1. Comprehensive Volume, 18 th Edition Chapter 19: Third Persons and Contracts

2. Rights and Duties Ordinarily, only the parties to a contract have rights and duties with respect to that contract. Exceptions are made in the case of third party beneficiary contracts and assignments.

3. Third Party Beneficiary When a contract shows a clear intent to benefit a third person or class of persons, those persons are called intended third party beneficiaries. 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. Intended third party beneficiaries may sue for breach of the contract.

4. Types of Intended Beneficiaries Creditor Beneficiary When one party to a contract is obligated to perform a duty to a third party, that third party is a creditor beneficiary. Donee Beneficiary When the promisee’s purpose in making the contract is to make a gift to a third party, that third party is a donee beneficiary.

5. Intended Third Party Beneficiary Roy Phoenix Insurance Roy’s son insurance premiums benefits Examples: The prior creditors of the business (Harry takes over debts.) benefits Max Money paid for business Business sold to Harry Harry Donee Beneficiary Creditor Beneficiary

6. Incidental Beneficiaries In contrast, an incidental beneficiary benefits from the performance of a contract, but the conferring of this benefit was not guaranteed by the contracting parties. An incidental beneficiary cannot sue on the contract.

7. Incidental Third Party Beneficiary Roy Phoenix Insurance The insurance agent’s wife, who benefits from the agent’s salary. insurance premiums benefits Examples: The owners of the businesses nearby, whose business increases due to increases in Harry’s business. benefits Max Money paid for business Business sold to Harry Harry

8. Assignment of Rights An assignment is a transfer of a right; the assignor transfers a right to the assignee. Usually, there are no formal requirements for an assignment. Any words manifesting the intent to transfer are sufficient. 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.

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

10. Limitations on Transfer of Rights and Duties Assignment of Right to Money Prohibition in Government Contracts Assignment of Right to Performance Increase of Burden Personal Satisfaction Personal Services Credit Transaction Delegation of Duties Personal or Nonstandardized Performance

11. Delegation of Duties 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 fact that there has been a delegation of duties does not release the assignor from responsibility for performance.