Business Law

1. Business Law Chapter 15 Third Party Rights

2. Objectives State what a contract assignment is Define a contract delegation Identify noncontracting parties who have rights in a contract Explain when a third party beneficiary�s rights in a contract vest

3. Privity of Contract The relationship that exists between the promisor and the promisee of a contract Establishes the basic concept that third parties have no rights in a contract to which they are not a party Two exceptions Assignment of rights/delegation of duties Third party beneficiary contract

4. Assignment The act of transferring to another all or part of one�s rights arising under a contract. Rights of the assignor are extinguished The assignee takes only those rights that the assignor originally had. Assignee�s rights are subject to defenses that the obligor has against the assignor.

5. Assignment Most common assignment � the right to the payment of money Retailers usually sell their rights to receive payment at a discount because of the risk of noncollection from some debtors.

6. Rights That Cannot be Assigned If a statute expressly prohibits assignment When a contract is personal in nature, the rights cannot be assigned unless all that remains is the money payment If assignment will materially increase or alter the risk or duties of the obligor

7. Rights That Cannot be Assigned If a contract stipulates that the rights cannot be assigned Exceptions Cannot prevent the assignment of money Assignment of rights in real estate Restraints against alienation Assignments of negotiable instruments Sale of goods � damages for breach or payment of account owed

8. Notice of Assignment Assignment is effective immediately whether or not notice is given The third party should notify the obligor If assignor assigns the same right twice Until notice, the obligor can discharge the obligation by performance to the assignor

9. Delegations The transfer of duties Does not relieve the delegator of the obligation to perform in the event that the delegatee fails to perform No special form, just express intention

10. Duties That Cannot be Delegated When performance depends on the personal skill or talents of the obligor When special trust has been placed in the obligor

11. Duties That Cannot be Delegated When performance by a third party will vary materially When the contract expressly prohibits delegation

12. Delegation Obligee must accept performance from delegatee, unless the duty is one that can�t be delegated Delegator liable to obligee if delegatee doesn�t perform Delegatee is also liable because of �assumption of duty�

13. �All Rights� When general words are used (�I assign all my rights under the contract�), implies both an assignment of rights and a delegation of duties

14. Third Party Beneficiaries One who is not a party to a contract but for whose benefit a promise is made in the contract. Intended beneficiaries Incidental beneficiaries

15. Intended Beneficiaries One who can sue the promisor directly for breach of a contract made for the beneficiary�s benefit Life insurance policy Cannot be enforced until the rights of the third party have vested

16. Vested Rights Rights have taken effect and cannot be taken away When the third party demonstrates manifest assent to the contract, or When the third party materially alters his position in detrimental reliance Contract may reserve the right to cancel, rescind, or modify

17. Incidental Beneficiaries Unintentional benefit Cannot enforce a contract to which he is not a party Reasonable person test - To determine whether intended or incidental beneficiary

18. Indicates an Intended Benefit Performance rendered directly to third party The right of the third party to control the details of performance Express designation in the contract