1. © 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 15 Contracts: Third Party Rights Chapter 15 Contracts: Third Party Rights

2. © 2004 West Legal Studies in Business A Division of Thomson Learning 2 Introduction Only the Parties to a contract have rights and liabilities under the contract. Exceptions:  Assignment or Delegation.  Third party beneficiary contract. Only the Parties to a contract have rights and liabilities under the contract. Exceptions:  Assignment or Delegation.  Third party beneficiary contract.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning 3 §1: Assignments and Delegations Transfer of contractual rights is an assignment. Transfer of contractual duties is a delegation. Transfer of contractual rights is an assignment. Transfer of contractual duties is a delegation.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning 4 Assignments Assignment - Transfer of rights in bilateral contract to 3rd party. Obligee/ Assignor Obligor Assignee Original Contract Formed Assignment Duties Owed After Assignment

5. © 2004 West Legal Studies in Business A Division of Thomson Learning 5 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). 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).

6. © 2004 West Legal Studies in Business A Division of Thomson Learning 6 Delegation Contractual duties in a bilateral contract that are delegated to a 3 rd party. ObligeeObligor Delagatee Original Contract Formed Duties Owed After Delegation

7. © 2004 West Legal Studies in Business A Division of Thomson Learning 7 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. 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.

8. © 2004 West Legal Studies in Business A Division of Thomson Learning 8 Effect of a Delegation Delegator remains liable. Delegatee liable if delegation contract creates a third party beneficiary relationship in the obligee. Delegator remains liable. Delegatee liable if delegation contract creates a third party beneficiary relationship in the obligee.

9. © 2004 West Legal Studies in Business A Division of Thomson Learning 9 Assignment of “All Rights” Assignment of rights and a delegation of duties.

10. © 2004 West Legal Studies in Business A Division of Thomson Learning 10 §2: Third Party Beneficiaries Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person.

11. © 2004 West Legal Studies in Business A Division of Thomson Learning 11 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. Creditor Beneficiaries. Donee Beneficiaries. Modern View: Does not draw such clear lines and distinguishes only between intended beneficiaries and incidental beneficiaries.

12. © 2004 West Legal Studies in Business A Division of Thomson Learning 12 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. 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.

13. © 2004 West Legal Studies in Business A Division of Thomson Learning 13 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:  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.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning 14 Intended v. Incidental Beneficiaries [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). 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).

15. © 2004 West Legal Studies in Business A Division of Thomson Learning 15 Law on the Web “SmartAgreements” website. “SmartAgreements” website New York Law Journal article on assignments. Legal Research Exercises on the Web. “SmartAgreements” website. “SmartAgreements” website New York Law Journal article on assignments. Legal Research Exercises on the Web.