Rights of Third Parties - In Depth Notes

Introduction

• Overview of chapter addresses legal rights of third parties in contracts.
• Examines scenarios when individuals not party to a contract may enforce rights.

Key Concepts

• Assignment: Transfer of contract rights to a third person.
• Delegation: Appointment of another person to perform an obligation.
• Third-party Beneficiary: An individual intended to benefit from a contract between two other parties.

Assignment of Contracts

• Nature of Assignment:

  • Obligors owe duties; obligees have rights to receive performance.
  • In a contract, when a right is assigned, the person relinquishing their right is the assignor, while the recipient is the assignee.

• Valid Assignments:

  • Assignment is valid unless it violates public policy or substantially alters the obligations of the obligor.
  • Example: Assigning debts is permissible unless it increases risk to the obligor.

• Creating an Assignment:

  • No specific language required; intent must be clear. Some states require written assignment under statute of frauds.

• Effects of Assignment:

  • The assignor loses rights, and the assignee can enforce the contract.
  • Assignments can be revocable unless stated otherwise.

Delegation of Duties

• Nature of Delegation:

  • Migration of duty does not eliminate the original obligor’s obligations unless there’s a novation.
  • Delegator retains responsibility unless the obligee agrees to hold the delegatee accountable.

• Delegable vs. Nondelegable Duties:

  • Duties generally delegable unless they're personal in nature or explicitly forbidden by the original contract.
  • Example: Artist cannot delegate the task of painting without consent due to personal skill requirement.

Third-Party Beneficiaries

• Types of Beneficiaries:

  • Intended Beneficiary: Has rights due to the contract's intent to benefit them.
  • Donee Beneficiary: Receives a gift; can enforce rights against promisor.
  • Creditor Beneficiary: Rights arise to satisfy a legal duty owed by the promisee; can enforce against both promisor and promisee.

• Incidental Beneficiaries:

  • No enforceable rights; benefits received are incidental to the contract objectives between primary parties.

• Vesting of Rights:

  • Rights may vest and thus become enforceable when the beneficiary learns of the contract.
  • Rights cannot be modified or discharged after vesting without consent.

Legal Implications and Public Policy

• Contract Clauses: Non-assignable clauses are often enforceable but can be interpreted narrowly by courts.
• Public policy considerations also affect assignments and delegations, protecting against potential unfairness.

Summary Questions

• Notable legal questions for analysis:

  • Can a non-party sue to enforce a contract?
  • Is an employment contract assignment valid?
  • Ethical considerations in employment transitions and competition.

• Encourages understanding legal complexities for rights and duties under contracts, impacting business and individual responsibilities.