Chapter 16: Third Party Rights

Bilateral contract:

"a promise for a promise". One party has the right to ask for performance, and the other has the duty to perform it.

When do the rights of a third party vest?

1. The third party materially changes his or her position in justifiable reliance on the promise. 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.

Assignment of rights

Delegation of duties

Intended beneficiary

A third party for whose benefit a contract is formed; an intended beneficiary can sue the promisor if such a contract is breached (another exception to the doctrine of privity). The presence of one or more of the following factors strongly indicates that the 3rd party is an intended beneficiary: 1. Performance is rendered directly to the third party. 2. The third party has the right to control the details of performance. 3. The third party is expressly designated as a beneficiary in the contract.

Incidental beneficiary

A third party who incidentally benefits from a contract but whose benefit was not the reason the contract was formed; an incidental beneficiary has no rights in a contract and cannot sue to have the contract enforced. Because the benefit is UNINTENTIONAL, an incidental beneficiary cannot sue to enforce the contract.

Form of assignment:

In general, an assignment can take any form, oral or written. The Statute of Frauds applies to assignments (ex: assignments of land, or assignment of wages must be in writing)

Alienation: Transfer of land ownership.

In real property law, the voluntary transfer of property from one person to another (as opposed to a transfer by operation of law).

Effect of a delegation on assignments and delegations:

On a valid assignment, effective immediately, the original party (assignor) no longer has any rights under the contract. If a delegation of duties is enforceable, the obligee must accept performance from the delegatee. If the delegatee fails to perform, the delegator is liable to the obligee. Although there are many exceptions, the general rule today is that the obligee can sue both the delegatee and the delegator.

Third party beneficiary

One for whose benefit a promise is made in a contract but who is not a party to the contract.

Obligor

One that owes an obligation to another

Obligee

One to whom an obligation is owed

Delegatee

One to whom contract duties are delegated by another, called the delegator.

Creditor beneficiary

One type of intended beneficiary, a third party beneficiary who has rights in a contract made by the debtor and a third person. The terms of the contract obligate the third person to pay the debt owed to the creditor. The creditor beneficiary can enforce the debt against either party.

Delegator

One who delegates his or her duties under a contract to another, called the delegatee.

Rights assigned are subject to the same defenses

The assignee's rights are subject to the defenses that the obligor has against the assignor.

Assignor

The person who assigns contract rights.

Delegation

The transfer of a contractual duty to a third party. The party delegating the duty (the delegator) to the third party (the delegatee) is still obliged to perform on the contract should the delegatee fail to perform.

Donee beneficiary:

When a contract is made for the express purpose of giving a gift to the third party (the donee beneficiary) can sue the promisor directly to enforce the promise. Ex: the designated beneficiary of a life insurance policy is a donee beneficiary.

Assignment of "all rights"

When a contract provides for an assignment of all rights, this wording may create both an assignment of rights and a delegation of duties. The assignor remains liable if the assignee fails to perform the contractual obligations.

Rights that cannot be assigned:

When a statute prohibits assignment (ex. you cannot assign future workers' compensation benefits) When a contract is personal in nature (unless all that remains When an assignment will significantly change the risk or duties of the obligor (ex. transferring an insurance policy) When the contract prohibits assignment (contract contains an antiassignment clause). Contract cannot prohibit an assignment of the right to receive funds, real estate rights, negotiable instruments. The right to receive damages for breach of contract can be assigned even if the contract attempts to prevent this.

The effect of an assignment:

When rights under a contract are assigned unconditionally, the rights of the assignor are extinguished. The assignee only gets those rights that the were originally the assignor's.

Duties that cannot be delegated:

When the duties are personal in nature - depends on obligor's personal skills or talents (nonpersonal duties can be delegated) When performance by a third party will vary materially from that expected by the obligee Special trust has been placed in the obligor When the contract prohibits delegation (antidelegation clause) A delegation of duties normally does not relieve the delegator of liability if the delegatee fails to perform the contractual duties

Third party beneficiary contract

a contract in which the parties to the contract intend that the contract benefit a third party.

Privity of contract:

rights and liabilities of parties who have entered into a contract, the relationship that exists between the promisor and promisee.

Assignee

the person to whom contract rights are assigned

Delegation

the transfer of contractual duties to a third party is known as a delegation (occurs after the original contract was made). The party to whom the obligation is owed is the obligee, the person obligated to perform the duty is the obligor. The party making the delegation is the delegator. The party to whom the duty has been delegated is the delegatee. No special form is required to create a valid delegation.

Assignment: The act of transferring to another all or part of one's rights arising under a contract

the transfer of contractual rights to a third party is known as an assignment (occurs after the original contract was made). The party assigning the rights is the assignor, and the party receiving the rights is the assignee.