Chapter 12:Chapter 12:
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.
1. Form of Assignment
a. Assignment is the transfer of contractual rights by a
party to the contract to a third person.
b. Assignor is the party making the assignment.
c. Assignee is the third party to whom the rights are
assigned.
d. Rights That Cannot be Assigned:
(1) personal service contracts
(2) Assignment of Future Rights
(3) Contracts Where Assignment Would
Materially Alter the Risk
(4) Assignment of Legal Actions Involving
Personal Rights
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
assignment has been made and that performance
must be rendered to the assignee.
b. If the assignee fails to give proper notice and the
obligor gives performance to the assignor, then the
assignee must look to the assignor for any relief.
4. Anti-assignment and approval clauses limit assignment of
certain contracts.
a. The anti-assignment clause prohibits assignment of
the contract.
b. An approval clause permits assignment only upon
receipt of the obligor's approval and the obligor
failure to give approval must be reasonable, e.g. a
landlord's (the obligor) approval for a sublease.
1. Delegation of duties
a. A delegation is a transfer of contractual duties by a
party to a contract to a third person.
b. The delegator is the party who transfers their
contractual duties.
c. The delegatee is the third person to whom
contractual duties are delegated.
d. Duties That Can and Cannot Be Delegated:
(1) When a contract is entered into with a
company or firm, the company can designate
any of its qualified employees to perform the
services, unless:
(a) it is a personal service contract calling
for the exercise of personal skills,
discretion, or expertise.
(b) it is a contract whose performance
would materially vary if the obligor's
duties were delegated.
2. Effect of delegation:
a. Assumption of duties makes the delegatee liable to
the obligee for non performance. Obligee may sue
either the delegator or the delegatee or both.
b. Declaration of duties doe not make the delegatee
liable to the obligee for nonperformance. Obligee
may only sue the delegator.
c. In either case, the delegatee is liable to the delegator
for any damages suffered by the delegator due to the
nonperformance of the delegatee.
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.
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
have received the right without paying
consideration, such as beneficiaries under a life
insurance contract.
(1) promisee is the contracting party who directs
benefits be conferred on another.
(2) promisor is the contracting party who agrees
to confer performance for the benefit of the
third person.
(3) donee beneficiary is the third person to whom
the benefit is to be conferred.
b. Creditor beneficiaries are creditors who become
beneficiaries under a contract between the debtor
and some third party, in which the third party agrees
to perform some obligation of the debtor if the
debtor does not do so.
(1) An example would be an owner of property
who is obligated to a creditor for repayment of
a loan on the property. Before the loan is paid,
the owner sells the property to a buyer. The
new buyer promises the seller that they will
pay the creditor the remainder of the loan. The
creditor is referred to as a creditor beneficiary
of the sales contract.
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.
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
perform. If you die during the period of the policy,
the company will pay your beneficiary $.
(1) a personal satisfaction condition precedent
has two standards. To the person's actual
satisfaction applies when the performance
involves personal taste or comfort. To a
reasonable person's satisfaction if the
performance involves mechanical fitness or a
commercial contract.
b. Condition subsequent provides that the occurrence
or nonoccurrence of a specific event automatically
excuses performance under a contract.
c. Concurrent conditions arise when the parties to a
contract must render performance simultaneously.
1. Discharge by agreement
a. mutual rescission of executory contract
b. substituted contract-new contract specifically
revokes the old one.
c. novation-a third party replaces one of the original
parties, who by the novation is discharged from all
liabilities.
d. accord and satisfaction if the duty or debt is
unliquidated.
2. Discharge by impossibility
a. Impossibility of performance occurs if the contract is
objectively impossible to perform due to an event.
b. Commercial impracticability occurs when
performance is impractical because of an event.
c. Frustration of purpose occurs when the object of the
contract, of which both parties have knowledge,
becomes worthless due to an unforeseeable event.
d. Force majeure clause. The parties have agreed in
advance what events will excuse performance.
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
which to bring a legal action to enforce a contract or
forever loss the right to do so.
b. Bankruptcy relieves a person of the legal duty to pay
most type of contractual debts or obligations.
c. Alteration of a contract, if done intentionally and if it
materially changes the contract, then the injured
party may cancel the contract or enforce it under
either its original or altered terms.