Third Parties

1. Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide. CHAPTER 16 Third Parties

2. Quote of the Day “For kindness begets kindness evermore, but he from whose mind fades the memory of benefits, noble is he no more.” Sophocles, Greek playwright

3. Third Party Beneficiary Someone who was not a party to the contract but stands to benefit from it. • An intended beneficiary may enforce a contract if the parties intended her to benefit and if either: • enforcing the promise will satisfy a duty of the promisee to the beneficiary; or • the promisee intended to make a gift to the beneficiary.

4. Third Party Beneficiary (cont’d) • Any beneficiary who is not an intended beneficiary is an incidental beneficiary, and may not enforce the contract. • If the promisee is fulfilling some duty, the third party beneficiary is called a creditor beneficiary. • If the promisee is making a gift, the third party beneficiary is called a donee beneficiary.

5. Assignment and Delegation • A contracting party may transfer his rights under the contract, which is called an assignment of rights. • A contracting party may transfer her duties pursuant to the contract, which is a delegation of duties. • The assignor is the one making an assignment and the assignee is the one receiving an assignment.

6. Assignment • Any contractual right may be assigned unless assignment: • (a) would substantially change the obligor’s rights or duties under the contract; or • (b) is forbidden by law or public policy; or • (c) is validly precluded by the contract itself. • Assignment is also prohibited when the obligor is agreeing to perform personal services.

7. How Rights Are Assigned • Writing • Consideration • An assignment for consideration is irrevocable. • A gratuitous assignment is made as a gift for no consideration. • A gratuitous assignment is generally revocable if it is oral and generally irrevocable if it is written. • Notice to the Obligor

8. Rights of the Parties after Assignment • Once the assignment is made and the obligor notified, the assignee may enforce her contractual rights against the obligor. • The obligor may generally raise all defenses against the assignee that she could have raised against the assignor.

9. Assignor’s Warranty • Differences under the UCC • In general, the obligor on a sales contract may assert any defenses against the assignee that arise from the contract, and that arose before notice of assignment. • An agreement by a buyer that he will not assert against an assignee any claim or defense that he may have against the seller is generally enforceable if he took the assignment in good faith, for value, without notice of the potential defenses.

10. Delegation of Duties • Most duties are delegable. But delegation does not by itself relieve the delegator of his own responsibility to perform the contract. • An obligor may delegate unless • (1) delegation would violate public policy, or • (2) the contract prohibits delegation, or • (3) the obligee has a substantial interest in personal performance by the obligor.

11. Novation • A novation is a three-way agreement in which the obligor delegates all duties to the delegatee and the obligee agrees to look only to the delegatee for performance. • The obligee releases the obligor from all liability.

12. “A moment’s caution should enable contracting parties to anticipate and realistically appraise any rights and responsibilities of third parties.”

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