Assignment and Delegations, and Third Party beneficiaries

Assignments

The transfer of rights under a K

1. there is a valid formation of K

2. transfer benefits of K from an original counterparty to some third part.

• When there is a right to receive money, then you have the right to assign it.

Generally, all rights can be assigned, unless

• The assigned right would substantially change the obligor’s duty (e.g., personal service agreements) or the obligor’s risk or

• The assignment is prohibited by statute or public policy.

If there is a contractual prohibition against assignments, the assignor is deemed to have the power, if not the right, to assign.

• Courts often hold the prohibition to be merely a promise not to assign.

• Therefore, the assignment is effective, but the obligor has a cause of action against the obligee/assignor for breach of contract.

Limitations on Assignments Revocation

1. Cannot be revoked if it is for value: (1) for consideration, or (2) as security for or payment of a pre-existing debt. However, it can be modified if there is mutual assent.

2. Can be revoked if it is merely gratuitous.

Assignments (continued)

• Assignee can sue the obligor because Assignee steps into the Assignor’s shoes

• When the obligor is made aware of the assignee–then the obligor has to make good with the assignee or they run the risk of paying twice, the assignor and the assignee.

Assignee is a Creditor or Donee?

• If the assignee is a creditor assignee (Assignor cannot revoke K)then the assignee can sue against the assignor if Obligor fails to perform

• If the assignee is a creditor assignee (Assignor can revoke K) then the assignee CANNOT sue against the assignor if Obligor fails to perform

EXCEPTIONS on Assignment Revocation

An assignor may revoke a donative assignment by telling the assignee that the right has been revoked, by receiving the obligor’s performance, or by making subsequent assignment of the same right.

However, a DONATIVE assignment may NOT be revoked if:

1. Obligor has already performed

2. Assignee has received a physical object (stock certificate or debt note) that provides that the assignee has the right to collect from the debt.

3. Assignor has provided for the assignment in writing

4. Assignee has materially changed the assignor’s position based on the promise of the assignment.

LIMITATIONS on Assignment

1. Conflict with Statute or Public Policy

2. Material adverse effect on the other party

   1. Consider note 3, basketball contract, assignment of right to mine minerals, assignment of RC in employment agreements, assignments of requirement contracts.

3. Partial Assignments (Whose assent might be necessary)

   1. Might be prohibited 

4. Contractual Prohibitions

Notes:

• Can put in the express condition subsequent to prohibit the assignment and if you breach this condition then K is null and void.

Delegation

Delegability of Duties: Generally, delegations are allowed, except when

• The contract involves personal judgment or skill,

• The delegator has a special trust (e.g., a doctor or a lawyer),

• The obligee’s expectancy is changed, or

• The agreement prohibits delegation.

Effect on Delegator

• When obligations are delegated, the delegator is not released from liability, esp, when the delegatee does not perform UNLESS there is a novation meaning the obligee agree to release the delegator of performance.

Suit by Obligee

•Liability of Delegatee: The obligee may sue the delegatee directly when the delegatee assumes the obligation (i.e., receives consideration) of the obligor/delegator.

Third Party Beneficiaries

•Intended Beneficiary: if the promisor and promisee intended to give the beneficiary a right to performance; and

• Performance of the promise satisfies an obligation to pay that the promisee owes the beneficiary (creditor beneficiary); or

• The promisee intends to give the beneficiary the benefit of the promised performance (donee beneficiary).

•Incidental Beneficiary: An incidental beneficiary may receive some benefit under the contract but has no enforceable rights under the contract.

Vesting occurs when beneficiary

1. Has knowledge of the promise; AND

2. Manifests assent to a promise in the manner requested by the contract or contracting parties; OR

3. Sues to enforce the promise; OR

4. Detrimentally relies on the promise; OR

5. Express contract term vesting rights.

Once the rights are vested

3rd party beneficiary’s right cannot be modified or terminated by the parties of the contract UNLESS:

1. TPB agrees to the modification 

2. TPB materially relies on the contract; 

3. TPB has sued to enforce the contract in time; OR 

4. TPB manifested assent to it at the request of either the promisor or promisee. 

Third Party K’s Rights

• 3rd party will have to be intended at the time K was formed

• Third party to K can only show if there is standing. But they must show that they are a privity to the K.

1. Did the promisor knew or have a reason to know that the promisee intended to benefit the 3rd party?

   1. The above question is the one that is asked whether the 3rd party beneficiary is intended or incidental?

   2. Yes, then the 3rd party is intended and not an incidental

2. Did the 3rd party rights vest?

   1. Because both parties can freely change the terms or modify the contract at any time before the 3rd party rights vested.

Did the 3rd party’s rights vest?

Common Law

• Creditor’s rights does not vest automatically because the creditor has a prior K with the promisee and can sue the promisee for the debt owed

• Donee’s rights vest automatically