BL-Chapter 15 - 1 CHAPTER 15 THIRD-PARY RIGHTS AND...

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CHAPTER 15 THIRD-PARY RIGHTS AND DISCHARGE Privity of Contract Generally only the contracting parties have any rights or obligations under the contract. The contracting parties are in privity of contract. Parties have a legal obligation to perform the duties under their contract A party’s duties may be discharged by agreement of the parties, excuse of performance, or operation of law If one party fails to perform as promised, the other may enforce the contract and sue for breach Third-Party Rights Third parties generally do not acquire rights under other people’s contracts. Except: 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. Assignment of Rights Assignment – Transfer of contractual rights by obligee to another party. Assignor – Obligee who transfers a right. Assignee – Party to whom a right is transferred. Most rights can be assigned 1
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E.g., sales contracts, contracts for payment of money, sale of mortgages. Generally no formalities required E.g., need not use term “assign.” Words such as “sell” or “transfer” are effective -Example : A store buys $300 worth of clothes on credit from a manufacturer. Payment is due in 120 days. Assume the manufacturer needs cash before the 120-day period expires, so the manufacturer(assignor) sells its right to collect the money to another party (assignee) for $200. If the store is given enough notice of the assignment, it must pay $300 to the assignee Rights That Cannot Be Assigned Personal Service Contracts E.g., contract to paint a portrait. Assignment of Future Rights Usually, a person cannot assign a currently nonexistent right that he or she expects to have in the future. Ex. A millionaire signs will leaving everything to her son. The son can’t assign his expected right to receive everything 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. E.g., safe driver cannot assign automobile insurance coverage to another driver. 2
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Assignment of Legal Actions Right to sue for violation of personal rights usually cannot be assigned. Ex. John gets into an accident, he can’t assign his right to sue to another person A legal right that arises out of a breach of contract may be assigned Ex. Andrew borrows money from a bank. If he defaults on the loan, the bank may assign the legal rights to collect the money to a collection agency Effect of Assignment of Rights Where there has been a valid assignment of rights, the assignee stands in the shoes of the assignor and is entitled to performance from the obligor. Subject to same defenses that existed against assignor.
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This note was uploaded on 04/21/2011 for the course BUS LAW 320 taught by Professor Soos during the Spring '10 term at Rutgers.

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BL-Chapter 15 - 1 CHAPTER 15 THIRD-PARY RIGHTS AND...

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