Business Law and the Regulation of Business Chapter 16: Third Parties to Contracts

1. Business Law and the Regulation of BusinessChapter 16: Third Parties to Contracts By Richard A. Mann & Barry S. Roberts

2. Topics Covered in this Chapter A. Assignment of Rights B. Delegation of Duties C. Third-Party Beneficiary Contracts

3. Assignment of Rights • Definition of Assignment– voluntary transfer to a third party of the rights arising from a contract so that the assignor's right to performance is extinguished. • Assignor– party making an assignment. • Assignee– party to whom contract rights are assigned. • Obligor– party owing a duty to the assignor under the original contract. • Obligee– party to whom a duty of performance is owed under a contract.

4. Assignment of Rights • Requirements of an Assignment– include intent but not consideration. • Revocability of Assignment– if assignee gives consideration, assignor may not revoke the assignment without the assignee's consent. • Partial Assignment– transfer of a portion of contractual rights to one or more assignees. • Successive Assignments–majority rule is that the first assignee in point of time prevails over later assignees; minority rule is that the first assignee to notify the obligor prevails.

5. Assignability • Most contract rights are assignable, except: • assignments that materially increase the duty, risk, or burden upon the obligor • assignments of personal rights • assignments expressly forbidden by the contract • assignments prohibited by law

6. Rights and Defenses • Rights of Assignee – the assignee stands in the shoes of the assignor. • Defenses of Obligor – may be asserted against the assignee. • Notice – is not required but is advisable.

7. Warranty • Implied Warranty– obligation imposed by law upon the assignor of a contract right. • Express Warranty– explicitly made contractual promise regarding contract rights transferred.

8. Delegation of Duties • Definition of Delegation– transfer to a third party of a contractual obligation. • Delegator– party delegating his duty to a third party. • Delegatee– third party to whom the delegator's duty is delegated. • Obligee– party to whom a duty of performance is owed by the delegator and delagatee.

9. Delegability • Most contract duties may be delegated, except: • duties that are personal • duties that are expressly nondelegable • duties whose delegation is prohibited by statute or public policy

10. Duties of Parties • Delegation– delegator is still bound to perform original obligation. • Novation– contract, to which the obligee is a party, substituting a new promisor for an existing promisor, who is consequently no longer liable on the original contract and is not liable as a delegator.

11. Third-Party Beneficiary Contracts • Definition– a contract in which one party promises to render a performance to a third person (the beneficiary). • Intended Beneficiaries– third parties intended by the two contracting parties to receive a benefit from their contract. • Donee Beneficiary– a third party intended to receive a benefit from the contract as a gift. • Creditor Beneficiary– a third person intended to receive a benefit from the agreement to satisfy a legal duty owed to her.

12. Intended Beneficiaries • Rights of Intended Beneficiaries – an intended donee beneficiary may enforce the contract against the promisor; an intended creditor beneficiary may enforce the contract against either or both the promisor and the promisee. • Vesting of Rights – if the beneficiary's rights vest, the promisor and promisee may not thereafter vary or discharge these vested rights.

13. Intended Beneficiaries • Defenses Against Beneficiary – in an action by the intended beneficiary of a third-party contract to enforce the promise, the promisor may assert any defense that would be available to her if the action had been brought by the promisee.

14. Incidental Beneficiaries • Incidental Beneficiary – third party whom the two parties to the contract have no intention of benefiting by their contract and who acquires no rights under the contract.