Operation of Contracts

Third-party beneficiary

a person who is not a party to a contract but is intended by the contracting parties to benefit as a consequence of a contract

Incidental beneficiary

a person who will benefit as an indirect consequence of a contract, although that was not the intent of the contracting parties


the transfer of a contract right to a third party who can receive the benefits of the contract


the person who transfers his or her rights in an assignment


the third party to whom rights are transferred in an assignment


the third party to whom rights are transferred in an assignment

Personal-service contract

A contract in which services that require a unique skill, talent, ability, and so forth are provided by a specific person. In such case, the party who hires the specific person to perform certain duties has substantial interest in having only the hired person perform. Thus, they may not be assigned to anyone else.


The appointment of a third party by a party to an existing contract to perform contractual duties that do not involve unique skills, talents, abilities, and so on

Assignment and delegation by law

Rights or duties under a contract may be assigned by a court of law when a contracting party dies or becomes bankrupt.

Death of a contracting Party

When a party to a contract dies, all contractual rights are assigned to the administrator or executor of the estate


A condition in which a person or business is legally recognized as unable to pay legitimate debts. The laws dealing with bankruptcy provide that the assets and contracts of a bankrupt person or business be assigned to the trustee in bankruptcy. The trustee is then empowered to sell the assets and exercises contract rights for the benefit of the creditors of the bankrupt person or firm.


A situation in which all parties to a contract agree to a significant change to a contract. Such a change actually creates a new contract that is simply based on the earlier one

What are some contracts that may not be assigned

1) Contracts that include assignment restrictions
2) Contracts for which assignments are prohibited by law or public policy
3) Contracts that require personal services

What are some examples of personal-service contracts?

Artists, musicians, photographers, and athletes are hired because of their special personal skills, and consequently, their services under a contract may not be delegated to anyone else. In most cases, an employment contract is considered a person-service contract and may not be assigned

What is an example of delegation?

The appointment of a third party by a party to an existing contract to perform contractual duties that do not involve unique skills, talents, abilities, and so on

What is included in death of a contracting Party?

collection of money, to demands for performance, and to the sale or purchase of real or personal property are assigned immediately. It does not include personal-service contracts of the deceased that are not delegable because of the unique skills of the deceased

What does a novation require?

mutual consent of all parties ( the original parties to the agreement and any new third parties) just as does a new contract. However, an assignment can be made without the mutual consent of both contracting parties

What does a novation transfer?

all rights and obligations in a contract, but an assignment transfers only the rights of the assignor and leaves the assignor with the duty of fulfilling his or her obligations under the contract.

What happens to a party to a contract who assigns his or her rights or delegates his or her duties to a third party?

They are never free from the contract until it is completely executed. In contrast, if the third party enters the contract as a result of a novation, the party whose rights or duties are assumed is completely relieved of any obligations.

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