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Contracts: assignment and third-party rights

The following text deals with a specific aspect of the law of contracts, explaining basic concepts associated with assignment and third-party rights.

Generallv, a contract omrates to confer rights and irmpose duties ontv on the oarties to the .. contract and no other parties. The principle that follows ProFPthis is that third parties have no rights and, as such, cannot enforce contractual provisions. This contractual relationship is summad up in the term prtvity o contract. However, in many jurisdictions, there are two f exceptions to this general rule: the first is when the original contract provides for rights to be conferred on a third party, and the second is when contractual rights and duties are transferred to a third party at a later date. When speaking of the first type of situation, lawyers generally refer to third-party Reneficiasy

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cantrack. The most common form of this type of contract is where party A enters into a valid
contract with party B which stipulates that party B shall render performance for the benefit of party C , i.e. the third-party bemflc'iy. No problems arise if party 8 performs. But what happens when party B fails to perform? Have rights been vested in party C such that C can enforce the &%act, or must party A do so? In many jurisdiLtionr, this problem is addressed through a determination of whether the contract expresses an intent to create a legally enforceable right in the third party. However, must the intent be from both parties to the agreement (A anddB) or just the recipient of the promise to t4e enforced, i.e. the p h e (A) as opposed to the pramtsor (B)? The courts usually look to t h intent of the promisee and ask the question: ~ccording the to contract, who was to receive the benefit of the promise, the promisee or a third rja?& direc'tly?
1 is In deciding the promisee's intent, the courts look at the following factors; ( ) ttie third party identified in the contract?; ( 2 ) is performance to be made directly to the third party?; (3) does the third party have any rights (specific or general) under the contract?; and (4) is there any relationship between the promisee and the third party such that it could be inferr* that tbe promisee wished to enter into a contract for the benefrt of the third party? Of course, the greater the number of times the court answers 'yes' to the above questions, the more likely it is that the court will rule that the third party is an Intended beneficiary, and Vus entitled to enforce tfp contract, as opposed to an incMmW berMc18cy.

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In the second case mentioned above, rights and duties are transferred after the original contract has been signed. If in the original contraot the transferring party (A) is owed a right by the nontransferfig party (B), then A is known as the obligee and 8 is tOleabUgor. H m e r , if in the original contract A owes B a duty, then A is known as the obligor and 6 the obligee. W e n it is

I aur&s 8E beihg rransTerrea, m term a s q p r can tx?usea lor speanea whemer rignrs o r e
vho attempts to transfer his rights and/or duties under the contract to a third party (C, the wigwe). If a right is being transferred, C becomes the obligee in place of A. (Although thi tot necessarily release A from any obligations to B under the original contract.) If a duty is transferred, A is known as the delegator, while C is referred to as the delegaW. The term assignment of contract can mean several different things. This term is ambiguous, as it does not indicate whether there is both an assignment of rights and a delegation of duties. In everyday usage, it generally means that both are applicable. However, in the interests of pr&ision, the term 'to assign' should really @ reserved specifically for the transfer of rights, and the term 'to delegate' should be used in connection with the transfer of duties (and therefore with petformance). This distinction is crucial because, while an o b l w can rid himself of a right merely by making an effective assignment, an obligor cannot rid himself of a duty by the s a w means. Generally, in order for the obligor to discharge his duties under the contract through assignment, the obligee must first release him from his obligations under the contract. When this takes place, there is a novatbn of the original contract, in which the obligor's position is taken on by a new party.

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The right to assign is generally governed by an assignment clause in the contract, the enforceability of which depends on many factors, including the particular wording of the clause,

words in the box.

