Chapter 13: Third Party Rights
and Discharge
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
1
Learning Objectives
• What is the difference between an
assignment and a delegation?
• What rights can be assigned despite a
contract clause expressly prohibiting
assignment?
• What factors indicate that a third party is
an intended beneficiary?
• How are most contracts discharged?
• What is a contractual obligation, and how
might a condition affect contractual
performance?
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
2
Assignments
• Transfer of contractual rights to a 3rd party
(assignee).
• Effect: Assignee has the right to demand
performance from the original party (Obligor)
to the contract.
• Notice of Assignment.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
3
Assignments
• When Rights Cannot Be Assigned:
– Statute Expressly Prohibits Assignment.
– Contract is for Personal Services.
– Assignment will Materially Change Risks or Duties of
Obligor.
– When Contract Itself Prohibits Assignment.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
4
Delegations
• Transfer of duties to a 3rd party (Delegatee) by
Delegator.
• Delegatee still owes duty to original party in
contract, and is still liable for performance.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
5
Delegations
• Generally any duty can be delegated except:
– When performance depends on personal skills or
talents of original obligor.
– When special trust has been placed in the obligor.
– When 3rd party performance will materially vary.
– When the contract expressly prohibits delegation.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
6
Summary
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7
Third Party Beneficiaries
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
8
Third Party Beneficiaries
• 3P Intended Beneficiary (Both Creditor and
Donee) Original parties to K intend at the time
of contracting that the contract performance
directly benefit a 3rd party.
– When rights vest:
• Third party demonstrates express consent.
• Third party materially alters her position.
• When conditions are satisfied.
– After rights vest, third party can sue for breach.
•
3P Incidental Beneficiary. Benefit is
unintentional. 3P has no rights.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
9
Intended vs. Incidental Beneficiaries
• To determine whether beneficiary is
intended or incidental, courts use the
reasonable person test, plus factors:
– Performance is rendered directly.
– Third party has right to control details.
– Third party is expressly designated.
Case 13.1 Revels v. Miss America
Organization.
Revels was an incidental beneficiary under the
MAO contract because she didn’t prove the
contract was executed for her direct benefit.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
10
Contract Discharge
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
11
Contract Discharge
• Discharge is the full performance of all
contractual duties.
• Conditions of Performance:
– Condition is a possible future event that may
or may not happen.
– Triggers or terminates performance.
– Condition Precedent: prior to performance
– Condition Subsequent: follows initial
performance.
– Concurrent Conditions: occur simultaneously.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
12
Discharge By Performance: Complete vs.
Substantial Performance
• Complete Performance: perfect performance
under the contract.
• Substantial Performance: technically a minor
breach but as long as in good faith, the nonbreaching party remains liable to pay.
Case 13.2 Wisconsin Electric Power
Co. Union Pacific Railroad.
In this case, 84% work constituted substantial
performance.
• Satisfaction Contract: performance is
conditioned on reasonable satisfaction.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
13
Breach of Contract
• Material Breach.
– When performance is not substantial.
– Innocent party is excused from performance
and has the right to sue for damages.
– A minor breach may be cured.
• Anticipatory Repudiation
– One party gives notice of refusal to perform.
– Innocent party treats AR as material breach.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
14
Discharge by Agreement
• Discharge By Mutual Rescission:
parties must make another agreement.
• Discharge by Novation: new contract
with substitution of a third party for one of
the original parties.
• Accord and Satisfaction: settlement to
discharge original contract.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
15
Discharge By Operation of Law
• Contract Alteration.
– Material alteration discharges innocent party.
• Statutes of Limitations.
– Automatically discharges.
• Bankruptcy.
• Impossibility. 
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
16
Discharge by Operation of Law
• Objective Impossibility.
– Party with required personal performance
dies or becomes incapacitated prior to
performance.
– Specific subject matter is destroyed.
– Change in law renders performance illegal.
• Temporary Impossibility.
– Performance is suspended until impossibility
ceases.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
17
Discharge by Operation of Law
• Commercial Impracticability.
– Parties may be excused when performance
becomes extremely expensive than originally agreed
and not known or foreseeable.
Case 13.3 Facto v. Pantagis.
Power failure was unforeseen and beyond
control of Pantagis. The law does not require
absolute unforeseeability of the event.
• Frustration of Purpose: supervening
circumstances make it impossible to attain the
purpose both parties had in mind.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
18