Lecture: Contract & Third Parties Flashcards
What is privty of contract?
Only parties to a contract acquire rights and duties under that contract.
- Fact that third party can benefit from the performance of the contract doesn’t give him any right under it.
Give one exemption regarding privity of contract>
- Exception is based upon the idea of party autonomy: Third party rights clauses (life insurances and gifts)
What is the design of contracts / clauses in favor of third parties?
- Promisor = party who makes a promise
- Promisee = other contracting party
- Beneficiary = third party
1. Valid clause: Beneficiary’s rights are determined by the agreement between promisor and promisee.
Name two ways that the beneficiary of a contract should be identifiable at conclusion of the contract?
- By choosing a definition of which later circumstances will make the identity clear
- Enabling parties or one of them to identify the beneficiary at a later date
What is assignment?
Transfer of a right, liability or a contract to a third party without the terms and conditions, while the contract is kept intact.
Name three things that can be assigned?
- Assignment of rights
- Transfer of obligation
- Assignment of contracts.
What is assignment of a right?
transfer by agreement from one person to another person, including transfer by way of security, of the assignor’s right to payment of a monetary sum or other performance from a third person.
What does it mean when something is transferred?
all the assignor’s right to payment or other performance under the contract in respect of the right assigned. All rights securing performance of the right assigned.
How can a right be transferred?
- By mere agreement between assignor and assignee
- Even without notice to / consent of the debtor
To whom must the debtor perform under assignment of the right?
- Until (proven) notice (by the assignee) of the assignment
- Discharged by performing to the assignor - After (proven) notice (by the assignee) of the assignment
- Discharged by performing to the assignee
What is a transfer of obligation?
An obligation to pay money or render other performance may be transferred from one person (original debtor) to another person (new debtor).
How can an obligation be transferred to another debtor?
- An agreement between the original debtor and the new debtor subject to the consent of the creditor
- An agreement between the creditor and the new debtor, by which the new debtor assumes the obligation
Without a creditor’s consent it is a third party performance, because the creditor has assessed the credit risk of the original debtor.
Does a transfer of obligatoin mean a discharge of the original debtor?
- Creditor can discharge original debtor
- Creditor can retain original debtor as debtor in case new debtor does not perform properly
- Otherwise the original debtor and new debtor are jointly and severally liable
What is an assignment of contracts?
Transfer by agreement from one person to another person of the assignor’s rights and obligations from a contract with another person (other party)
- Agreement between assignor and assignee
- Assignment of contract requires consent of the other party
What is novation?
intention to create a new contractual relationship. This has to be proven
Name three ways in which contracts can be concluded?
- Changing the debtor
- Changing the creditor
- Requiring an agreement by all parties - Changing the object of the contract
- Not changing modalities of the contract
What are the consequences of novation?
Old contract is entirely replaced by a new contract.
- Old obligations / contract disappears
- Warranties and securities expire
- Co-debtors and guarantors are discharged
- All defences linked to the old contract disappear
What is subrogation?
a person or good will replace (put in same legal position) another person or good
- The initial contract is kept intact / remains in force
It can be one of two types:
1. Subrogation of a good
2. Subrogation of a person
What is the subrogation of a person?
- Third party pays debt of a contracting party.
- In principle, debtor’s obligation is performed
- However, third party takes place / legal position of creditor
Is there assignment or novation in a subrogation?
There is no actual assignment:
- No need for an assignment-agreement
- Subrogation required as only condition: payment of sum
In subrogation there is no novation as the initial contract is still having effect.
