Ch.12 The Extent of Contractual Rights

Question 1

Privity

Answer 1

person cannot incur liability under a contract to which he or she is not a party

-Strangers or third parties have no liability nor rights under a contract
-Only parties to a contract have liabilities or rights under a contract
- These rights can be transferred in manners that are exceptions to the rule of privity

Question 2

Prior Interests in Land

Answer 2

Exception to rule of privity that deal with sale, lease or transfer of land

• Purchaser takes land subject to the rights of others who have acquired prior interests in the property or rights of wave over land
• Person acquiring land has notice of prior agreements at time of transfer of title
• Person not party to a land contract may not incur liability

Question 3

Trusts

Answer 3

agreement or arrangement whereby a party (trustee) holds property for the benefit of another (beneficiary or cestui que trust)

Question 4

Doctrine of constructive trust:

Answer 4

Contract treated as conferring benefit on third party

Promisor obliged to perform as trustee of the benefit to be
conferred on the third-party beneficiary

Beneficiaries are not a party to the trust but can enforce its terms under equity

Question 5

Promises under Seal

Answer 5

Formal contract under seal is an exception to rule concerning privity of contract
- Third parties can enforce agreements for their benefit if made under seal

Question 6

Other Privity Exceptions

Answer 6

Tort
- End users of products can sue manufacturers under tort for injuries even if no contract exists

Collateral warranty
- Can enforce a warranty against a third party

Question 7

Novation

Answer 7

substitution of parties to an agreement, or the replacement of one agreement by another agreement

-Allowed because parties, by mutual consent, agree to terminate original contract
- Third party becomes contracting party in the new contract i.e. terminate original agreement and replaced it with another
- Original contracting party free of any liability
- Most common in creditor/debtor relations

Question 8

Vicarious Performance

Answer 8

performance of a contract by a third party, where the contracting party remains liable for the performance

• Certain contracts cannot be assigned
  – Requirement of personal services
• Any party can perform the work vicariously unless the contract states otherwise
• Work can be performed by others
  – Employees
  – Independent contractors

Question 9

Assignments by Law

Answer 9

Other statutory assignments come into effect on death or bankruptcy:

• Death - all deceased assets and contractual rights are assigned to the executor or administrator
• Bankruptcy - all assets and contractual rights assigned to the trustee in bankruptcy