Business Law Notes: Third Party Rights

Privity of Contract

  • A contract is a private agreement between the parties involved.

  • In bilateral contracts, one party requires performance from the other, who has a corresponding duty.

Assignments and Delegations

  • Assignment: Transfer of contractual rights.

  • Delegation: Transfer of contractual duties.

  • Assignor: Party assigning rights.

  • Assignee: Party receiving the rights.

  • Obligee: Person owed a duty.

  • Obligor: Person obligated to perform the duty.

Effect of Assignment

  • Rights are extinguished for the assignor once rights are assigned unconditionally.

  • The assignee can demand performance from the original contract party.

  • The assignee gains only the rights that the assignor had.

Form of Assignment

  • Assignments can be oral or written, but those under Statute of Frauds must be in writing.

Rights That Cannot Be Assigned

  • Prohibited by statute or contract.

  • Personal contracts.

  • Alteration of risk/duties for the obligor.

Notice of Assignment

  • Assignee should notify obligor.

  • Obligor can discharge obligation to assignor until notified of assignment.

Delegation Details

  • Duties can be delegated unless express trust is established or performance relies on personal skill.

  • Valid delegation doesn’t relieve the delegator of obligations; the obligee can sue both delegator and delegatee.

Assignments of "All Rights"

  • Implies both rights and duties are assigned, but assignee must still meet performance obligations.

Third Party Beneficiaries

  • Intended third party beneficiary (TPB) is an individual intended to benefit from the contract.

  • Creditor Beneficiary: Benefits from a debt payment promise.

  • Donee Beneficiary: Receives a gift per contract purpose and can sue for breach.

Types of Beneficiaries

  • Courts distinguish between intended (can sue) and incidental (cannot sue) beneficiaries.

Vesting of Rights

  • TPB rights vest when they can't be revoked by the original parties.

  • Rights can only be modified if specified in the original contract.

Incidental Beneficiaries

  • Benefit from the contract unintentionally and have no suing rights.

Distinction Criteria

  • Courts assess express contractual intent and circumstances to determine beneficiary types.