Chapter 11

Question 1

Privity of contract

Answer 1

relationship that exists between the parties to a contract

Question 2

Rule of privity

Answer 2

if there is no privity, there is no right to obtain legal remedy based in contract law

-to win a contract lawsuit, plaintiff must prove privity of contract w/ defendant

Question 3

novation

Answer 3

termination of existing contract to introduce new contract with same or similar terms with a 3rd party to the contract

-No privity

Question 4

Vicarious Performance

Answer 4

where 3rd party performs on behalf of the promisor who remains responsible for proper performance

• 3rd party who takes over performance does not face contractual liability
• can only sue people you have privity with

Question 5

Exceptions to Privity of Contract Rules

Answer 5

• trusts
• constructive trusts
• insurance
• undisclosed principal
• contracts concerning land
• special concessions to commercial practice
• assignment of rights

Question 6

Trusts

Answer 6

where property has been transferred to a person who administers the property for the benefit of another

• trustee
• beneficiary
• beneficial owner

Question 7

Constructive trusts

Answer 7

trust relationship imposed by the court to prevent a party from being unjustly enriched by keeping property that should benefit another

-relationship that permits 3rd party to obtain performance of a promise included in a contract for their benefit

Question 8

Insurance

Answer 8

Typically in a contract of life insurance, a person pays a premium in exchange for a promise from the insurance company to pay a sum of money on his or her death to specified person who is not a party to the insurance contract

Question 9

Undisclosed Principal

Answer 9

–A party enters into a contract and isn’t aware of who they are dealing with
–One party represented by an agent
–The person with whom the agent was acting may sue/be sued on the contract

Question 10

Contracts Concerning Land

Answer 10

–The rules of privity of contract do not apply in land law

Question 11

Special Concessions to Commercial Practice

Answer 11

–Collateral Contracts – a party is trying to get work done so they hire another contractor to do the work

–Exemption Clause: a clause in the contract that exempts or limits the liability of a party to the contract for damages arising in breach of contract and tort
•Could also protect the third party

Question 12

Assignment of Rights (Important Exception to Privity Rule)

Answer 12

–A transfer by a party of its rights under a contract to a third party