Essentials Of Business Law Chapter 12 Operation Of Contracts McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Essentials of Business LawChapter 12-2 Third Parties Involved In Contracts Third parties to a contract are:  In some way affected by the contract  Not one of the parties to the contract Third parties exist when: 1.The purpose of a contract is to benefit a third party 2.Rights or duties that arise from a contract are legally transferred to a third party

Essentials of Business LawChapter 12-3 Third Parties Involved In Contracts Two ways third parties can be affected by a contract 1. Third-party beneficiary –Has a legal right to the benefits from the contract when that is the intent of the contracting parties 2. Incidental beneficiary –Benefit as an indirect result of a contract, although that was not the intent of the contracting parties –Have no legal rights in the contract

Essentials of Business LawChapter 12-4 Assignment Of Rights Permissible in most states to assign contract rights  Transfer rights to a third party and permit the third party to receive the benefits of the contract Assignor  The person who transfers his or her rights Assignee  The third party to whom the rights are transferred Appointing a third person to perform contractual duties is by delegation

Essentials of Business LawChapter 12-5

Essentials of Business LawChapter 12-6 Assignment Form of assignment  Maybe be written or oral Notice of assignment  The assignee must notify the other party to the contract of the assignment The assignor of a contract right becomes a guarantor

Essentials of Business LawChapter 12-7 Contracts That May Not Be Assigned Contracts that include assignment restrictions Contracts for which assignments are prohibited by law or public policy Contracts that require personal services  Unique skills, talents, or abilities that are provided by a specific person

Essentials of Business LawChapter 12-8 Assignment And Delegation By Law Death of a contracting party  All contractual rights are assigned to the administrator or executor of the estate  Does not include personal-service contracts that require unique skills Bankruptcy of a contracting party  The assets and contracts of a bankrupt party are assigned to the trustee in bankruptcy

Essentials of Business LawChapter 12-9 Novation Occurs when all parties to a contract agree to a significant change in the contract Change creates a new contract that is based on the earlier one A novation differs from an assignment in the following ways:  Requires mutual consent of all parties  Transfers all rights and obligations in a contract