Consequently contracts which attempt to confer

  • No School
  • AA 1
  • 47

This preview shows page 29 - 31 out of 47 pages.

Consequently, contracts which attempt to confer benefits or to impose restrictions on third parties have no binding effect — because they cannot be legally enforced either by or against those third parties. So, in the example above, if C wanted to sue A because the business turned out to be less profitable than A had led B to believe it was, C could not do so. C was not a party (not privy) to the contract between A and B and therefore has no rights under it. Similarly, if B needed the money from C to complete his purchase from A but C defaulted, A could not sue C — even though his own contract with B would fall through as a result. Again this is because A was not a party (not privy) to the contract between B and C. Exceptions to the doctrine of privity of contract In some clearly limited cases a third party can enforce the terms of a contract and can also have them enforced against him or her. Usually this is because the third party is not really a ‘third party’ at all but an original party either actually or through some mechanism of the law. The major exceptions are: Joint promisees. When a promise is not made simply to one person for the benefit of a third party but to two parties jointly and simultaneously (even if it benefits only one of them), there is a joint promise. In such cases both joint promisees are privy to the
Image of page 29

Subscribe to view the full document.

© Stephen Graw 2012 28 contract and both can enforce the promise. For example, if A had sold his business to B and C jointly (misrepresenting its profitability), C, as a party to that contract, could have sued A. Similarly, if C had not come up with his or her share of the purchase money A could have sued both B and C for their resulting failure to complete the purchase. Agency. Anyone who can contract personally can also contract through an agent. If they do they are not merely third party beneficiaries — they are parties to the contract in their own right. This is because the agent contracts as the principal’s representative and, in law, that is the same as if the principal had negotiated the contract personally. Consequently, the principal, as an original party, can both sue and be sued on the contract. Assignments. An assignment of contract is an arrangement whereby an original party transfers all or some of the benefits of that contract to a third party. Such arrangements are very common in business (assignments of property leases are good examples). With a valid assignment the third party acquires all the rights under the contract — including the right to enforce substantive rights — and there is no question of the contract having been entered into merely to benefit the third party. The rights are conferred upon the original parties one of whom transfers them to the assignee. The assignment, therefore, effectively operates to substitute original parties . Assignment can also occur by operation of law. For example when a party to a contract dies or becomes bankrupt the law automatically assigns any remaining rights and obligations under that contract to the party’s executor or trustee. The executor or trustee can then deal with
Image of page 30
Image of page 31
  • Fall '19

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes