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Chapter 11 Contracts: Third Party Rights and Discharge

Chapter 11 Contracts: Third Party Rights and Discharge. Learning Objectives. What is the difference between an assignment and a delegation? What rights can be assigned despite a contract clause expressly prohibiting assignment?

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Chapter 11 Contracts: Third Party Rights and Discharge

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  1. Chapter 11Contracts: Third Party Rights and Discharge

  2. 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 condition, and how might a condition affect contractual obligations?

  3. Assignments • Transfer of contractual rights to a 3rd party (assignee). • The assignee has the right to demand performance from the other original party (Obligor) to the contract. • Cannot Assign rights for personal services or when obligor’s performance changes. • CASE 11.1Forest Commodity Corp. v. Lone Star Industries, Inc. (2002).

  4. Delegations • Transfer of duties to a 3rd party (Delegatee) by Delegator. • Delegatee owes duty to original party in contract. • Delegator is still liable for performance of duty.

  5. Third Party Beneficiaries • 3P Intended Beneficiaries (Creditor and Donee) Original parties to K intend at the time of contracting that the contract performance directly benefit a 3rd party. After rights vest, 3P can sue for breach. • 3P Incidental Beneficiaries. Benefit is unintentional. 3P has no rights. • CASE 11.2Vogan v. Hayes Appraisal Associates, Inc. (1999).

  6. Discharge: Conditions of Performance • Conditions to 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: occur simultaneously.

  7. 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 non-breaching party remains liable to pay. • Satisfaction Contract: performance is conditioned on reasonable satisfaction.

  8. Discharge by Performance • 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. • CASE 11.3Kim v. Park (2004). • Anticipatory Repudiation • One party gives notice of refusal to perform. • Innocent party treats AR as material breach.

  9. 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.

  10. Discharge by Operation of Law • Contract Alteration. • Statutes of Limitations. • Bankruptcy. • Impossibility of Performance (Objective). • Party’s incapacitation. • Subject matter is destroyed. • Performance becomes illegal. • Commercially impracticable.

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