficiary
when a contract is made for the express purpose of giving a gift to a third party, the third party (donee beneficiary) can sue the promisor directly to enforce the promise
-most common donee beneficiary contract is a life insurance contract
intended vs. incidental beneficiaries
don't have to draw specific lines between types of beneficiaries
-only need to distinguish between intended (who can sue) and incidental (who can't sue)
to vest
means the rights have taken effect and can't be taken away
-an intended 3rd party beneficiary can't enforce a contract against the original parties until the rights have vested
-the original parties to the contract (promisor and promisee) can modify or rescind the contract without the consent of the 3rd party before these rights have vested
when do the rights of the 3rd party vest?
1. The 3rd party materailly changes his or her position in justifiable reliance on the promise
2. the third party brings a lawsuit on the promise
3. the third party demonstrates his or her consent to the promise at the request of the promisor or promisee
Determinging whether a 3rd party is an intended or incidental beneficiary
courts focus on intent, as expressed in the contract language and implied by the surrounding circumstance