2 Distinguishing assignment from novation Complete the text below using the


l ) % means by which one party to a contract totally removes is a &!& himself fvom the contract by transferring not oniy all of the 2 ..%eA.U&\ j


conferred by that contract. but also all of the obligations. The 3) *places the original party as a party to the contract. Follawing 4) the other conmcting party is left in the same position as he was in before it was carried out, except that there is a new obligor. A 5 ) the refers agreement of all three parties. In contrast, an 6) %.A.%, to transfer of a right (and sometimes, in general speak, obligations) of one person to another. 7) R l ~ ~ ~ d t f ffrom novation in that the 8) .+ % & to the contract do e r s (% % , ! I not change. Most rlghts and obligations are ,.capable of 9) 9 s ) , but not all ~ -,- 3 . 1 !T3mI ; E 'JrErGfC!WY>-n' Z r l K bV& --L are capable of 20)





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Collocations Complete these verb-noun collocations as they appear in . Beading 1 Then express the meening of each phrase in your own words.


A. !


5......... (paragraph fj:

2 impose d

~9..... '%

(paragraph 1)

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3 anforce c *.7.,%%Q

p f...%!.!&%~(~aragra~h

4 render p

d.!?!..~.k Q@8. (paragraph 2)

..@.Y (pamgtaph 4) .....
....... (paragraph 4)


5 delegate d
6 asslgn r


ords ending in -or and -ee (such as promisor/promisee) are commonly und in legal texts of all kinds, but particularly in contracts. In these words, e -or ending indicates the person initiating the action, and the -ee ending he one receiving it. Thus promisor refers to a person making a promise, whil the promisee is the recipient of the promise, or the person to whom something has been promised. Note that words of this type are also found in everyday English (for example employer, someone giving employment; employee, someone receiving employmerrtf.

'4 'Complete these pairs of -or/-ee


words from Reading 1 Can you think of any .


l~tmduced assignment clauses, which govern the contracting parties' rights to

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Unit 7 Contracts: assignment and third-party rights

Listening I: Preparing a lawsuit and developing an argument

When a lawyer is engaged to represent a client murt in g mtract-related lawsuit a JH h r l good deal of time will be spent on the followin$

0 gathering information about the case;

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0 collecting evidence; 0 researching retevant legislation and legal precedent; C developing a strong line of argument.


The strength of the argument presented in court will significantly affect the outcome of the case. Generally speaking, the strength of such an argument depends on several factors: the clarity of the reasoning, the quality of the evidence presented to support it. and the lawyer's skill in using language to convey ideas. The following dialogue deals with a lawyer's preparation of a contract-related lawsuit. In the first part of the dialogue, you will hear Ron, the lawyer preparing the case, talking with Sam. a senior partner in Ron's Law firm, about the facts of the case.

9 4Z Listen to the first part of the dialogue and tick the facts of the case Ron


--..g .-..d

1 The Jones Corporation (the lessor) wanted to sell a restaurant to Keats (the


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lessee). Keats requires consent from the Jones Corporation to assign the lease to a third party. Prior written consent to assignment is not necessary. The Jones Corporation is not perrnltted to withhold consent unreasonably. + Keats could not provide the information about the buyer that Jones requested. T e prospective buyer wlthdrew his offer for the restaurant. h The buyer is suing Keats for brea~h contract. of




U Discuss the case with )

a partner. What kind of argument would you make in this case? What would you have to prove in court?
arguments he plans to use in court. What are the three points of evidence Ron will use?

fi.4C Listen to the second part of the diatogue, in which Ron mentions the

Reading 3: Follow-up emall

a Read the mail and answer these questions.
1What are the purposes of the email? 2 What would he like Sam to do for him?

S u b w ~ Keats case: update and closing argument , hed! Drwft vorsion of closing argument: Keats v. Jones Corp

p 9 . baround fw the last couple of days - I've been in c ~ u ron the Keats cese.You asbd me to t ppm posted on how things are going - I have to say, It's going p r d t y woll. I'vefinished drafting my


bkbward to hearing your suggestions.


Some vertxi in English are followed by another verb in the -ingform and uthers are followed by the infinitive with to. The ernail above contains several a m p l e s of verbs that are followed by another verb in the -ing form. Look at tis example from the text:

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f Ve finished drafting my closing argument for tomorrow.

It would be incorrect to write: I've finished to dralt my closing argument.

