Chapter 15 Flashcards
Assignment of a right
the transfer of contractual rights by an obligee to another party.
Assignor: an obligee who transfers a right.
assignee: a party to whom the right is transferred.
Personal service contract
generally not assignable.
*parties may agree that a personal service contract may be assigned.
Assignment of a future right
usually a person cannot assign a currently nonexistent right that he or she expects to have in the future.
Contract where an assignment would materially alter the risk
a contract cannot be assigned if the assignment would materially alter the duties of the obligor.
Assignment of a legal action
*the right to sue another party for a violation of personal rights cannot usually be assigned.
Effect of an Assignment of a Right
the assignor is entitled to performance from the obligor.
- the unconditional assignment of a contract right extinguishes all the assignor’s rights, including the right to sue the obligor directly for nonperformance. an assignee takes no better rights under the contract than the assignor had.
- an obligor can assert any defense he or she had against the assignor or the assignee.
- an obligor can raise the defenses of fraud, duress, undue influence, minority, insanity, illegality of the contract, mutual mistake, or payment by worthless check of the assignor, against enforcement of the contract by the assignee.
- the obligor can also raise any personal defenses (e.g., participation in the assignor’s fraudulent scheme) he or she may have directly against the assignee.
Notice of Assignment
assignee is under a duty to notify the obligor that
1) the assignment has been made
2) performance must be rendered to the assignee.
- if the assignee fails to provide notice of assignment to the obligor, the obligor may continue to render performance to the assignor, who no longer has a right to it.
- the assignee cannot sue the obligor to recover payment because the obligor has performed according to the original contract.
- assignee’s only course of action is to sue the assignor for damages.
Anti-Assignment Clause
a clause that prohibits the assignment of rights under the contract.
*such clauses may be used if the obligor does not want to deal with or render performance to an unknown third party.
Approval Clause
clauses that require that the obligor approve any assignment of a contract.
*where there is an approval clause, many states prohibit the obligor from unreasonably withholding approval.
Delegation of a Duty
a transfer of contractual duties by an obligor to another party for performance.
Delegator
an obligor who has transferred his or her duty.
Delegatee
a party to whom a duty has been transferred.
Duties that can and cannot be delegated
- if an obligee has a substantial interest in having an obligor perform the acts required by a contract, these duties cannot be transferred. This restriction includes obligations under the following types of contracts:
1) personal service contracts calling for the exercise of personal skills, discretion, or expertise.
2) contracts whose performance would materially vary if the obligor’s duties were delegated.
Effect of Delegation of Duties
the liability of the delegatee is determined by the following rules:
1) assumption of duties: a situation in which a delegation of duties contains the term assumption, I assume the duties, or other similar language. In such a case, the delegatee is legally liable to the obligee for nonperformance.
2) declaration of duties: when there is a valid delegation of duties but the delegatee has not assumed the duties under a contract. *the delegatee is not liable to the obligee for nonperformance or negligent performance and the obligee cannot recover damages from the delegatee.
* in either form of delegation, the delegator remains legally liable for the performance of the contract. if the delegatee does not perform properly, the obligee can sue the obligor-delegator for any resulting damages.
Anti-delegation clause
a clause that prohibits the delegation of duties under the contract.
Assignment and Delegation
occurs when there is a transfer of both rights and duties under a contract.
if the transfer of a contract to a third party contains only language of assignment, the modern view holds that there is corresponding delegation of the duties of the contract.
Third-party Beneficiary-intended beneficiary
a third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor.
Intended beneficiary-donee beneficiary
a third party on whom a benefit is to be conferred.
Intended beneficiary-Creditor beneficiary
an original creditor who becomes a beneficiary under the debtor’s new contract with another party.
*a creditor beneficiary contract usually arises in the following situation:
1) a debtor (promisor) borrows money from a creditor (promisee) to purchase some item.
2) the debtor signs an agreement to pay the creditor the amount of the loan plus interest.
3) the debtor sells the item to another party before the loan is paid.
4) the new buyer (new promisor) promises the original debtor (new promisee) that he will pay the remainder of the loan amount to the original creditor.
*the original creditor is now the creditor beneficiary of this second contract.
If a new debtor fails to perform according to the second contract, the creditor beneficiary may either 1) enforce the original contract against the original debtor-promisor or 2) enforce the new contract against the new debtor-promisor. However, the creditor can collect only once.
Condition
a qualification of a promise that becomes a covenant if it is met. There are three types of conditions: conditions precedent, conditions subsequent, and concurrent conditions.
Condition Precedent
a condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract.
*the happening (or nonhappening) of the event triggers the contract or duty of performance.
Condition Precedent Based on Satisfaction
some contracts reserve the right to a party to pay for services provided by the other only if the services meet the first party’s satisfaction. two tests to determine whether this special form of condition precedent has been met:
1) personal satisfaction test: a subjective test that applies to contracts involving personal taste and comfort.
2) reasonable person test: an objective test that applies to commercial contracts and contracts involving mechanical fitness. (*require the work to meet the satisfaction of a third person (e.g., engineer, architect) are judged by this standard).
Condition Subsequent
a condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform.
*restatement (second) of contracts eliminates the distinction between conditions precedent and conditions subsequent (both are referred to as “conditions”).
