PowerPoint Slides to Accompany
CONTEMPORARY BUSINESS AND
ONLINE COMMERCE LAW
6 th Edition by Henry R. Cheeseman
Copyright © 2009 by Pearson Prentice Hall. All rights reserved.

 The state of two specified parties being in a contract
 Contracting parties have a legal obligation to perform the duties specified in their contract
 If one party fails to perform as promised, the other party may enforce the contract and sue for breach
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 Third parties generally do not acquire any rights under other people’s contracts
 Two exceptions are:
1.
Assignees to whom rights subsequently are transferred, and
2.
Intended third-party beneficiaries to whom the contracting parties intended to give rights under the contract at the time of contracting
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 Assignment – the transfer of contractual rights by the obligee to another party.
 Assignor – the obligee who transfers the right.
 Assignee – the party to whom the right has been transferred.
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Contract No. 1
Loan of Money
Debtor
(Obligor)
Note
(Promise to pay)
Right to enforce payment of note
Contract No. 1:
Creditor
(Obligee)
Contract No. 2:
Assignor
Contract No. 2
Assignment of note
Assignee
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(1 of 2)
 Personal service contracts.
Contracts for the provision of personal services are generally not assignable.
 Assignment of future rights.
Usually, a person cannot assign a currently nonexistent right that he or she expects to have in the future.
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(2 of 2)
 Contracts where assignment would materially alter the risk.
A contract cannot be assigned if the assignment would materially alter the risk or duties of the obligor.
 Assignment of legal actions.
Legal actions involving personal rights cannot be assigned.
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 Where there has been an assignment of a right, the assignee “stands in the shoes of the assignor” and is entitled to performance from the obligor.
 The unconditional assignment of a contract right extinguishes all the assignor’s rights.
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 To protect his or her rights, the assignee should immediately notify the obligor that:
1.
The assignment has been made; and
2.
Performance must be rendered to the assignee
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Anti-Assignment Clause
 A clause that prohibits the assignment of rights under the contract
Approval Clause
 A clause that permits the assignment of the contract only upon receipt of an obligor’s approval
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 If the obligee makes successive assignments of the same right, one of the following rules applies:
 American Rule (or New York Rule)
 English Rule
 Possession of Tangible Token Rule
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 Delegation – a transfer of contractual duties by the obligor to another party for performance.
 Delegator – the obligor who transferred his or her duty.
 Delegatee – the party to whom the duty has been transferred.
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Promisee
(Obligee)
Contract No. 1
Promise to Perform
Duty of performance
Contract No. 1:
Promisor
(Obligor)
Contract No. 2:
Delegator
Contract No. 2
Delegation of duties
Delegatee
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 If the obligee has a substantial interest in having the obligor perform the acts required by the contract, duties may not be transferred
 i.e., Personal service contracts calling for the exercise of personal skills, discretion, or expertise
 i.e., Contracts whose performance would materially vary if the obligor’s duties were delegated
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(1 of 2)
 If the delegation is valid, the delegator remains legally liable for the performance of the contract.
 If the delegatee does not perform properly, the obligee can sue the obligordelegator for any resulting damages.
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(2 of
2)
Assumption of Duties
 When a delegation of duties contains the term assumption, I assume the
duties, or other similar language: the delegatee is legally liable to the obligee for nonperformance

Declaration of Duties
If the delegatee has not assumed the duties under a contract, the delegatee is not legally liable to the obligee for nonperformance
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 Third parties sometimes claim rights under others’ contracts
 Such third parties are either:
 Intended beneficiaries , or
 Incidental beneficiaries
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 A third party who is not in privity of contract
 Has rights under the contract
 Can enforce the contract against the obligor
 Intended beneficiaries are classified as:
 Donee beneficiaries or
 Creditor beneficiaries
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 Donee beneficiary contract – a contract entered into with the intent to confer a benefit or gift on an intended third party.
 Donee beneficiary – the third party on whom the benefit is to be conferred.
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Insured
(Promisee)
Original Contract
(Life insurance policy)
Life Insurance
Company
(Promisor)
Right to enforce contract
Named
Beneficiary
(Donee
Beneficiary)
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 A creditor beneficiary contract usually arises in the following situation:
1.
A debtor borrows money from a creditor 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 promises the debtor that he or she will pay the remainder of the loan amount to the creditor
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Contract No. 1
First sale of goods
First Buyer
Debtor
Note
Second
Contract No. 2 sale of goods
Promise to pay debt to creditor
(Promise to pay)
Contract No. 1:
Creditor
Contract No. 2:
Creditor
Beneficiary
Right to recover payments
Second Buyer
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 A party who is unintentionally benefited by other people’s contracts
 An incidental beneficiary has no rights to enforce or sue under other people’s contracts
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Covenant
 An unconditional promise to perform
 Nonperformance of a covenant is a breach of contract that gives the other party the right to sue
Conditions of
Performance
 A qualified or conditional promise that becomes a covenant is met
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Type of Condition
Condition precedent
Description
A specified event must occur (or not occur) before a party is obligated to perform contractual duties.
Condition subsequent The occurrence (or nonoccurrence) of a specified event excuses the performance of an existing contractual duty to perform.
Concurrent condition The parties to a contract are obligated to render performance simultaneously. Each party’s duty to perform is conditioned on the other party’s duty to perform.
Implied condition An implied-in-fact condition is implied from the circumstances surrounding the contract and the parties’ conduct.
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 Personal satisfaction: subjective and in good faith
 Reasonable person: objective
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 A party’s duty to perform under a contract may be discharged by:
 Mutual agreement of the parties
 Impossibility of performance
 Operation of the law
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 The parties to a contract may mutually agree to discharge or end their contractual duties:
 Mutual Rescission
 Substituted Contract
 Novation
 Accord and Satisfaction
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 Under certain circumstances, the nonperformance of contractual duties is excused:
 Impossibility of Performance
 Commercial Impracticability
 Force majeure clause
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 The parties may agree in their contract that certain events will excuse nonperformance of the contract
 These clauses are called force majeure clauses
 i.e., Natural disasters
 i.e., Labor strikes
 i.e., Shortages of raw materials
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 Many states recognize the doctrine of commercial impracticality as an excuse for non-performance of contracts.
 Commercial impracticability excuses performance if an unforeseeable event makes it impractical for the promisor to perform.
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 Certain legal rules discharge parties from performing contractual duties:
 Statutes of Limitations
 Bankruptcy
 Alteration of a Contract
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