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You have to learn which verbs can be followed by which form.

Lmk at tha ernail again and underline other examples of verbs + -ingform.



the followini2 pairs of sentences and decide which one is correct.

2 a The client decided settling the contract dispute in court. diem decided to settle the contact dispute in court.


8 @case preparation involves interviewing wltnesres. b Case prepamtion involves Interview witnesses.

4 @BY wthholdlng consent, Jones risks being sued by Keats. b By withholdlng consent, Jones risks to be sued by Keats.
5 @$am suggests ernphasising the ides that Jones withheld consent - deliberately. b Sam sug&ests to emphasise the idea that Jones withheld consent beliberately.
6 a The prospective buyer refused waitlng any Longer. @The prospective buyer refused to wait any longer.

7 O ~ h client mentioned having had an argument with his landwd. e b The client mentioned to have had an argument with his landlord.

he defendant delayed responding to the pleintii's request.

b The defendant delayed to respond to the plaintiff's request.

W 7 t e n t n a r : a p ~ ~ W ~

I S Complete the sentences below using the correct farm of the verbs in the box.









1My client is considering ........... ....... his landlord for breach of contract. 2 The defendant delayed ... .............. his appraval for the assignment af the lease. 3 Jones risked .... the assignment clause of the contract. 4 After reading h s colleague's comments, the associate lawyer decided i ................................ ..,. . . . . . .......... his closing argument. . 5 Among other things, preparing a strorg case involves evidence. 6 I am looking forward to ... . . . your closing argument when you present it in court. 7 lVCy client refuses . % ........................................ us about the difficulties hs had with his tandlord. 8 The defendant's attorney suggested that his client needed more information before he could







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Reading 4: A closing argument

Th~&UtofRmon'rcloshqanl~tw~aprpr~S;n'r~-.r=mtr i(.t@t*r written In the margin.
i Read the dosing argument and tick which kinds of iMorrnation about the b prospective buyer the defsndant's lawyer requested.
1 blrth cert~ficate 2 university diploma 8 documents provlng experience in the restaurant business 4 a business plan 5 letter of rtconlmendation 6 completed commerc~al lease applicat~on


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17 Decrde whether these Statements are true of false.

J h argument states that the covn must decide whether consem to d Ron'6


assgnrnent of the lease has been withheld wteasonably. 2 Ron rnalntains that it is justified for subjective cribria to play a m k In decld~ng whether to give appoval for ~ssign-ment. Ron argues that delaying consent is not the same as wlthhddi~g consent.

l8 Match the words In italics (1-5) their definrt~ons(8%). with

1 arbitray considerations

2 credibl1,ty of wltrtesses 3 pmdicated on a dkpute Q 4 defendant asserts 5 attempt IS unavailing

a unsllccessful 4~ state somathmg is true c not based on reason, random d can be k l i w e d e based on




J m & d a ( r @ ~


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f .

a* c,

Languaqe Focus m

Vocabulary distinguishing meaning Which wora In each group is the odd one out? You may need to consult a dictionary to distinguish the differences in meaning.

1duty responsibility obligatior~ 2 intent objective intention @!sit3 3 compose draft write 4 convince induce persuade $-'aGea~> - elect select choose --

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2 Vocabulary: word choice These sentences are from a tenant's Right of

Assignment document. In each case, choose the correct word or phrase to complete them.

1Notwithstanding anything to the contrast @ / opposition contained in the lease, Tenant can / may @illhave the following rights with respect to assignment, transfer or sub-lease (referre@ in / as hereinafter as a , 'Transfer') of the der%ed premises. 2 Landlord agrees that it will not unreasonably withdraw / rebut / withhol its approval to any Transfer of the demised premises or any pa thereo thereafter/ thereunder, provided such Transfer shall be subject to all of the -terms and circumstances Q o n d l t i o a inclusions of the lease. Tenant shall waive / own the right to perform any of the following acts without the necessity to request or obtain Landlord's refusal / withdrawal /:g&& therefor. 14 Transfer the demised premlses or any partion t h e r e o f w r o m / at any 'affiliate company'. An affiliate company shall mean, for purposes of this Article 49, any corporation, partnership or other business entirety/ entreaty/ e n t c ~ n d e common control and ownership with the Tenant, or with the r or any subsidiary of the Tenant.


