Third Party Rights

Chapter 7

Introduction

• Only the Parties to a contract have rights

and liabilities under the contract.

• Exceptions:

Assignment or Delegation.

• Third party beneficiary contract

Assignments

• Assignment - Transfer of rights in a bilateral contract to a 3rd party.

• Original Contract

Obligee/Assignor

Obligor

Assignee

Assignments

Rights cannot be assigned: –If the assignment is contrary to statute. –When a contract is personal in nature. –If the assignment materially changes the rights or duties of the obligor. –If the contract stipulates the right cannot be assigned. •Valid notice must be given to all parties.

Delegation

• Contractual duties in a bilateral contract that are delegated to a 3rd party.

• Original Contract

• Duties Owed After Delegation

Obligee Obligor

Delegatee

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 oblige expectations.

When the contract expressly prohibits delegation.

Effect of a Delegation

Delegator remains liable.

Delegatee liable if delegation contract

creates a third party beneficiary relationship

in the obligee.

Third Party Beneficiaries

• Intended• Original parties to the contract intend at the• time of contracting that the contract• performance directly benefits a third person.• Incidental• Not intended to benefit from contract

(Has no rights under the contract)

Types of Intended Beneficiaries

Creditor Beneficiaries.

(Benefit conveyed to satisfy a debt)

and

Donee Beneficiaries.

(Benefit conveyed as a gift)