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Chapter 12:

Third-Party Rights and Discharge of Contracts

Assignment of Rights

Delegation of Duties

Third Party Beneficiaries

Promises of Performance

Discharge of Performance

 

OBJECTIVES:

1. Describe assignment of contracts and what contract rights

are assignable.

2. Define anti-assignment and approval clauses and

determine their lawfulness.

3. Describe a delegation of duties and explain the liability of

the parties to a delegation.

4. Define an intended beneficiary and describe his or her

rights under a contract.

5. Define an incidental beneficiary.

6. Define a covenant.

7. Distinguish between conditions precedent, conditions

subsequent, and concurrent conditions.

8. Explain when the performance of a contract is excused

because of objective impossibility.

9. Define and apply the doctrine of commercial

impracticability.

10. Explain how contracts are discharged by operation of

law.

 

A. ASSIGNMENT OF RIGHTS

1. Form of Assignment

a. Assignment is the transfer of contractual rights by a

b. Assignor is the party making the assignment.

c. Assignee is the third party to whom the rights are

Evening News Association, Inc. v. Perterson, 477 F. Supp 77 (DC, D.C., 1979).

FACTS: Peterson has an employment contract with Post-Newsweek Stations, Inc. as a newscaster-anchorman. Post-Newsweek sold the station to Evening News. In the contract for sale, Peterson's employment contract was assigned to Evening News. After working at the same job for a while for Evening News, Peterson resigned before his contract expired. Evening News brought an action to enjoin Peterson from working for another station.

ISSUE: Was Peterson's contract assignable?

HOLDING: Yes

REASONING: Contracts are assignable unless the assignment materially alters the duty of the obligor, substantially reduces the obligor's right of receiving return performance, or materially enhances the burden of the risk imposed by the contract. Peterson's duties did not change after the assignment, so none of the exceptions apply. Second, the contract was silent as to assignability. Since the contract did not prohibit the assignment of rights, and the exceptions do not apply, the contract is assignable. Therefore, Evening News may enforce the contract as the assignee.

 

2. The effect of the assignment is to put the assignee in the

shoes of the assignor and to given the assignee the right of

the performance by the obligor.

 

3. Nature of the Assignment.

a. The assignee must notify the obligor that the

b. If the assignee fails to give proper notice and the

4. Anti-assignment and approval clauses limit assignment of

certain contracts.

a. The anti-assignment clause prohibits assignment of

b. An approval clause permits assignment only upon

B. DELEGATION OF DUTIES

1. Delegation of duties

a. A delegation is a transfer of contractual duties by a

b. The delegator is the party who transfers their

c. The delegatee is the third person to whom

2. Effect of delegation:

a. Assumption of duties makes the delegatee liable to

b. Declaration of duties doe not make the delegatee

c. In either case, the delegatee is liable to the delegator

3. Anti-delegation clause prohibits delegation of duties under

a contract.

4. An Assignment and Delegation occurs when there has

been a transfer of both rights and duties under the

contract.

 

Loftus v. American Realty Company, 334 N.W. 2d 366 (App IA, 1983).

FACTS: Raymond and Connie Loftus owned a home in Iowa. The entered into an exclusive listing agreement with American Realty Company to sell their home. Loftus moved out of the house and shut off all of the appliances with the exception of the furnace. Under the exclusive listing agreement, American Realty assumed the responsibility for performing any tasks necessary for the closing of the transaction, including turning on the utilities. An offer was made on the home, which Loftus accepted. Prior to closing, defendant hired Mr. Fitzpatrick, an independent contractor, to light the gas water heater. In opening the gas value to the water heater, Fitzpatrick also opened the gas line. As a result, the house exploded and burned, causing $22,500 in damages. Fitzpatrick was discharged in bankruptcy prior to the trial in this matter. Loftus sued defendant for damages for breach of contract. The trial court held in favor of American Realty. Loftus appealed.

ISSUE: Is the Defendant delegator liable for damages caused by the negligence of Fitzpatrick, the delegatee?

