Contracts
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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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Contracts

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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

17 - 5


Contracts

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

17 - 6


Contracts

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

17 - 7


Contracts

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

17 - 8


Contracts

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

17 - 9


Contracts

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

17 - 10


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

17 - 11


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.

17 - 12


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

17 - 13


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

17 - 14


Thought question

Thought Question

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

17 - 15


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