Week 4-2
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
• How Do Assignments Functions?
• Form of the Assignment.
• Consideration.
• Rights that Cannot be Assigned.
• Notice of Assignment.
Assignments [2]
Assignment - Transfer of rights in
bilateral contract to 3rd party.
Obligee/ Original Contract Formed
Obligor
Assignor
Assignment
Duties Owed
After Assignment
Assignee
Assignments [3]
• Rights cannot be assigned:
• If the assignment is contrary to statute.
• When a contract is personal in nature.
• If the assignment materially changes the rights
or duties of the obligor.
• If the contract stipulates the right cannot be
assigned.
• Valid notice must be given to all parties.
Delegation
• Contractual duties in a bilateral contract
that are delegated to a 3rd party.
Obligee Original Contract Formed Obligor
Duties Owed
After Delegation Delagatee
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.
Effect of a Delegation
• Delegator remains liable.
• Delegatee liable if delegation contract
creates a third party beneficiary
relationship in the obligee.
Assignment of “All Rights”
• Assignment of rights and a delegation of
duties.
§2: Third Party Beneficiaries
Original parties to the contract intend at
the time of contracting that the contract
performance directly benefits a third
person.
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.
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.
Intended v. Incidental
Beneficiaries
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.
Intended v. Incidental
Beneficiaries [2]
• Incidental:
• Contract between two parties is
unintentional.
• Incidental beneficiary cannot sue to
enforce the contract.
hth Ip
1fundamental
at the
law istopbreaching
momhy damagespenalty
Common until the
wait party
m
k coin the purpose
of an がappear
