Third Party Rights in Contracts

1. Third Party Rights in Contracts Assignment (p. 307 example) employment Mimi benefit Trevor detriment Trevor now pays Natalie $200 $200 benefit Natalie Delegation ice Ice Cream Factory benefit Ida’s Ice detriment Delegation of duty to supply ice payment ice Mr. Ice payment if assignment too Third Party Beneficiary (p. 304 example) premiums benefits Roy Phoenix Insurance Roy’s son insurance premiums Physicians Hospitals Labs Prescriptions Roy Metropolitan Medical Insurance insurance Chapter 18 payment of medical bills

2. Discharge of an Assigned Obligation Obligor owes money to obligee. Obligee assigns claim to assignee (obligee becomes assignor). Obligor pays assignor money due. Has obligor been informed of assignment and been notified to pay assignee?? Yes No Money paid by obligor reduces or cancels liability. Money paid does not reduce or cancel liability. Assignee can sue assignor for money paid by obligor after assignment. Chapter 18

3. Limitations on Transfer of Rights and Duties 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 Chapter 18

4. Can a Third Person Sue on A Contract? Third Party Beneficiary X Beneficiary Incidental Beneficiary Right to Money Y Assignee Right to Performance Contract Between A and B Increased Burden Personal Satisfaction Personal Services Credit Transaction Standardized Nature Z Delegee Personal Nature Chapter 18

5. What a Third Party Beneficiary Must Prove Obligee Obligor Binding ContractBenefiting Intent Compliance with Contract Procedure Beneficiary’s Loss Suit within Contract Time Limitation Suit within Statute of Limitations Third Party Chapter 18

6. Chapter 18 Summary Ordinarily, only the parties to contracts have rights and duties with respect to such contracts. Exceptions are made in the case of third party beneficiary contracts and assignments. Chapter 18

7. Chapter 18 Summary (cont.) When a contract shows a clear intent to benefit a third person or class of persons, those persons are called third party beneficiaries, and they may sue for breach of the contract. A third party beneficiary is subject to any limitation or restriction found in the contract. 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. Chapter 18

8. Chapter 18 Summary (cont.) In contrast, an incidental beneficiary benefits from the performance of a contract, but the conferring of this benefit was not intended by the contracting parties. An incidental beneficiary cannot sue on the contract. Chapter 18

9. Chapter 18 Summary (cont.) An assignment is a transfer of a right; the assignor transfers a right to the assignee. In the absence of local statute, there are no formal requirements for an assignment. Any words manifesting the intent to transfer are sufficient to constitute an assignment. Chapter 18

10. Chapter 18 Summary (cont.) No consideration is required. Any right to money may be assigned, whether the assignor is entitled to the money at the time of the assignment or will be entitled or expects to be entitled at some time in the future. By the modern view, a contract term prohibiting the assignment of a right to money is invalid and does not prevent the making of an assignment. Chapter 18

11. Chapter 18 Summary (cont.) A right to a performance may also be assigned except when it would increase the burden of performance, when performance under the contract is to be measured by the personal satisfaction of the obligee, or when the contract involves the performance of personal services or the credit of the person entitled to the performance. Chapter 18

12. Chapter 18 Summary (cont.) 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. Chapter 18

13. Chapter 18 Summary (cont.) 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 intent to delegate duties may be expressly stated. Chapter 18

14. Chapter 18 Summary (cont.) The intent may also be found in an “assignment” of “the contract” unless the circumstances make it clear that only the right to money was intended to be transferred. The fact that there has been a delegation of duties does not release the assignor from responsibility for performance. Chapter 18

15. Chapter 18 Summary (cont.) The assignor is liable for breach of the contract if the assignee does not properly perform the delegated duties. In the absence of an effective delegation or the formation of a third party beneficiary contract, an assignee of rights is not liable to the obligee of the contract for its performance by the assignor. Chapter 18

16. Chapter 18 Summary (cont.) Notice is not required to effect an assignment. When notice of the assignment is given to the obligor together with a demand that future payments be made to the assignee, the obligor cannot discharge liability by payment to the assignor. Chapter 18

17. Chapter 18 Summary (cont.) When an assignment is made for a consideration, the assignor makes implied warranties that the right assigned is valid and that the assignor owns that right and will not interfere with its enforcement by the assignee. The assignor does not warrant that the obligor on the assigned right will perform the obligation of the contract. Chapter 18