Overview

1. Overview • Sometimes a person who entered into a contract must transfer the contract rights or duties to another person (third party) • Examples: sublease of your apartment, asking another person take over work you agreed to do, or doing something to benefit a third person • Key to successful transfer: understand the third party’s abilities, limitations, and needs 17 - 1

2. Overview • A person who owes a duty to perform under a contract is called an obligor • The person to whom the duty is owed is called the obligee 17 - 2

3. Assignment of Contracts • Transfer of a right under a contract is called an assignment • Example: Jane arranges for her employer to transfer her next paycheck to her parents’ bank account • Employer is the obligor (owes Jane money) • Jane is the obligee and assignor • Jane’s parents are the assignees 17 - 3

4. Assignment Process 17 - 4

5. Details of Assignment • Assignments may be made in any way sufficient to show assignor’s intent to assign • A writing is not necessary • Unless statute of frauds applies • Assignee does not need to give consideration to assignor in exchange for the assignment 17 - 5

6. Limitations on Assignment • Assignment will not be effective if it: • Is contrary to public policy • Violates a non-assignment clause in a contract • Adversely affects obligor in some significant way • Assignment may be ineffective if the contract right involved a personal relationship or element of personal skill or character • But seeManaged Health Care Associates v. Kethan 17 - 6

7. Managed Health Care Associates v. Kethan • Facts & Procedural History: • Kethan signed an employment agreement with MedEcon that contained a non-compete clause and requirement that modifications be in writing • MHA purchased MedEcon and Kethan left to join First Choice, a customer with whom Kethan had developed a sales relationship • MHA sought an injunction to prohibit Kethan from working for First Choice, but the district court denied the suit and MHA appealed 17 - 7

8. Managed Health Care Associates v. Kethan • Issue and Legal Reasoning: • First issue is whether MedEcon’s assignment of Kethan’s employment agreement modified the terms of his contract • An assignment does not modify the terms of the underlying contract, thus did not modify Kethan’s employment agreement • Second issue is whether a non-competition clause is assignable under Kentucky law • Yes 17 - 8

9. Managed Health Care Associates v. Kethan • Holding: • Kethan was able to develop his business relationship with First Choice because MedEcon employed him and placed him in charge of the First Choice account • Kethan is precisely the type of employee for whom noncompetition clauses were designed • Reversed and remanded in favor of MHA 17 - 9

10. Delegation of Duties • Appointment of another person to perform a duty under a contract is called a delegation • Example: Mike mows Janet’s lawn weekly. Mike becomes ill and arranges for Sonny to mow Janet’s lawn. • Janet is the obligee • Mike is the obligor and delegator • Sonny is the delegatee 17 - 10

11. Delegation of Duties • Caution: an assignment extinguishes the assignor’s right and transfers it to the assignee, but the delegation of a dutydoes not extinguish the duty owed by delegator • Delegator remains liable to the obligee unless the obligee agrees to make a new contract substituting the delegatee’s for the delegator 17 - 11

12. Delegation Process 17 - 12

13. Effective Delegation • In an effective delegation, performance by the delegatee will discharge the delegator • The reason why you should understand the delegatee’s abilities and limitations 17 - 13

14. Non-delegable Duties • Duties are not delegable if the delegation: • Is contrary to public policy • Is prohibited by a contract clause • Also, duties that are dependent on the individual traits, skill, or judgment of the person who owes the duty to perform may not be delegable • Example: a hip hop artist probably could not delegate concert obligation to an opera star 17 - 14

15. Details of Delegation • Delegation may be made in any way that shows the delegator’s intent to delegate • Delegator may be discharged from contract performance by a substituted contract (novation) in which obligee agrees to discharge original obligor and substitute a new obligor • Effect: original obligor has no further obligation and obligee looks to the new obligor for performance 17 - 15

16. Third-Party Beneficiaries • If parties to a contract intended to benefit a third party, courts give effect to their intent permitting third party to enforce the contract • Referred to as third-party beneficiary • Example: Father contracts and pays for Homes, Inc. to build house as gift for Son • Son (third-party beneficiary) may sue Homes, Inc. if the company breaches the contract • Father may also sue Homes, Inc. 17 - 16

17. Third-Party Beneficiary Diagram 17 - 17

18. Incidental Beneficiaries • Incidental beneficiaryis one obtaining a benefit as unintended by-product of a contract • No rights under contract • In foregoing example, Son’s Wife would be an incidental beneficiary 17 - 18

19. Locke v. Ozark City Board of Ed. • Facts & Procedural History: • Locke, a high school teacher and umpire at high school games, was severely injured by a parent of a high school athlete after a game • Locke sued the Board because (a) it failed to provide “adequate police protection” as required by the Alabama High School Athletic Assoc., (b) such failure was a breach of contract between Board and AHSAA, and (c) Locke was an intended third-party beneficiary of the contract • Trial court entered summary judgment for Board and Locke appealed 17 - 19

20. Locke v. Ozark City Board of Ed. • Issue: • Was Locke a third-party beneficiary? • Law Applied to Facts: • Locke must show: 1) contracting parties intended direct benefit upon a third party; 2) Locke was an intended beneficiary of the contract; 3) contract was breached, and 4) contract was intended for his direct, as opposed to incidental, benefit • Contract states that the purpose of “adequate police protection” is to “provide good game administration and supervision.” 17 - 20

21. Locke v. Ozark City Board of Ed. • Holding: • Based on the plain language of the contract and the surrounding circumstances, the contract anticipates third-party umpires, the contract was intended to directly benefit umpires like Locke • Reversed and remanded in favor of Locke 17 - 21