HOLDING: Yes

REASONING: The general rule regarding obligations under a personal service contract is that they are not delegable. The performance of such delegated duties is regard as performance by the obligor and liability remains with him. One who contract to perform an undertaking is liable to his promisee for the negligence of an independent contractor to whom he delegates the duties. The fact that defendant could delegate the duty to a third party, as happened, did not excuse it from liability for the faulty performance of the subcontractor.

 

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C. THIRD-PARTY BENEFICIARIES

1. Intended third-party beneficiaries can sue to

recover their rights under the contract and come in two

types:

a. Donee beneficiaries are intended beneficiaries who

(1) promisee is the contracting party who directs

(2) promisor is the contracting party who agrees

(3) donee beneficiary is the third person to whom

b. Creditor beneficiaries are creditors who become

(1) An example would be an owner of property

2. Incidental beneficiaries are those who receive some

benefit from the contract, but are not a person or class

of persons for whom the contract was intended to

benefit. These beneficiaries cannot enforce any rights

under the contract.

Bain v. Gillispie, 357 N.W. 2d 47 (App Iowa, 1984).

FACTS: Bain, a college basketball referee, had a contract with the Big Ten Basketball Conference. Bain is alleged to have called a foul in error in a game which eliminated Iowa from the Big 10 Championship. The Gillispies operated a novelty store in Iowa City which suffered in their sports business because Iowa did not get to the national championship.

ISSUE: Were the Gillispies intended third party beneficiaries to the Bain-Big Ten contract?

HOLDING: No

REASONING: The test is whether Bain and the Big Ten intended other parties to have enforceable rights under the referring contract. They didn't. They were only incidental beneficiaries at the most.

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D. PROMISES OF PERFORMANCE

1. Covenants are unconditional promises to perform, the

breach of which gives the other party the right to sue.

2. Conditions are events, the occurrence or nonoccurrence

of which, giving rise to the promisor's duty to perform or

not perform under the contract. There are three basic

types of conditions:

a. Condition precedent requires an event to occur

(or not occur) before the promisor has a duty to

(1) a personal satisfaction condition precedent

b. Condition subsequent provides that the occurrence

c. Concurrent conditions arise when the parties to a

E. DISCHARGE OF PERFORMANCE

1. Discharge by agreement

a. mutual rescission of executory contract

b. substituted contract-new contract specifically

c. novation-a third party replaces one of the original

d. accord and satisfaction if the duty or debt is

2. Discharge by impossibility

a. Impossibility of performance occurs if the contract is

b. Commercial impracticability occurs when

c. Frustration of purpose occurs when the object of the

d. Force majeure clause. The parties have agreed in

Parker v, Arthur Murray, Inc., 295 N.E. 2d 487, (App. IL, 1973).

FACTS: Parker contracted with Arthur Murray for dance lessons. Even thought he was not progressing, he was encouraged to enter into additional contracts which required prepayment. The contracts contained non-cancellation and no-refund clauses. Parker was injured in an accident and was unable to continue the lessons. He sued for his prepayments. The trial court decided for Parker, and Arthur Murray appealed.

ISSUE: Does impossibility of performance excuse Parker and allow him to rescind the contract?

HOLDING: Yes

REASONING: Arthur Murray claims that the general rule on impossibility does not apply here because the clauses of the contract indicated the intent of the parties to waive the rights of excuse because of impossibility. But, the court stated that nothing indicates that Parker intended to waive the specific right by the general language of the clauses. Since the clauses are ambiguous on this point and were drafted by Arthur Murray, they are construed in favor of Parker. Therefore, since they do not specifically provide for waiver of the right of excuse due to impossibility, Parker did not waive that right and may rescind the contract based upon impossibility of performance.

 

3. Discharge by operation of law

a. Statute of limitations is a period of time within

b. Bankruptcy relieves a person of the legal duty to pay

c. Alteration of a contract, if done intentionally and if it