BLW 302 Ch.17

Privity of Contract

The principle that a contract is a private agreement between the parties who have entered into it

Assignment

Transfer of contractual rights

Delegation

Transfer of contractual duties

Assignor

Party assigning rights to third party

Assignee

Party receiving rights

Obligor

Person who is obligated to perform the duty

Obligee

Person to whom a duty or obligation is owed

Effect of Assignment

• When rights under a contract are assigned unconditionally, the rights of the assignor are extinguished.

• The third party (assignee) has right to demand performance from original party to contract.

• The assignee obtains only those rights that the assignor originally had. “stands in their shoes”

Form of Assignment

In general, an assignment can take any form, oral/written

• Assignments covered by the Statute of Frauds must be in writing to be enforceable

• Most states also require contracts for the assignment of wages to be in writing

Rights that cannot be assigned

• The assignment is prohibited by statute.

• Worker Compensation future benefits

• The contract is personal.

• Artist to paint a portrait

• The assignment significantly changes the risk or duties of the obligor.

• Assign insurance contact to another insured

• The contract prohibits assignment.

• Case 17.1 Bass-Fineberg Leasing, Inc.V. Modern Auto Sales, Inc

Exceptions to a contract prohibiting assignment

• Cannot prevent assignment of right to receive funds.

• Assign right to real estate (public policy restraint against alienation).

• Assign negotiable instruments.

• Sale of Goods

  • Right to receive damages for breach of contract or

  • Payment of an account that is owed

Notice of Assignment

Once assignment is made, assignee should notify the obligor of the assignment

Priority Issues

The question of who has priority (the right to the performance by the obligor) arises if the right is assigned to two different persons.

• First in Time (Most States)

• First to Provide Notice

Potential for Discharge by Performance to the Wrong Party

The obligor can discharge their obligation by performance to the assignor (the obligee) until the obligor has notice of an assignment

Delegations

A party can transfer duties through delegation

• If the delegator expresses an intention to make the delegation, it’s effective

Duties That Cannot Be Delegated

• When special trust has been placed in the obligor or performance depends on the personal skill or talents of the obligor.

• When performance by a third party will vary materially from that expected by the obligee.

• When the contract expressly prohibits delegation.

• Case 17.2 Mirandette v. Neinet, Inc

Effect of a Delegation

• The obligee must accept performance from the delegatee.

• Valid delegation of duties does not relieve the delegator of obligations under the contract.

• The obligee can usually sue the delegatee and the delegator for nonperformance

Assignments of “All Rights”

• Generally, when an assignment is made in a contract, the implication is an assignment of ALL rights and duties.

• However, assignee remains liable for performance of duties

Intended third party beneficiary (TPB)

a person whom the original parties to the contract intended to benefit at the time of contracting

• has legal rights and can sue the promisor directly for breach of contract

Creditor Beneficiary

Benefits from a contract in which promisor promises the promisee to pay a debt the promisee owes to the third party (creditor beneficiary)

Donee Beneficiary

The contract is made for the express purpose of promisor giving a gift to a third party (donee beneficiary)

Intended beneficiaries

who can sue to enforce contracts made for their benefit

Incidental beneficiaries

A third party who benefits from the performance of a contract, but whose benefit was not the reason the contract was formed

• who cannot sue

Vest

have taken effect and cannot be taken away

When the Rights of an Intended Beneficiary Vest

• The intended third party beneficiary cannot enforce a contract against the original parties until the rights of the third party have vested

• Until these rights have vested, the promisor and the promisee can modify or rescind the contract without the consent of the third party

Intended vs. Incidental Beneficiaries

• The reasonable person test.

• Performance rendered directly to TPB.

• TPB’s right to control contract details.

• TPB expressly designated as beneficiary