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Chapter 15 Contracts: Third Party Rights

Chapter 15 Contracts: Third Party Rights . Introduction. Only the Parties to a contract have rights and liabilities under the contract. Exceptions: Assignment or Delegation. Third party beneficiary contract. §1: Assignments and Delegations.

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Chapter 15 Contracts: Third Party Rights

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  1. Chapter 15 Contracts: Third Party Rights

  2. Introduction • Only the Parties to a contract have rights and liabilities under the contract. • Exceptions: • Assignment or Delegation. • Third party beneficiary contract.

  3. §1: Assignments and Delegations • Transfer of contractual rights is an assignment. • Transfer of contractual duties is a delegation.

  4. Obligee/ Assignor Obligor Original Contract Formed Assignment Duties Owed After Assignment Assignee Assignments Assignment - Transfer of rights in bilateral contract to 3rd party.

  5. Assignments • Rights cannot be assigned: • If the assignment is contrary to statute. • When a contract is personal in nature. • Assignment materially changes rights or duties of obligor. • If the contract stipulates the right cannot be assigned. Case 15.1:Forest Commodity v. Lone Star (2002). • Valid notice must be given to all parties. • Case 15.2:Gold v. Ziff Communications (2001).

  6. Obligee Obligor Original Contract Formed Duties Owed After Delegation Delagatee Delegation • Contractual duties in a bilateral contract that are delegated to a 3rd party.

  7. Duties That Cannot be Delegated • When special trust has been placed on the obligor. • When performance requires personal skill or talents. • When performance will vary materially from obligee expectations. • When the contract expressly prohibits delegation.

  8. Effect of a Delegation • Delegator remains liable. • Delegatee liable if delegation contract creates a third party beneficiary relationship in the obligee.

  9. Assignment of “All Rights” • Assignment of rights and a delegation of duties.

  10. §2: Third Party Beneficiaries Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person.

  11. Types of Intended Beneficiaries • Creditor Beneficiaries. • Donee Beneficiaries. • Modern View: Does not draw such clear lines and distinguishes only between intended beneficiaries and incidental beneficiaries.

  12. The Vesting of an Intended Beneficiary’s Rights • For third party beneficiary contract to be effective, rights under the contract must vest: • Third party’s manifesting assent to the contract. • Third party’s materially altering position in detrimental reliance on the contract.

  13. Intended v. IncidentalBeneficiaries • Intended: • Promisee intended to confer on the beneficiary the right to bring suit to enforce the contract. • Factors: • Performance is rendered directly to 3rd party. • 3rd party’s right to control contract details. • 3rd party expressly designated as beneficiary.

  14. Intended v. IncidentalBeneficiaries [2] • Incidental. • Contract between two parties is unintentional. • Incidental beneficiary cannot sue to enforce the contract. • Case 15.3:Vogan v. Hayes Appraisal Associates, Inc. (1999).

  15. Law on the Web • “SmartAgreements” website. • New York Law Journal article on assignments. • Legal Research Exercises on the Web.

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