3 Prepositions with contract 1Complete the phrases below using the correct
preposition in the box. You may need to consult a dictionary.

& 1the parties .......................... a contract 2 pursuant ..-......fg..... the contract 3 to have rights and obligations ...%&.. contract a 4 to benefit L.%-. the contract. +a 6 5 to assign rights or delegate duties ......................... a third party 6 enforce a contract ~@.>.ksomeone 7 a third-party beneficiary ..-?dl a contract 8 in reliance .."..'b;.lah... the contract .


a Termlnetion of tmplbyinemt B Entp4oyment tribunals

c Terms of employment d Employment legislation
r \

e Labour lew

f Pr~tecting disabled the g Recruitment


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1 Employment lawentails contracts between employers and employees which are normally controlled by specific legislation. In the UK, certain laws have been enacted regulating the areas of sex discrimination, race relations, disability, health and safety, and employee rights in general. Also, certain aspects of employment contracts are cwered by the Trade Union and Labour Relations Act 1992. 2 In the recruiting processes, employers must take into consideration that it is unlawful to discriminate between applicants for employment on the basis of gender, marital status, colour, race, nationality, or ethnic or national origins. It is also unlawful to publish job advertisements which might be construed as dis$iminatory. It is unlawful for a person to discriminate against another based on sex or marital status in the hiring process and in respect of the terms and conditions of employment. However, there are exceptions to this rule, such as where sex or -> marital status is a genuine occupational qualification (GOQ).

I 1 4 After the employee is hired, protection is provided generally under the Employment Rights Act 1996. In particular, this Act requires the employer to provide the employee with a document containing the terms and conditions of employment. The statement must include the following: identities of the parties, the date o em+hyment, a statement of whether there has been f oontinuation of employment, the amount and frequency of pay, hours of work, holiday entitlement, job title and work location. *Q & -4 - y a * d

3 The law protects disabled persons by making it unlavful to discriminate-- such persons in _- against the interviewing and hiring process and regarding the terms of the offer of employment. Employers are required to make reasonabie adjustments in the place of work to accommodate disabled persons. ~ 0 - i cost may be taken into account M e n determining what is reasonable.

5 Matters related to termination o employment, such as unfair dismissal, disctiminatory f

dismissal or redundancy1 dsmhsail, are governed by the Employment Rights Act 1996. Also, certain aspects of termination of employment are governed by the Trade Union and Labour Relations Act 1992 when the decision to terminate em~loyment in some way related to the is activities of a trade union2.
(US)labor union

6 The protections mentioned above are largely enforced through complaints to an employment tribunal. The tribunal has the power to render decisions and issue orders in respect of the parties' rights in relation to complaints. It may also order compensation for loss of prospective earnings and injured feelings. 7 Employment law relates to the areas covered above, while labour law3 refers to the negotiation,.coll_ectiv~rgain& and arbitration processes. Labour laws primarily deal with the relationship between employers and trade unions. These laws grant employees the right to unionise and allow employers and employees to engage in certain activities (e.g. strikes, picketing,seeking injunctions, lockouts) so as to have their demands fulfilled.


mally ing the Yee rights Union and


re sex or

ersons in . Employers iabled tights Act wment :following: been

:ory 3 .Also, 6 .abour ed to the

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Reading 2: EU directives on.employment

llwWWltgt~)~f,whkhp p w e d l n a n o n t O n e ~ ~ ~ & a b W ~ ~ ~ a that wodd lkdy rcdt fmfh n p l a n i m of P l a g d ElJ&Wkrea en h
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0 Look at the title and read the first paragraph of 'the-text. What do you think
case bonanza means? Why will there be a case bonanza?

7 Read the first two paragrmhs. What does each of the three planned directives
deal with?