Contracts: Privity and Assignment

Question 1

Privity of Contract

Answer 1

The parties to the contract (i.e. the relationship between that exists between the parties to a contract) are the only ones bound by the contract

Question 2

Privity of Contract: Rule

Answer 2

• if there is no privity of contract between persons, then there is no right to obtain legal remedy in contract law
• however, you can still sue in tort (if one was committed) since privity of contract is not required to bring a tort claim
• This can have harsh results

Question 3

How to get around privity of contract

Answer 3

1. Novation
2. Vicarious Performance
3. Trusts
4. Consecutive Trusts

Other:
- insurance
- Undisclosed Principal
- Contracts Concerning Land (leases)
- exemption clause
-Enurement clause

Question 4

Novation

Answer 4

• terminate the first contract and create a new contract with the same or similar terms with only the 3rd party to the contracts
• Has the effect of releasing the original party to the contract
• Requires the consent of all parties/ all requirements for contract formation to be met

Question 5

Vicarious Performance

Answer 5

• where a 3rd party performs on behalf of the promiser who remains responsible for proper performance
• Do not require the consent of the recipient of performance if it “would make no difference” to the recipient who performed the obligation
• Also needed to ensure contract does not contains “personal performance” clause

Question 6

Vicarious Performance Example

Answer 6

employee of a corporation preforms a contract on behalf of a corporate employer, but the corporation (not the employee) remains liable in K law for performance

Question 7

Trusts

Answer 7

where a property has been transferred to a person who “administraters” the property (trustee or administrator) for the benefit of another (benificary)

Question 8

Beneficiary

Answer 8

as a “benifical interest” in the property and has a right to enforce the trust agreement as a “true owner” of the property

Question 9

Trustee

Answer 9

has a “legal interest” in the property (holds money or assets)

Question 10

Consecutive Trusts

Answer 10

• when there is not an “express trust”, a consecutive trust is an equitable remedy that permists the notional beneficiary to force the notional trustee to perform (usually a transfer of property)
• Original contract must have been irrevocably: a trust must be permanent with no option for the settlor of the trust property to later chage their mind

Question 11

Insurance

Answer 11

each province has a statue that allows the beneficiary to sue for performance (ex. Life insurance)

Question 12

Undisclosed Principal

Answer 12

if an agent enters an agreement on behalf of an “undisclosed” principal, that undisclosed principal can sue to enforce the contract

Question 13

Contracts concerning land (leases)

Answer 13

new owner must respect the previous lease agremeent/ lease holder must respect promises made to the previous owner to the new owner

Question 14

Exemption Clause

Answer 14

• exemption from liability clauses may extend protection to third parties (agents, employees, directors)
• Third party might rely on it if:
• The parties to the contract intended to extend the protection to the third party claiming it
• The activities of the third party were within the scope of the contract generally and the exemption clause in particular

Question 15

Enurement Clause

Answer 15

a clause in a contract that extends the rights and benefits to those inheriting from a party, succeeding the party, or taking an assignment from a party

Question 16

Assignment of rights

Answer 16

• transfer by a party of its rights under a contract to a third party
• The right to enforce a contract has an independent value from the price of the contract itself
• This intangible right to “enforce the contract” is what is transferred when the contract is assigned, and it is known as a choice in action
• In comparison to a choice in action, tangible goods are referred to as choses in possession
• Only rights or benefits can assigned not contractual obligations or liabilities

Question 17

Parties to the Assignment

Answer 17

promisor
assignor
assignee

Question 18

Promisor

Answer 18

party 1 to the contract, who is promising to do something

Question 19

Assignor

Answer 19

party 2 to the contract, who is assigning their rights under the contract

Question 20

Assignee

Answer 20

party 3 who is reciceing the rights from party 2

Question 21

Equitable Assignment (common law)

Answer 21

• an assignment that does not fulfil the statutory criteria for a legal assignment. Assignment under the Conveyancing and Law of Property Act must be in writing. If requirements of statue are not met. Then equitable assignment may still apply
• Practically, the effect is that the original assignor is left a party to the transaction therefore in order to enforce the K all the 3 parties ust be made party to any legal action (have to sue both parties)

Question 22

Statutory Assignment

Answer 22

• and the assignor is no longer bound by the agreement
• Assignee can now sue Promiser alone

Question 23

Conveyancing and Law of Property Act:

Answer 23

Conveyancing and Law of Property Act: Where an assignment meets the requirements of the Act:
The assignment was absolute (unconditional and complete); and
It was in writing; and
The promisor received notice of it in writing.