David P. Twomey - Boston College © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. David P. Twomey - Boston College Marianne M. Jennings - Arizona State University David P. Twomey - Boston College Marianne M. Jennings - Arizona State University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Third Persons and Contracts Chapter 18 Third Persons and Contracts Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Third-Party Beneficiary Contracts 1. Definition 2. Modification or Termination of Intended Third-Party Beneficiary Contract 3. Limitations on Intended Third-Party Beneficiary 4. Incidental Beneficiaries Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Third Party Beneficiary Contracts [LO.1 – LO.2] Definition: An intended beneficiary may bring suit and enforce a contract. In some states the rights of a third-party beneficiary are declared by statute. (A) Creditor Beneficiary. Arises when the promisee’s intent is to discharge a duty owed to the third party. (B) Donee Beneficiary. Arises when the promisee’s intent is to give a benefit. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Third Party Beneficiary Contracts [LO.1 – LO.2] Definition: (C) Necessity of Intent. No third party beneficiary status unless that intent is clear when the contract is made.  Copeland v. Admiral Pest Control Co.: Motel guests were incidental beneficiaries of the contact and therefore unable to sue for breach. (D) Description. Third party beneficiaries do not have to be identified by name. The beneficiary may be identified by class. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Third Party Beneficiary Contracts Modification or Termination of Intended Third Party Beneficiary Contract.: A third party beneficiary loses all rights when the original contract is terminated by operation of law or if the contract reserves the right to change beneficiaries and such a change is made. Limitations on Intended Third Party Beneficiary: Beneficiaries must take the contract as it is and abide by all its terms. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Third Party Beneficiary Contracts Examples: Donee Beneficiary Roy Phoenix Insurance Roy’s son insurance premiums benefits Creditor Beneficiaries The prior creditors of the business (Harry takes over debts.) benefits Max Money paid for business Business sold to Harry Harry Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Third Party Beneficiary Contracts Incidental Beneficiaries: An incidental beneficiary benefits from the performance of a contract, but the benefit was not intended or guaranteed by the contracting parties. Intent must be clear. An incidental beneficiary cannot file a suit on a contract.  Union Pacific Railroad v. Novus International, Inc.: Intention to confer a benefit was not clearly stated in the contract. Norvus is an incidental beneficiary not entitled to sue. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments 5. Definitions 6. Form of Assignment 7. Notice of Assignment 8. Assignment of Right to Money 9. Nonassignable Rights Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Assignments 10. Rights of Assignee 11. Continuing Liability of Assignor 12. Liability of Assignee 13. Warranties of Assignor 14. Delegation of Duties Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments [LO.3 – LO.5] Definitions: An assignment is a transfer of contractual rights to a third party. The party owing a duty or debt is the obligor or debtor. The party to whom the obligation is owed is the obligee. The party making the assignment is the assignor. The third party to whom the assignment is made is the assignee. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments Form of Assignment: Notice of Assignment: Usually no formal requirements but statute may require certain assignments to be in writing. Notice of Assignment: A valid assignment takes effect when made. If the obligor is notified, obligations can only be discharged by making payment to the assignee.  Credit General Insurance Co. v. NationsBank : Upon notification of assignment, NationsBank incurred a legal duty to pay the proceeds to the assignor, Credit General. The UCCC protects consumer-debtors who make payments without knowledge of assignment. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments Assignment of Right to Money: A claim or cause of action against another person may generally be assigned. (A) Future Rights. Future payments may be assigned. (B) Purpose of Assignment. May be a complete transfer or assignments may be held for security. (C) Prohibition of Assignment of Rights. Contractual prohibitions again assignments are enforceable but ineffective against 1) payments for goods or services and 2) damages for breach of sales contracts. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments Nonassignable Rights: (A) Assignment Increasing Burden of Performance. Assignments that increase the burden for the obligor are not permitted. (B) Personal Services. Contracts to perform personal services may not be as (C) Credit Transaction. The person to whom credit is extended cannot assign any rights under the contract to another person. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments Rights of Assignee: Continuing Liability of Assignor: Assignee acquires all rights of assignor and stands exactly in his or her position. Continuing Liability of Assignor: Assignors continue to be bound by the obligations of the original contracts. A novation allows for the discharge of a contractual obligations by the substitution of a new contract involving a new party. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments 12. Liability of Assignee: Warranties of Assignor: (A) Consumer Protection Liability of Assignee. Most states subject assignees to some liability for assignor misconduct. Jackson v. DeWitt: Every assignee of a home improvement contract is subject to its terms. (B) Defenses and Setoffs. The assignee’s rights are no greater than those of the assignor. Warranties of Assignor: When an assignment is made for consideration the assignor provides an implied warranty that the right is valid. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Assignments Delegation of Duties: Delegation allowed when performance is standardized & non-personal. Contracting party remains responsible. Federal Insurance Co. v. Winters: The delegation of duties did not release Winters from liability. (A) Intention to Delegate Duties. Assignment of rights does not delegate duties. Without clear language, circumstances must be examined.  Radley v. Smith & Roberts: No indication it was not a package transfer. Assignee is obligated to perform. (B) Delegation of Duties under UCC. Promise is enforceable by assignor or other party to original contract. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.