Chapter 18 Third Persons and Contracts

1. Twomey  JenningsAnderson’s Business Law and the Legal Environment, Comprehensive 20eAnderson’s Business Law and the Legal Environment, Standard 20eBusiness Law: Principles for Today’s Commercial Environment 2e Chapter 18 Third Persons and Contracts

2. Third Party Beneficiary Contracts • When a contract shows a clear intent to benefit a third person or class of persons, those persons are called intended third party beneficiaries. • A third party beneficiary is subject to any limitation or restriction found in the contract.

3. Third Party BeneficiaryContracts • A third party beneficiary loses all rights when the original contract is terminated by operation of law or if the contract reserves the right to change beneficiaries and such a change is made. • Intended third party beneficiaries may sue for breach of the contract.

4. Intended Beneficiaries • Creditor Beneficiary: a party to a contract is obligated to perform a duty to a third party beneficiary. • Donee Beneficiary: promisee’s purpose in making the contract is to make a gift to a third party beneficiary. • Limitations: 3PB takes contract as is. No greater rights than given by contract.

5. Intended Beneficiaries premiums Roy Phoenix Insurance benefits Roy’s son insurance benefits The prior creditors of the business (Harry takes over debts.) Business sold to Harry Max Harry Money paid for business Examples: Donee Beneficiary Creditor Beneficiary

6. Incidental Beneficiaries • In contrast, an incidental beneficiary benefits from the performance of a contract, but the conferring of this benefit was not guaranteed by the contracting parties. • An incidental beneficiary cannot sue on the contract.

7. Incidental Beneficiaries premiums Roy The insurance agent’s wife, who benefits from the agent’s salary. Phoenix Insurance benefits insurance benefits The owners of the businesses nearby, whose business increases due to increases in Harry’s business. Business sold to Harry Max Harry Money paid for business Examples:

8. Assignments • An assignment is a transfer of a right; the assignor transfers a right to the assignee. • Usually, there are no formal requirements for an assignment. • Any words manifesting the intent to transfer are sufficient.

9. Assignments • (Cont’d) • When a valid assignment is made, the assignee has the same rights—and only the same rights—as the assignor. • The assignee is also subject to the same defenses and setoffs as the assignor had been. • Notice: usually an assignment takes effect when made.

10. Assignments • Assignor: absent an agreement to the contrary, an assignor remains liable on the original contract. • Assignee: generally no liability. • Notice: assignment takes effect immediately. • Assignee should give notice. • Obligor’s duty can be discharged by making payment.

11. Discharge of Assigned Obligation Obligor owes money to obligee. Obligee assigns claim to assignee (obligee becomes assignor). Obligor pays assignor (original obligee) instead of assignee. Has obligor been informed of assignment and been notified to pay assignee?? Yes No Money paid by obligor reduces or cancels liability. Money paid to assignor does not reduce or cancel obligor’s liability to assignee. Assignee can sue assignor for money paid by obligor after assignment.

12. Limitations & Non-Aassignable Rights Assignment of Right toMoney Delegation of Duties Assignment of Right toPerformance Increase of Burden Personal Satisfaction Personal Services Credit Transaction Personal or Nonstandardized Performance Prohibition in Government Contracts

13. Liabilities • Continuing Liability of Assignor. • Assignor remains liable unless there is an agreement to the contrary. • Liability of Assignee: generally not liable. • Consumer Protection. • Defenses and Setoffs. • Warranties of Assignor.

14. Delegation of Duties • The performance of duties under a contract may be delegated to another person except when a personal element of skill or judgment of the original contracting party is involved. • The fact that there has been a delegation of duties does not release the assignor from responsibility for performance. • Delegations under UCC.