Chapter 17 - Third Party Rights

The general rule that a contract can prohibit assignment has several exceptions:

1. A contract cannot prevent an assignment of the right to receive funds. this exception exists to encourage the free flow of funds and credit in modern business settings.- the right to receive money. 2. The assignment of rights in real estate often cannot be prohibited because such a prohibition is contrary to public policy in most states. Prohibitions of this kind are called restraints against alienation (transfer of land ownership).- can't forbid an assignment in real property. You can't discriminate property assignment to certain class of people (races). 3. The assignment of negotiable instruments (such as checks and promissory notes) cannot be prohibited.- stocks, bonds, etc. you can't put a limitation on who will receive this benefit. 4. In a contract for the sale of goods, the right to receive damages for breach of contract or payment of an account owed may be assigned even though the sales contract prohibits such an assignment.- or the right to receive damages in a breach of contract.

when the rights of an intended beneficiary vest

1. The third party materially changes his or her position in justifiable reliance on the promise.- "hey grandpa, you're buying me a new car? great! I'm going to sell my current car" because grandpa said he's buying gc a new car. detrimental reliance. 2. The third-party brings a lawsuit on the promise.- 3. The third party demonstrates her or his consent to the promise at the request of the promisor or promisee, such as by sending a letter or email indicating that she or he is aware of and consents to a contract formed for her or his benefit.- Third party sends a letter or some awareness (manifest acsent) to either party to inform/acknowledge consent of receiving benefit. P:When do the rights of the contract become enforceable for the 3rd party? 1. If the 3rd party demonstrated manifest decent--sending a letter acknowledging consent to either parties 2. 3rd materially alters position in detrimental reliance--when grandson sells his old car because grandpa is giving him a new car 3. Someone conditioned for vesting occurs--an insured dies vesting the life insurance benefits

Duties that cannot be delegated

1. when the duties are personal in nature- when special trust has been placed on the obligor or when performance depends on the personal skill or talent of the obligor, contractual duties cannot be delegated. - Payton Manning can't delegate is Quarterback skills to someone else. 2. When performance by a third party will vary materially from that expected by the obligee- you hire me as a lawyer, the lawyer can't hire the duties to someone else. 3. When the contract prohibits delegation- when the contract expressly prohibits delegation by including an anti-delegation clause, the duties cannot be delegated.- forbids delegation.

Scope of Delegation

All contract duties may be delegated Exceptions: 1. If performance depends on e the personal skills or talents of the delegator 2. Delegator owes the delegetee fiduciary duties 3. Contract specifically forbids delegation If the delegetee fails to perform adequately, the delegator remains liable for delegatee's breach

Who is the promisor?

In a bilateral contract, both parties to the contract make promises that can be enforced, so the court determines which party made the promise that benefits the third-party. that person is the promisor.

Scope of an assignment

When one of the parties leaves the transaction all contract rights may be assigned Exceptions: 1. Statutes prohibits the assignment 2. Contract is for personal services unless all what is left is for what is already performed 3. If the assignment would significantly increases risk or obligor's duties 4. A contract forbids assignments 1) Exceptions: You cannot prevent the assignment if: a) the right to receive money b) Alienation of real property c) Negotiable instruments d) Right to recover damages for breach of contract Once the assignment has been established the assignee (receiver) must be notified by the assignor; until received notice, 3rd party can be satisfied If the assignor assigns rights to two or more parties General Rules: Majority Rule: 1st assignment made takes priority English Rule: 1st assignment recorded (whoever makes a record of it or known to the obligor) whoever makes notice 1st wins

Creditor beneficiary (one type of intended beneficiary is a creditor beneficiary)

a creditor beneficiary benefits from a contract in which one party (the promisor) promises another party (the promisee) to pay a debt that the promisee owes to a third-party (the creditor beneficiary).

Form of the assignment

an assignmentt can take any form, oral or written. it is more difficult to prove that an oral assignment occurred, so it is advisable to put all assignments in writing.

rights that cannot be assigned

as a general rule, all rights can be assigned. exceptions are made, however, under certain circumstances. All Contract rights may be assigned. 1. The assignment is prohibited by statute- when a statute expressly prohibits assignment of a particular right, that right cannot be assigned. 2. The contract is personal- If a contract is for personal services, the rights under the contract normally cannot be assigned unless all that remains is a monetary payment.- the only thing remaining has to be paying the money. 3. The assignment significantly changes the risk or duties of the obligor- A right cannot be assigned if the assignment will significantly increase or alter the risks to or the duties of the obligor (the party owing performance under the contract).- it was more convenient, but has changed to become more inconvenient. 4. The contract prohibits assignment- When a contract specifically stipulates that a right cannot be assigned, then ordinarily it cannot be assigned.- the contract says no assignments. It's forbidden.

