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privity of contract

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the state of two specified parties being in a contract.

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assignment of rights

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the transfer of contractual rights by an obligee to another party.

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assignor

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an obligee who transfers a right.

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assignee

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a party to whom a right has been transferred.

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obligor

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a party who owes a duty of performance under a contract.

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personal service contract

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contracts for the provision of personal services are generally not assignable.

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anti-assignment clause

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a clause that prohibits the assignment of rights under the contract.

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when an assignor makes an assignment of a right under a contract, the assignee is under a duty to notify the obligor that

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(1) the assignment has been made; (2) performance must be rendered to the assignee.

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approval clause

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some contract contain this; Such clauses require that the obligor approve any assignment of a contract.

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Successive Assignments

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(1) American Rule (New York Rule); (2) English Rule; (3) Possession of Tangible Token Rule

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American Rule (New York Rule)

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provides that the first assignment in the prevails, regardless of notice. Most states follow this rule.

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English Rule

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provides that the first assignee to give notice to the obligor (personon who owes the performance, money, duty, or other thing of value) prevails.

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Possession of Tangible Token Rule

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provides that under either the American or English rule, if the assignor makes successive assignments of a contract right that is represented by a tangible token, such as a stock certificate or a savings account passbook, the 1st assignee who receives delivery of the tangible token prevails over subsequent assignees.

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delegation of duties

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a transfer of contractual duties by an obligor to another party for performance.

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delegator

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an obligor who has transferred his or her duty.

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delegator

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an obligor who has transferred his or her duty.

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delegatee

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a party to whom a duty has been transferred.

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Duties that can and Cannot be Delegated

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(1) personal service contracts calling for the exercise of personal skills, discretion, or expertise. (2) Contracts whose performance would materially vary if the obligor's duties were delegated.

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Effect of Delegation of Duties

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(1) Assumption of Duties; (2) Declaration of Duties.

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assumption of duties

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a situation in which a delegation of duties contain the term assumption, I assume the duties, or other similar language. In such a case, the delegatee is legally liable to the obligee for nonperformance.

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anti-delegation clause

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a clause that prohibits the delegation of duties under the contract.

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intended third-party beneficiary

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a third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor.

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donne beneficiary contract

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a contract entered into with the intent to confer a benefit or gift on an intended third party.

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The 3 persons involved in a donee beneficiary contract

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(1) the promise - the contracting party who directs that the benefit be conferred on another. (2) the promisor - the contracting party who agrees to confer performance for the benefit of the third party. (3) the donee beneficiary - the third person on whom the benefit is to be conferred.

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donee beneficiary

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a third party on whom a benefit is to be conferred.

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creditor beneficiary contract usually arises in the following situation

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(1) a debtor (promise) borrows money form a creditor (promisor) to purchase some item. (2) the debtor signs an agreement to pay the creditor the amount of the loan plus interest. (3) the debtor sells the item to another party before the loan is paid. (4) the new buyer (new promisor) promises the original debtor (new promisee) that he will pay the remainder of the loan amount to the original creditor.

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creditor beneficiary

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an original creditor who becomes a beneficiary under the debtor's new contract with another party.

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incidental beneficiary

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a party who is unintentionally benefited by other people's contracts.

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covenant

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an unconditional promise to perform.

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condition

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a qualification of a promise that becomes a covenant if it is met. There are 3 types of conditions: conditions percent, conditions subsequent, and concurrent conditions.

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condition percent

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a condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract.

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Condition Precedent Based on Satisfaction

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(1) Personal Satisfaction Test; (2) Reasonable Person Test;

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Types of Conditions

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- Condition Precedent; - Condition Subsequent; - Concurrent Condition; - Implied Condition

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personal satisfaction test

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a subjective test that applies to contracts involving personal taste and comfort.

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reasonable person test

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an objective test that applies to commercial contracts and contracts involving mechanical fitness.

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condition subsequent

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a condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform.

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concurrent condition

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a condition that exists when the parties to a contract must render performance simultaneously; each party's absolute duty to perform is conditioned on the other party's absolute duty to perform.

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implied-in-fact condition

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a condition that can be implied from the circumstances surrounding a contract and the parties' conduct.

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express condition

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exists if the parties expressly agrees on it.

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Discharge of Performance

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A party's duty to perform under a contract may be discharged by: - mutual agreement of the parties; - by impossibility of performance; - by commercial impracticability; - or by operation of law.

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the different methods for discharging a contract by mutual agreement are

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(1) Mutual Rescission; (2) Substituted Contract; (3) Novation; (4) Accord and Satisfaction

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mutual rescission

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If a contract is wholly or partially executory on both sides, the parties can agree to rescind (cancel) the contract. Mutual rescission requires parties to enter into a 2nd agreement that expressly terminates the first one.

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novation agreement

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an agreement that substitutes a new party for one of the original contracting parties and relieves the exiting party of liability on the contract.

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Unilateral rescission

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of a contract by one of the parties without the other party's consent is not effective. This constitutes a breach of that contract.

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Substituted Contract

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the parties to a contract may enter into a new contract that revokes and discharges an existing contract.

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accord and satisfaction

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the settlement of a contract dispute.

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impossibility of performance (objective impossibility)

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nonperformance that is excused if a contract becomes impossible to perform. It must be objective impossibility, not subjective.

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force majeure clause

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a clause in a contract in which the parties specify certain events that will excuse nonperformance.

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Statute of Limitations

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a statute that establishes the time period during which a lawsuit must be brought; if the lawsuit is not brought within this period, the injured party loses the right to sue.

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