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3. Contracts. Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent. McGraw-Hill/Irwin Business Law, 13/e. © 2007 The McGraw-Hill Companies, Inc. All rights reserved. 3. Contracts. Capacity to Contract Illegality Writing

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Presentation Transcript
contracts

3

Contracts

Introduction to Contracts

The Agreement: Offer

The Agreement: Acceptance

Consideration

Reality of Consent

McGraw-Hill/Irwin Business Law, 13/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

contracts1

3

Contracts

Capacity to Contract

Illegality

Writing

Rights of Third Parties

Performance & Remedies

McGraw-Hill/Irwin Business Law, 13/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

rights of third parties

Rights of Third Parties

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“The best minute I spend is the one I invest in people.”

Kenneth Blanchard, The One Minute Manager (1993)

learning objectives
Learning Objectives
  • Assignment of Contracts
  • Delegation of Duties
  • Third-Party Beneficiaries

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Overview

  • Sometimes a person who entered into a contract must transfer contract rights or duties to another person (third party)
  • Transfer of a right under a contract is called an assignment
  • Appointment of another person to perform a duty under a contract is called a delegation

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Limitations on Assignment

  • Assignment will not be effective if it:
    • Is contrary to public policy
    • Violates a non-assignment clause in a contract
      • See Managed Health Care Associates v. Kethan
    • Adversely affects obligor in significant way
    • Involved a personal relationship or element of personal skill or character

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Limitations on Delegation

  • Assignment extinguishes assignor’s right and transfers it to assignee, but delegation of a dutydoes not extinguish the duty owed by delegator to obligee
    • Delegator remains liable to the obligee unless obligee agrees to substitute new party for delegator by novation
    • In an effective delegation, performance by the delegatee will discharge the delegator

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Limitations on Delegation

  • Duties not delegable if delegation:
    • Is contrary to public policy
    • Violates non-assignment clause in contract
    • Adversely affects obligee in significant way
    • Involved a personal relationship or element of personal skill or character

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Third-Party Beneficiaries

  • If parties to a contract intended to benefit a third party, courts permit third party (third-party beneficiary) to enforce the contract
    • Referred to as third-party beneficiary
    • See Locke v. Ozark City Board of Ed.
  • Incidental beneficiaryis one obtaining a benefit as unintended by-product of a contract
    • No rights under contract

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test your knowledge
Test Your Knowledge
  • True=A, False = B
    • A person who assigns a right is an obligee
    • All duties may be delegated
    • Non-assignment clauses are enforceable
    • If a contract contains a non-assignment clause, the clause actually means that duties may not be delegated

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test your knowledge1
Test Your Knowledge
  • True=A, False = B
    • Sheila assigned her right to the proceeds of a prize to a charity. Sheila is an assignee and the charity is the assignor.
    • Joshua contracted with Bigg Homes to build a two-story house that will improve the value of nearby homes. Joshua’s neighbor is an incidental beneficiary.

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test your knowledge2
Test Your Knowledge
  • Multiple Choice
    • James financed car purchase with CarCo, then sold the car to Marsha. Marsha agreed to pay remaining amount of the car loan, but failed to make payments. CarCo may sue:
      • (a) James only since he contracted with CarCo
      • (b) James and Marsha since CarCo is a creditor beneficiary of the contract between James and Marsha
      • (c) Marsha only since Marsha was substituted for James

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test your knowledge3
Test Your Knowledge
  • Multiple Choice
    • Mack contracted with Dept. Store to play piano and holiday songs in the store during December. Contract had a “non-assignment” clause. Mack got another job and delegated his duties to Sarah. Does Dept. Store have a claim against Mack?
      • (a) Yes. Mack breached the non-assignment clause by delegating his duties to Sarah
      • (b) No. Mack found someone to replace him
      • (c) No. Contract didn’t have non-delegation clause

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thought question
Thought Question
  • If public policy favors freedom of contract, then should courts enforce non-assignment and non-competition clauses?

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