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These definitions are in the text on pages 355-356.
1a. An intended beneficiary is one who the two contracting parties were AWARE
would receive something of value from the agreement. They may or may not be
NAMED in the contract. It is sufficient that the contracting parties were generally
aware of the group of persons who would receive a benefit and who the members
of that group were, and intended the agreement to have this effect.
1b. An incidental beneficiary is any beneficiary that does NOT meet that test.
2a. A creditor beneficiary is one who is receiving the benefit because the promisee
owes a DUTY to the creditor beneficiary.
2b. A donee beneficiary is one to whom the promisee intended to make a GIFT by
including the benefit in their contract.
3. Did the Detroit Institute of Arts pay any CONSIDERATION to acquire their
rights under the contract? Then why are they permitted to use the courts to
ENFORCE those rights?
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So requirement (a) covers creditor beneficiaries and (b) covers donee beneficiaries.
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5. Why or why not?
Incidental beneficiary.
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Of course! Insurance policy beneficiaries are intended third party beneficiaries.
They are not generally parties to the contract, yet they can sue the non-performing
party if they do not pay out on the policy.
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1a. Sometimes we call this an ASSIGNMENT for short. If it’s an ASSIGNMENT, it
always involves RIGHTS.
1b. Sometimes we call this a DELEGATION for short. If it’s a DELEGATION, it
always involves DUTIES.
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Exhibit 15.2. p. 359.
This is an example of ASSIGNMENT of RIGHTS.
Bruno is the assignor, and until he assigns his rights, he is the OBLIGEE. (Explain.)
4. Why would Bruno agree to accept $8,000 for a $10,000 debt?
5. If Lydia fails to pay Doug, can Doug sue Bruno?
Answer: Not if Bruno has delivered the champagne. But if Bruno has NOT
delivered the champagne, he can sue Bruno for rescission of his contract with
Bruno or for specific performance on his contract with Lydia.
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Exhibit 15.3. p. 359.
This is an example of DELEGATION of DUTIES.
4. If Keith fails to deliver the champagne, may Coretta sue Keith? May Coretta also
sue Lydia?
Yes, unless Coretta has signed a NOVATION.
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1a. Read the red-boxed paragraphs on pages 360-361.
1b. The only one we’re going to learn is personal injury claims. Read red-boxed
paragraph #2 on p. 361.
1c. Courts are hesitant to allow a party to escape assignment when it is contrary to
public policy, even though the other party seems to have agreed to a contract
that precludes assignment. For example, for public policy reasons, some states
limit the ability of a landlord to prohibit assignment of rights under a lease
agreement to another party. These states often say that, unless the landlord can
present evidence that suggests that the proposed new tenant is not financially
responsible, they must accept the assignment, even if their lease prohibits
assignment. In these states, lessors do not benefit in the short run if rents go up
and a tenant decides to leave before a lease is up. Instead, the lessee benefits,
because the new tenant will pay slightly more for the business if it comes with a
multi-year lease at below market rents. It’s sort of the business equivalent of
rent control. When the lease is up, the landlord can raise the rent on the new
tenant, but not when the new tenant first moves in.
DO TENET HEALTHSYSTEM SURGICAL V. JEFFERSON PARISH HOSPITAL
SERVICE, page 361.
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…meaning they must take the product and deliver it at their own expense now to the
assignee.
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2. The UCC even requires that any prohibition of assignment must specify that it is
a prohibition of assignment of rights. Otherwise it will be construed as barring
the delegation of duties only!
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An example of a valid defense would be Breach of contract. For example if the
champagne had no fizz, Lydia can legally refuse to pay Doug until the bad
champagne is replaced by good champagne by Bruno. The champagne likely
came with a warranty. And if one was not specified, the UCC Article 2 will
impose two warranties on Bruno: 1) that the champagne is in merchantable
condition, and 2) that it is suitable to the purpose to which Lydia intends to put
it. Flat champagne is not in merchantable condition.
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Generally, a secured transaction is a loan or a credit transaction in which the lender
acquires a security interest in collateral owned by the borrower and is entitled to
foreclose on or repossess the collateral in the event of the borrower's default.
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In general, this type of clause is NOT enforceable in consumer contracts, so even if
your sales contract with the used car dealership had contained such a clause, it
would not be enforceable.
But if the buyer of the goods is a merchant or a nonprofit organization or a
governmental organization, then in general it will be enforceable.
1a. meaning they are not aware of any evidence that the assignor has already
breached their contract.
2a. Meaning that they paid full value for the rights to receive the payments. If they
bought it at a deep discount, that would be indirect evidence that they knew the
assignor was about to go out of business and that the equipment was likely to
fail.
You might want to look at Exhibit 15.4 on page 364 for a picture of this. I didn’t
make a slide of it because the font is really small.
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p. 341
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0. Most duties are delegable. The Restatement of contracts 2nd and the UCC both
say this (read slide)
1. The only example we’re going to learn is that state governments have generally
outlawed the delegation (subcontracting) of public works projects.
2. The parties have even more power to forbid a delegation of duties than they
have to forbid the assignment of rights. The courts are generally more willing to
enforce a clause that prohibits subcontracting (delegation of duties) because it is
a bit unfair to the obligee to bargain based on having researched the skills and
capabilities of the obligor, then have the obligor do a “bait and switch” and give
the duties to a less experienced party. When rights are being assigned, courts
sometimes refuse to enforce the non-assignable rights clause, arguing that it
shouldn’t matter to the obligor who they are obligated to.
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An obligee need NOT place a clause in their contract to make the duties of the
obligor non-delegable IF the obligee has a substantial interest in personal
performance by the obligor. So if you hire a lawyer, doctor, dentist, artist, or
performer, they CANNOT delegate their duty to another. In other words, they
CANNOT subcontract out the job. A HOUSE PAINTER can subcontract out
the job, but a PORTRAIT PAINTER cannot.
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Repudiation is “formal notification to the other side that you do not intend to
perform your side of the contract.”
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p. 368
3a. The consent to assignment clause was contained in the contract between Pratt
and Son, Inc.
4a. Issue: Did Pratt obtain a novation relieving her of her duties under the original
sales contract?
Do Exam strategy questions pages 370-371.
Do additional EOC questions 2, 3, 4, and 9.
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