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Contracts Third Party Rights

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Introduction

Only the Parties to a contract have rights and liabilities under the contract.

Exceptions: Assignment or Delegation. Third party beneficiary contract.

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§1: Assignments and Delegations

Transfer of contractual rights is an assignment.

Transfer of contractual duties is a delegation.

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Assignments

Assignment - Transfer of rights in bilateral contract to 3rd party.

Obligee/Assignor

Obligor

Assignee

Original Contract Formed

Assignment

Duties Owed After Assignment

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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).

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Delegation

Contractual duties in a bilateral contract that are delegated to a 3rd party.

Obligee Obligor

Delagatee

Original Contract Formed

Duties Owed After Delegation

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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.

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Effect of a Delegation

Delegator remains liable. Delegatee liable if delegation contract creates

a third party beneficiary relationship in the obligee.

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Assignment of “All Rights”

Assignment of rights and a delegation of duties.

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§2: Third Party Beneficiaries

Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person.

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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.

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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.

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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.

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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).