copyright © 2004 mcgraw-hill ryerson limited 1 part 3 – the law of contracts chapter 11 – the...

Copyright © 2004 McGraw-Hill Ryerson

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PART 3 – THE LAW OF CONTRACTS

Chapter 11 – The Extent of Contractual Rights

Prepared by Douglas H. Peterson, University of Alberta


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THE EXTENT OF CONTRACTUAL RIGHTS

Privity of Contract Assignment of Contractual Rights


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PRIVITY OF CONTRACT

Only parties to a contract have rights and liabilities under the contract Only parties to the contract can sue or be

sued under the contract Contract can only effect parties to it

Third parties (strangers) to the contract have no liability and no rights under the contract

Reason: strangers gave no consideration


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EXCEPTIONS TO THE RULE OF PRIVITY

Land Certain contractual rights run with the land

not the parties Buyer takes subject to others who have

prior interests in the property Most jurisdictions such rights must be

registered Easements, right of ways, tenants rights


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Trusts – an agreement or arrangement whereby a party (trustee) holds property for the benefit of another (beneficiary) Third party (beneficiary) can enforce the

rights under the trust even though they are not privy to the trust agreement (not a party)


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Formal Contract under Seal Third party may acquire rights under

an agreement if: Formal agreement addressed to third party Confers benefit on third party Delivery of agreement to third party

Third party can sue to enforce should promissory fail or refuse to perform


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Statutory exceptions Insurance contract

Beneficiary of insurance policy can sue for benefits

Law of Tort Manufacturers – no action in contract if not

a party, but may sue in tort for negligence Manufacturer owes a duty of care to avoid

harm


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Exceptions to the Rule of Privity

Collateral Contracts – an implied contract that binds a party who is closely associated with, but not formally a party to, a contract between other parties Enlarge sphere of a Q so that persons

closely associated with a business transaction, although not parties, may find themselves subject to terms


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Employment Employee negligent and commits a tort Liability - employer and possibly also employee -

depends on degree of negligence Traditional scope of exclusion clause

Contract created between business and customer Contract contains “exclusion clause”

Clause enforceable by employer (party) but not by employee (stranger)

Exclusion clause enforceable by employee if Parties intended that employee would perform work Employee acted in scope of employment


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ASSIGNMENTS

Assignor – a party who assign its rights under a contract to a third party

Assignee- a third party to whom rights under a contract have been assigned

Assignment – a transfer by a party of its rights under a contract to a third party Only benefits, claims, rights are assigned

not obligations


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ASSIGNMENTS

Novation – the substitution of parties to an agreement, or the replacement of one agreement by another agreement Parties agree by mutual consent to

terminate old contract and establish a new agreement

Third party (original stranger to contract) becomes a contracting party

Most common with debtor/creditor


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ASSIGNMENTS

Requirements of Novation: New debtor assumes the complete liability Creditor must accept the new debtor as a

principal debtor (not agent or guarantor) Creditor accepts new contract in full

satisfaction and substitution for the old contract

Original debtor is discharged, he or she is no longer a party to the contract

Cumbersome and inappropriate in certain transactions


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EQUITABLE ASSIGNMENTS

Choses in actions – a paper document that represents a right or interest that has value (intangible property) A share certificate

Choses in possession - right to tangible property that may be possessed physically

At common law only choses in possession could be assigned


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EQUITABLE ASSIGNMENTS

Enforced by equity Requirements for equitable assignment

Oral or written With notice to debtor

Assignor had to attach his or name to the action

Taking subject to the equities Assignee and assignor subject to debtor’s

claims Any defense that a party had against an

assignor is valid against assignee Assignee can never acquire more or better

rights than assignor had


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EQUITABLE ASSIGNMENT

Contract for personal service or performance could not be assigned Professionals, entertainers

Vicarious Performance - a third party performs on behalf of promissory who remains responsible for proper performance Common with companies

Contract with Canadian Tire but mechanic performs the work vicariously for the company

Allowed as long as specific personal performance is not stated in the contract


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STATUTORY ASSIGNMENTS Under equitable assignment requirement

that all parties be present before the court was inconvenient

Requirements for statutory assignment Must be in writing and signed by the assignor Assignment is absolute

Unconditional: not dependent upon future event Complete: all of existing debt

Must provide debtor with written notice Title of assignee subject to the equities

If non-compliance with requirements still valid as an equitable assignment


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STATUTORY ASSIGNMENTS

If effect of non-compliance with requirements Invalid as statutory assignment May be valid as equitable assignment

Contending Assignees one who first gave notice to Promisor not one who first received assignment


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STATUTORY ASSIGNMENTS

Set off – When two parties owe debts to each other, the payment of one may be deducted from the other, and only the balance paid to extinguish the indebtedness Debtor can deduct by way of set off if

before notice of assignment


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ASSIGNMENTS BY LAW

Upon the Death of the Party When a person dies his/her rights and obligations

under a contract are assigned to a personal representative

Executor – personal representative of a deceased person named in will

In testate – a person dies without leaving a will Administrator – personal representative of a person

who dies w/o a will Role is to pay all just claims against the deceased

and complete performance of all contracts, pursue claims deceased had against others and then distribute assets according to the will


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ASSIGNMENTS BY LAW

Bankruptcy Trustee in Bankruptcy – appointed either

when: Voluntary assignment Adjudged bankrupt Receiving Order – court order to

commence bankruptcy proceedings Trustee takes possession of the bankrupt

debtor’s property and holds it in trust on behalf of the creditors

Rights of trustee governed by statute (Bankruptcy Act)


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NEGOTIABLE INSTRUMENTS

An instrument in writing that when transferred in good faith and for value without notice of defects passes good title of the instrument to the transferee Subject to Bills of Exchange Act Governs the rights of the parties and

assignees Negotiation is a special type of assignment

(privileged assignment – different characteristics)

Better rights than a normal assignment


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SUMMARY Privity – only parties to a contract can acquire

rights and liabilities under a contract Novation – party may replace another in a

contract and become bound if all parties consent

Vicarious performance – allows others to perform under the contract Not allowed under personal services contracts

Assignments Equitable and Statutory

Under Statutory must give written notice and does away with requirement to join assignor in any court action

Assignee takes subject to any equities (defenses) promissory or debtor had

copyright © 2004 mcgraw-hill ryerson limited 1 part 3 – the law of contracts chapter 11 – the...

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