chapter 17-third party rights

introduction

-once valid and legally enforceable contract exists look at rights and duties in performance of contract

-rule of privity or privity of contract

-third parties or strangers to contract are not direct parties and dont normally have rights/duties

-exceptions

Rule of privity/privity of contract

contract is private agreement and traditionally only parties to contract have rights/duties under contract

exceptions to privity of contract

-assignments

-delegations

-3rd party beneficiaries

assignments & Delegations

-assignment of rights

-delegation of duties

-assignment of all rights

assignments

-definition

-effect of assignments

-form of the assignment

-right cannot be assigned

-notice of assignment

assignments definition

-party to contract (assignor) assigns his/her rights under contract to third party (assignee)

-assignors rights extinguished upon assignment

-assignee may enforce contract against original party (obligor)

-obligee is assignor

ex: mortgage from bank, assigning receival of money to creditor

effects of assignment

-assignee takes only those rights assignor originally had

-assignee takes claim subject to all defenses available against assignor-original obligee

form of the assignment

-oral or written

-assignment must follow statute of frauds

-dont have to have consideration

-assignment is contract

right not assignable

-all contract rights assignable

-when statute expressly prohibits assignment

-ex: cant assign rights for workmans comp

-right to receive personal/confidential services may not be assigned without consent of person who is to perform services (original obligor)

-tutoring, singing lessons

-contract right cannot be assigned if assignment will materially increase/alter risk of original obligor

-cant assign liability insurance to anyone else

-when contract prohibits assignment

when contract prohibits assignment

-anti assignment clauses

-must be reasonable

-subleases

notice of assignment

-not legally necessary to give to obligor but wise to do

-failure to notify can cause problems-dont know who to pay

-problems that arise if notice not given

problems that arise if no notice given

-priority issues

-discharge issues

priority issues

-have 2 assigned creditors

-first in time/first to take-whoever proves had first right can be first to give notice

-look at dates

discharge issues

-obligor may continue to render their performance to assignor (original obligee) and original contract could be discharged by performance without assignee getting performance

delegation of duties (DD)

-definition

-effects

-form

-duties that cannot be delegated

DD definition

-party to contract may transfer/delegate their contractual obligation to perform act

-sublease, rancher buying cows

-does NOT RELIEVE delegator of obligation to perform in event delegatee fails to perform

-delegator LEGALLY RESPONISBLE if delegatee doesnt perform

effects of delegation

-delegator remains liable in event of nonperformance of delegatee

-duties can be delegated BUT liability associated with nonperformance can NOT be delegated

-obligee may be able to sue both delegator and delegatee

form for delegation

-no special form required to create valid delegation of duties

-delegator must express intention to make delegation

duties that cannot be delegated

-personal duties that depend upon skill or talents of obligor may not be delegated without assent of party whom performance is to be rendered-concerts

-obligor is delegator

-when performance by third party will materially vary from performance expected by obligee

-when contract expressly prohibits delegration-anti delegation clauses

assignment of all rights

-general wording as “I assign all my rights in the contract” interpreted to mean assignment of rights and delegation of duties

-be aware of substantial performance

third party beneficiary contracts

-definition

-types of intended beneficiaries

-when rights vest

-incidental beneficiary

third party beneficiary definition

-stranger to contractual relationship of parties to contract

-beneficiary makes no promise and gives no consideration to promisor who is to render performance

-intention of parties to the contract is to confer benefit upon third party beneficiary

-promisor is insurance company

-courts must determine which party made promise and 3P so 3P can sue promisor directly

types of intended beneficiaries

-has rights and therefore may enforce contractual promises even though not party to contract

-creditor beneficiary-enforce contract

-donee beneficiary-receive gift-did nothing for entitlement

when rights vest

-intended beneficiary has legal right to enforce contract after beneficiary’s right vest

-third party beneficiaries right vest so that original contracting parties cannot alter/modify/change/rescind/terminate contract when beneficiary

-demonstrates manifest assent to contract

-materially changes position in detrimental reliance on contract

-conditions for vesting are satisfied

-if parties expressly reserve right to cancel/rescind/modify contract intended third party subject to change/rescission/cancellation

incidental beneficiary

-person who is to receive incidental benefit from performance of contract may NOT enforce contract if no intent to confer benefit upon them

-courts apply reasonable person standard

-other factors to consider

other factors to consider

-spectators

-whether performance rendered directly to third party

-whether third party has right to control details of performance

-whether third party expressly designated as beneficiary of contract-name in contract isnt enough