Intended beneficiary

as the intended beneficiary of the contract, the third-party has legal rights and can sue the promisor directly for breach of the contract. Only intended beneficiaries acquire legal rights in a contract. PN: third party for whom a contract is formed.

Priority issues

giving notice is not legally necessary to establish the validity of the assignment: an assignment is effective immediately, whether or not notice is given. two major problems arise, however, when notice of the assignment is not given to the obligor: If the assignor assigns the same right to two different persons, the question arises as to which one has priority-that is, which one has the right to the performance by the obligor. the rule most often observed in the United States is that the first assignment in time is the first in right. Some states follow the English rule, which basically gives priority to the first assignee who gives notice. PN: assignment is effective immediately. And you need to let the assignor know. But, if assignor doesn't know then they can pay it to the assignee or the third party, and the assignor is not held liable. when assigned to two parties. 1. majority rule- says the first assignment made takes priority. first in time, first in right. Most popular in U.S. 2. English rule- the first assignment recorded (whoever gets to city hall first, or makes a record of it, or lets the obligor know first) by the third party wins.

Effective delegation

if a delegation of duties is enforceable, the obligee must accept performance from the delegatee. PN: Gersten can't stop Zach from coming onto his property to mow his lawn on behalf of Data. if delegatee fails to perform adequately, then the delegator remains liable for Zach's f-up (breach).

Assignor

in an assignment, the party assigning the rights to a third party is known as the assignor. A.k.a. obligor (the person who is obligated to perform the duty)

Incidental beneficiary

sometimes, a third person receives a benefit from a contract even though that person's benefit is not the reason the contract was made. because the benefit is unintentional, an incidental beneficiary can not sue to enforce the contract. PN: third party that benefits from performance of a contract, but the benefit was not originally intended from that person. Ex: people that aren't unlv members (students and faculty) but can eat at the student union. that's an incidental beneficiary.

Assignees rights are subject to the same defenses

the asssignees rights are subject to the defenses that the obligor has against the assignor. in other words, the assignee obtains only those rights that the assignor originally had.

Delegator

the party delegating the duties is the delegator

assignee

the party receiving the rights is the assigning. A.k.a. the obligee (the person to whom a duty, or obligation, is owed)

delegatee

the party to whom the duties are delegated is the delegatee.

Vested

the rights have taken effect and cannot be taken away. . Until these rights have vested, the original parties to the contract-the promisor and the promisee-can modify or rescind the contract without the consent of the third-party. PN:

Delegation

the trannsfer of contractual duties to a third-party is known as delegation. PN: the delegator frees themselves from duties, by having third party (delegetee) perform the duties. Despite the delegation, the delegator remains liable. gersten hires data to mow lawn, she delegates the task to Zach. But Data is still responsible.

Assignment

the transfer of contractual rights to a third party is known as an assignment. PN: transaction where an obligor (assignor) transfers their rights to a third party, the (assignee), as result the assignor's contract rights are extinguished. And the assignee can demand performance due the assignor. data (assignee) and Gersten (assignor) make a contract, he buys her computer, data asks Gersten to pay Zach (assignee) instead, to whom she owes money. Data is out of the picture.

An intended beneficiary is a third-party:

to whom performance is rendered directly and/or who has the right to control the details of the performance or who is designated a beneficiary in the contract Third-party can sue to enforce the contract PN: A reasonable person would have to see that the promisee intended to confer the right to bring suit and result in a benefit to the contract.

Potential for discharge by performance to the wrong party

until the obligor has notice of an assignment, the obligor can discharge his or her obligation by performance to the assignor (the obligee). performance by the obligor to the assignor (obligee) constitute a discharge to the assignee. once the obligor receives proper notice, however, only performance to the assignee can discharge the obligor's obligations.

Donee beneficiary

when a contract is made for the express purpose of giving a gift to a third-party, the third-party (the Donee beneficiary) can sue the promisor directly to enforce the promise. The most common Donee beneficiary contract is a life insurance contract.

Third-party beneficiary

when the original parties to the contract agree that the contract performance should be rendered to or directly benefit a third person, the third person becomes an intended third-party beneficiary of the contract. PN: two parties make a contract for the benefit of someone else. Ex: grandpa buys a car for grandchild, the contract is between grandpa and car dealer, but the benefit goes to the grandchild.

An incidental beneficiary is a third party:

who benefits from a contract but whose benefit was not the reason for the contract and/or who has no rights in the contract Third party cannot sue to enforce the contract