Sometimes a person who entered into a contract must transfer the contract rights or duties to another person (third party) –Examples: sublease of your apartment, asking another person take over work you agreed to do, or doing something to benefit a third person Key to successful transfer: understand the third party’s abilities, limitations, and needs Overview

A person who owes a duty to perform under a contract is called an obligor The person to whom the duty is owed is called the obligee Overview

Transfer of a right under a contract is called an assignment Example: Jane arranges for her employer to transfer her next paycheck to her parents’ bank account –Employer is the obligor (owes Jane money) –Jane is the obligee and assignor –Jane’s parents are the assignees Assignment of Contracts

Assignment Process

Assignments may be made in any way sufficient to show assignor’s intent to assign A writing is not necessary –Unless statute of frauds applies Assignee does not need to give consideration to assignor in exchange for the assignment Details of Assignment

Assignment will not be effective if it: –Is contrary to public policy –Violates a non-assignment clause in a contract –Adversely affects obligor in some significant way Assignment may be ineffective if the contract right involved a personal relationship or element of personal skill or character –But see Managed Health Care Associates v. Kethan Limitations on Assignment

Managed Health Care Associates v. Kethan Facts & Procedural History: –Kethan signed an employment agreement with MedEcon that contained a non-compete clause and requirement that modifications be in writing –MHA purchased MedEcon and Kethan left to join First Choice, a customer with whom Kethan had developed a sales relationship –MHA sought an injunction to prohibit Kethan from working for First Choice, but the district court denied the suit and MHA appealed

Issue and Legal Reasoning: –First issue is whether MedEcon’s assignment of Kethan’s employment agreement modified the terms of his contract An assignment does not modify the terms of the underlying contract, thus did not modify Kethan’s employment agreement –Second issue is whether a non-competition clause is assignable under Kentucky law Yes Managed Health Care Associates v. Kethan

Holding: –Kethan was able to develop his business relationship with First Choice because MedEcon employed him and placed him in charge of the First Choice account –Kethan is precisely the type of employee for whom noncompetition clauses were designed –Reversed and remanded in favor of MHA Managed Health Care Associates v. Kethan

Appointment of another person to perform a duty under a contract is called a delegation Example: Mike mows Janet’s lawn weekly. Mike becomes ill and arranges for Sonny to mow Janet’s lawn. –Janet is the obligee –Mike is the obligor and delegator –Sonny is the delegatee Delegation of Duties

Caution: an assignment extinguishes the assignor’s right and transfers it to the assignee, but the delegation of a duty does not extinguish the duty owed by delegator –Delegator remains liable to the obligee unless the obligee agrees to make a new contract substituting the delegatee’s for the delegator Delegation of Duties

Delegation Process

In an effective delegation, performance by the delegatee will discharge the delegator –The reason why you should understand the delegatee’s abilities and limitations Effective Delegation

Duties are not delegable if the delegation: –Is contrary to public policy –Is prohibited by a contract clause Also, duties that are dependent on the individual traits, skill, or judgment of the person who owes the duty to perform may not be delegable –Example: a hip hop artist probably could not delegate concert obligation to an opera star Non-delegable Duties

Delegation may be made in any way that shows the delegator’s intent to delegate Delegator may be discharged from contract performance by a substituted contract (novation) in which obligee agrees to discharge original obligor and substitute a new obligor –Effect: original obligor has no further obligation and obligee looks to the new obligor for performance Details of Delegation

If parties to a contract intended to benefit a third party, courts give effect to their intent permitting third party to enforce the contract –Referred to as third-party beneficiary Example: Father contracts and pays for Homes, Inc. to build house as gift for Son –Son (third-party beneficiary) may sue Homes, Inc. if the company breaches the contract Father may also sue Homes, Inc. Third-Party Beneficiaries

Third-Party Beneficiary Diagram

Incidental beneficiary is one obtaining a benefit as unintended by- product of a contract –No rights under contract In foregoing example, Son’s Wife would be an incidental beneficiary Incidental Beneficiaries

Locke v. Ozark City Board of Ed. Facts & Procedural History: –Locke, a high school teacher and umpire at high school games, was severely injured by a parent of a high school athlete after a game –Locke sued the Board because (a) it failed to provide “adequate police protection” as required by the Alabama High School Athletic Assoc., (b) such failure was a breach of contract between Board and AHSAA, and (c) Locke was an intended third-party beneficiary of the contract –Trial court entered summary judgment for Board and Locke appealed

Locke v. Ozark City Board of Ed. Issue: –Was Locke a third-party beneficiary? Law Applied to Facts: –Locke must show: 1) contracting parties intended direct benefit upon a third party; 2) Locke was an intended beneficiary of the contract; 3) contract was breached, and 4) contract was intended for his direct, as opposed to incidental, benefit –Contract states that the purpose of “adequate police protection” is to “provide good game administration and supervision.”

Locke v. Ozark City Board of Ed. Holding: –Based on the plain language of the contract and the surrounding circumstances, the contract anticipates third-party umpires, the contract was intended to directly benefit umpires like Locke –Reversed and remanded in favor of Locke