Chapter 17: Third Party Rights Miller Chapter 17: Third Party Rights

Introduction Privity of Contract: Exceptions: Only original parties to a contract have rights and liabilities under the contract. Exceptions: Assignment or Delegation.  Third Party Beneficiary Contract. 

§1: Assignments and Delegations Transfer of contractual rights is an assignment. Transfer of contractual duties is a delegation.

Assignments Effect of an Assignment: Assignor: party assigning rights to third party. Assignee: party receiving rights. Obligee: person to whom a duty or obligation is owed.

Assignments Effect of an Assignment: Obligor: person who is obligated to perform the duty.

Assignments Effect of an Assignment: Obligor: person who is obligated to perform the duty. When rights of assignor are unconditionally assigned, her rights are extinguished.

Assignments Effect of an Assignment: The third party (assignee) has right to demand performance from original party to contract. CASE 17.1 Hosch v. Colonial Pacific Leasing Corp. (2012).

Assignment Relationships

Assignments Rights Assigned Are Subject to the Same Defenses. Form of the Assignment.

Assignments Rights That Cannot be Assigned: When a statute expressly prohibits assignment. When a contract is personal in nature. If assignment materially changes rights or duties of obligor. 

Assignments Rights That Cannot be Assigned: When an Assignment Will Significantly Change the Risk or Duties of the Obligor.

Assignments Notice of Assignment. Once assignment is made, assignee should notify the obligor of the assignment. If notice is not given: Who has the priority if the assignor assigns the same right to two different persons? 

Assignments Notice of Assignment. If notice is not given: Obligor can discharge his obligation by performance to assignor. CASE 17.2 Gold v. Ziff Communications Co. (2001).

Delegations Contractual duties in a bilateral contract that are delegated to a third party. 

Delegations Terminology: Delegator: party making the delegation of duty. Delegatee: party to whom the duty is owed.

Delegation Relationships

Delegations Duties That Cannot Be Delegated. When Duties are Personal in Nature (special trust). When Performance by a Third Party Will Vary Materially From that Expected by the Obligee.

Delegations Duties That Cannot Be Delegated. When the Contract Prohibits Delegation.

Delegations Effect of a Delegation. Delegator remains liable. Delegatee is liable if delegation contract creates a third party beneficiary relationship in the obligee.

Delegations Assignments of “All Rights.” Generally, when an assignment is made in a contract, the implication is an assignment of ALL rights and duties. However, assignee remains liable for performance of duties.

§2: Third Party Beneficiaries Second Exception to Privity of Contract. Original parties to the contract intend at the time of contracting to directly benefit a third person.

Third Party Beneficiaries Types of Intended Beneficiaries. Creditor beneficiary benefits from a contract in which promisor promises the promisee to pay a debt the promisee owes to a third party (CB).

Third Party Beneficiaries Types of Intended Beneficiaries. Donee Beneficiary: contract is made for the express purpose of promisor giving a gift to a third party (donee), the donee can sue the promisor directly if the promisor breaches the contract.

Third Party Beneficiaries Types of Intended Beneficiaries. Today: distinguish only between intended and incidental beneficiaries.

Third Party Beneficiaries When The Rights of an Intended Beneficiary Vest. Courts hold a third party beneficiary’s (TPB) rights vest when: TPB materially alters position in reliance on the contract. TPB brings a lawsuit on the promise.

Third Party Beneficiaries When The Rights of an Intended Beneficiary Vest. Courts hold a third party beneficiary’s (TPB) rights vest when: TPB demonstrates consent to the promise at request of promisor/promisee.

Third Party Beneficiaries When The Rights of an Intended Beneficiary Vest. If contract reserves rights to contracting parties to rescind, cancel, or modify the contract the TPB’s rights also change.

Third Party Beneficiaries

Third Party Beneficiaries

Third Party Beneficiaries Intended v. Incidental. Intended : promisee intended to confer on the beneficiary the right to bring suit to enforce the contract.

Third Party Beneficiaries Intended v. Incidental. Factors: Performance is rendered directly to TPB. TPB’s right to control contract details. TPB expressly designated as beneficiary.

Third Party Beneficiaries Intended v. Incidental. Incidental. TPB’s benefit from contract between two parties is unintentional. Incidental beneficiary cannot sue to enforce the contract. CASE 17.3 Lake County Grading Co. v. Village of Antioch (2013).