The relationship that exists between the parties to a contract. Show Privity of Contract - Establishes basic principle: a 3rd party (a person/company who is not a party to the contract. - Exceptions to/alterations involving the rule of Privity of Contract: (a) assignment (b) Delegation (c) 3rd party beneficiary contracts The transfer of contract rights to a 3rd party. Assignment - In a bilateral contract, the 2 parties have corresponding rights/duties - One party has a right to require the other to perform a task, and the other has a duty to perform it - often used in business financing Assignments When rights under a contract are assigned unconditionally, the rights of the assignor are extinguished. - Those rights now belong to the assignee Effect of an Assignment - As a result, assignee can enforce the contract by demanding performance from the obligor. - The rights assigned to assignee carry with them possible defenses from obligor General rule for Assignments: All rights can be assigned - Unless: A statute expressly prohibits assignment - A contract is personal in nature - The contract prohibits assignment (alienation) Voluntary transfer of land ownership is ensured for public policy reasons. - Although not required to do so unless contract explicitly states it, transferor give notice to obligor of assignment. Notice of Assignment - Important to make sure the obligor performs for the right person The transfer to a 3rd party of all or part of one's duties arising under a contract. Delegations - General rule: a delegation of duties does not relieve the delegator of his/her/its obligations. - All duties can be delegated unless: -- performance of duties are personal in nature -- The contract prohibits delegation -- Performance would vary materially from that expected by obligee - Duties that are routine and nonpersonal can be delegated Delegations Clause in a contract that explicitly prohibits a party from delegating its/their duties and obligations under that contract. Delegations If a delegation of duties is enforceable, obligee must accept performance from delegatee. Obligee can only legally refuse performance by delegatee if the duty is one that cannot be delegated. Effect of a Delegation - A valid delegation does not relieve delegator of its obligations under the contract---> Obligee could potentially sue both delegator and delegatee. One who benefits from a promise made in a contract even tho he/she/it is not party to that contract. - Has legal rights and can sue the promisor directly for breach of contract if the promisor does not fulfill its obligations Types of Intended Beneficiaries Benefits from a contract in which one party promises the other party to pay a debt that the promisee owes to it Creditor Beneficiary - Creditor beneficiary can sue promisor directly to enforce the contract Types of Intended Beneficiaries Benefits from a contract which is made for the express purpose of giving a gift to it. Donee Beneficiary - Donee Beneficiary can sue promisor directly to enforce the contract Rights have taken effect and cannot be taken away. Third Party Beneficiaries An intended 3rd party beneficiary cannot enforce a contract against the original parties until the 3rd party's rights have vested. General Rule for 3rd party Beneficiaries 3rd party who benefits from a contract even tho the contract was not formed for that purpose. Incidental Beneficiary - has no rights in the contract and cannot sue to have it enforced - EX. Mike Tyson biting Holyfield's ear off v. Spectators Beneficiaries - Focuses on the parties' intent, as expressed in the contract language and implied by the surrounding circumstances - Reasonable person test How a court distinguishes an intended beneficiary from an incidental beneficiary. Beneficiaries 1. Performance is rendered directly to the 3rd party 2. The 3rd party has the right to control the details of performance 3. The 3rd party is expressly designated as a beneficiary in the contract Factors that indicate 3rd party is an intended beneficiary Termination of one's contractual duties, such as when the party has performed those duties. Contract Discharge - Several ways to do so - By failure of a condition, by performance, by breach, by agreement, by operation of law. Contract Discharge A qualification in a contract based on a possible future event which, based on whether it occurs or does not occur, will either trigger the performance of a legal obligation or terminate an existing obligation under a contract. Contract Discharge by failure of a CONDITION - If the condition is not satisfied, the obligations of the parties are discharged Contract Discharge Condition that must be fulfilled before a party's promise becomes absolute Condition Precedent - Condition precedes the absolute duty to perform - EX. Insurance policy requires you to pass physical before the company is obligated to perform. Contract Discharge Condition that, if it occurs, operates to terminate a party's absolute promise to perform. Condition Subsequent - VERY RARE - if it occurs, the party does not need to continue performing - EX. Law firm can fire attorney who fails to maintain his law license Contract Discharge Conditions that must occur or be performed at the same time (mutually dependent) Concurrent Conditions - EX. Buyer promises to pay for goods when they are delivered by the seller - Buyer's duty to pay for goods becomes absolute only once goods have arrived or are attempted to be delivered - Seller's duty to deliver the goods does not become complete until buyer pays ** therefore neither can recover from the other for breach without first tendering performance* Contract Discharge Contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Contract Discharge By Performance: Complete Performance Contract Discharge By Performance Party in good faith performs substantially all of the terms of a contract and can therefore enforce the contract against the other party. Substantial Performance - perfromance can't vary greatly from promised performance - performance must create same benefits as promised - if omission variance or defect in performance is irrelevant can be awarded damages Contract Discharge By Performance An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so. Tender - once performance has been tendered, the party making the tender has done everything possible to carry out its contractual duties. - Can sue for breach of contract if the other party refuses to perform. Will a valid delegation relieves the delegator from the contract?A valid delegation of duties does not relieve the delegator of obligations under the contract. Courts normally construe "assignments of all rights" as implying both an assignment of rights and a delegation of duties of performance.
What is involved in an assignment of rights and a delegation of duties?Delegation occurs when a party to the contract transfers the responsibility and authority for performing a particular contractual duty to another party. Delegation doesn't involve the transfer of contractual rights. In an assignment, the rights, or benefits, of the contract are assigned to another party.
What is the effect of a valid delegation of duties?Once a party properly delegates a duty to the delegatee, that party is relieved of any obligation to perform the duty. A delegator can be discharged from his/her obligation to perform his/her duty to the original promisee by a contract of novation.
When a contract duty is legally delegated must the obligee accept performance from the delegatee?If a delegation of duties is enforceable: a. the obligee must accept performance from the delegatee.
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A delegation of duties relieves the delegator of all responsibilities of the contract.
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