Assignment, Delegation and 3rd Party Beneficiaries.

Terminology

Parties ASSIGN rights and the DELEGATE duties and obligations.

What is an assignment of rights?

An Assignment of a right can occur when one party to an existing contract assigns the rights/ benefits under the contract to another party.

What is the analytic framework for determing whether there has been an assignment, a delegation, or both?

Simply ask: Is there an assignment, is there a delegation or is there both? and Is the assignment/ delegation effective?

Are K rights freely assignable unless an exception applies?

Yes, and upon assignment the assignors rights are extinguished and the assignee steps into the shoes of the assignor.

What are the 3 Exceptions for an assignment of right?

1. An assignment cannot be granted if it would materially alter the risk or duties of the obligor; looks at whether the assignment changes the duty in a way that would cause further hardship or risk.

2. An assignment that is barred or prohibited by statute or public policy will not be granted.

3. The Contract has a valid anti-assignment clause.

What is an anti-assignment clause?

A clause that specifically states that neither party can assign rights without the express written consent of the other party.

Generally, they are enforceable in an arm- lengths transaction between relatively sophisticated parties if represented by counsel.

How are assignments created?

• The assignor must manifest intent to transfer assignee a right to performance from the obligor in exchange for consideration.

How does the Assignor manifest an intent to assign?

One must look to the tools of interpretation (i.e. the determining ambiguity, resolving that ambiguity and considering exceptions)

What is the rule for delegation including exceptions?

An obligor may delegate his contractual duties to a 3rd party and the obligee must accept the delegate’s performance unless an exception applies. Exceptions include:

• The contract is for personal services contracts

• The delegation results in a material change in performance or

• The contract language prohibits delegation of duties.

What is a non-delegation clause?

A provision that states that neither party may delegate a performance under this agreement except w/ the prior written consent of the other party.

How is delegation formed?

A delegator must manifest intent to make the delegation, and ascertaining intent means that you use the objective tools of K interpretation.

What is a third party beneficiary?

A third-party beneficiary is a person or business that benefits from the terms of a K made between two other parties.

What is a intended beneficiary?

When a non-party to a K receives a benefit from the agreement directly.

How do you figure out if the beneficiary is intended?

Test the primary intent of the promises.

• Typically NAMED in the K.

• And if not, use the tools of K interpretation to resolve unclear situations.

What is an incidental beneficiary?

An incidental beneficary is a third party who benefits from a K between two other parties, but it is not intended to benefit that person. It is an indirect benefit. This is a benefit that is fortuitous as a result of a transaction between contracting parties.

Do incidental beneficiaries have a legal right to enforce a contract between the contracting parties?

NO

When can intended third party beneficiaries enforce a contract between the contracting parties?

When the rights have been vested to the beneficiary?

What is the vesting rights rule?

The rights of the third-party beneficiary vest when the beneficiary:

• Manifests assent to the promise at the invitation of the promisor or the promisee.

• Materially changes position in justifiable reliance on the promise or

• Sue to enforce a promise.