29 terms

Business Law 1 - Chapter 16

Third Party Rights
Privity of Contract
The state of two specified parties being in a contract
Transfer of a contract RIGHT to a third party
Transfer of contractual DUTIES to a third party
A party who transfers (assigns) his or her rights under a contract to another party (called the assignee).
The party to whom something is assigned (e.g., someone to whom a right or property is legally transferred)
One to whom an obligation is owed.
One who owes an obligation to another.
The effect of an assignment
-The rights of the assignor are extinguished.
-The thrid party (assignee) has a right to demand performance from the other original party to the contract.
-The assignee takes only those rights that the assignor originally had.
-The rights assigned are subject to the same defenses.
Form of the Assignment
In general, it can take any form, oral or written. However, much more practical to put it in writing.
Rights that cannot be Assigned
- When a statute expressly prohibits assignment
- When a contract is personal in nature (unless all that remains is a $ payment)
- When an assignment will increase or alter the risk or duties of the Obligor
- When the contract prohibits assignment
Duty of Performance
Performing the lawful duties expressed in the contract by meeting the standards of reasonable care, skill, and diligence implicit in all contracts.
Exceptions to when the Contract expliciltly prohibits assignment...
-Contract cannot prevent an assignment of the right to receive money.
-Assignment of rights in real estate often cannot be prohibited b/c such a prohibition is contrary to public policy. (Restraints against alienation)
-Assignment of negotiable instruments cannot be prohibited.
-Involving Sale of goods contracts: The right to receive damages for breach of contract or payment of an account owed may be assigned.
The voluntary and absolute transfer of title and possession of real property from one person to another
Notice of Assignment
To protect their rights, the assignee (3rd party to whom rights have been assigned) should immediately notify the obligor (the one owing performance) that the assignment has been made, and
performance must be rendered to the assignee. (Even though notice is not legally necessary to establish validity. An assignment is effective immediatley, w/ or w/o notice)
English Rule
-Gives up priority to the first assignee who gives notice.
2 problems that arise when notice of the assignment is not given to the obligor
1. If the assignor assign to two different persons, the question arises as to which one has priority. The english rule is that the first assignee gets first dibs.

2. Until the obligor has notice of an assignment, the obligor can discharge his or her obligation performance to the assignor. Meaning, if Brower is not notified by Horton that her rights was transfer to Khun. By paying Horton, she is discharge of her debt. Kuhn's failure to give notice to Brower causes Khun to not be eligible for the money.
A party delegating his duty to a third party
A party to whom contractual obligations are transferred, or delegated.
Duties that cannot be Delegated
- When the duties are personal in nature (Special trust, personal skill, or talents dependent upon obligor)
- When performance by a third party will vary materially from that expected by the obligee (Contractual duties cannot be delegated)
- When the contract prohibits delegation with an antidelegation clause (However, if duty is impersonal in nature, then duties can be delegated)
Effect of a Delegation
-The obligee (one who performance is owed) must accept performance from the delegatee (one whom the duties have been delegated).
-A valid delegation of duties does not relieve the delegator of the obligations under the contract.
-The obligee can also hold the delegatee liable if the delegatee made a promise of performance that will directly benifit the obligee. (Assumption of duty) (Can sue both other parties)
Assignment of "All Rights"
-A contract that provides in general words for an assignment of all rights and a delegation of duties.
-The assignor remains liable if the assignee fails to perform the contractual obligations.
Third party Beneficiary
- One for whose benefit a promise is made in a contract but who is not a party to the contract.
- A person who has a legal right to enforce the contract if it is breached by either of the contracting parties
-An intended beneficiary may enforce such a contract; an incidental beneficiary may not.
Types of Intended Beneficiaries
- Creditor Beneficiaries
- Donee Beneficiaries
- Third Party Beneficiaries
Creditor Beneficiaries
- One who benefits from a contract in which one party (promisor) promises another party (promisee) to pay a debt that the party owes to a third party (creditor).
-These people can sue the promisor directly.
Donee Beneficiaries
When a contract is made for the express pourpose of giving a gift to a third party, the third party (this person) can sue the promisor directly to enforce the promise.
The Vesting of an intended Beneficary's rights
1. When the third party demonstrates manifest assent to the contract, such as sending a letter or note acknowledging awareness of and consent to a contract formed for their benifit.
2. When the third party materially alters their position in detrimental reliance on the contract.
The rights have taken effect and cannot be taken away.
Intended Benificiary Factors
-Performance is rendered directly to the third party.
-Third party has the right to control the details of performance.
-Third party is expressly designated as the beneficiary in the contract.
-Can sue to enforce contract.
Incedental Benificiary Factors
-Who benifits from a contract but whose benifit was not the pourpose of the contract.
-Has no rights in the contract.
-Cannot sue to enforce contract