Third party rights or duties I. TP beneficiary II. Assignment of rights to TP III. Delegation of duties to TP

I. TP beneficiary 1. Intended beneficiaries Status Party "A" of K promised that performance would be delivered to TP Party "B" of K intended "A"’s performance to benefit TP. Example: B calls A and pays A to deliver goods to TP. 2. Assignment of rights to TP

Intended Beneficiary Ex: In CA, 2 adjacent unimproved parcels left. I enter into a K with Ajax company to create a shopping center on the land. Faithful performance by Ajax will treble the value of the adjacent property. Ajax made no undertaking running to you, all construction efforts were on my land. I had no intention to benefit you, just me. Therefore, you are an incidental beneficiary, utterly without status, without benefit of the K.

1. Intended beneficiaries Rights are defined by terms of K. Rights vest when: TP learns of K and changes position in detrimental reliance; TP brings suit to enforce rights; or TP expressly consents to receive performance under K. Once rights are vested, K cannot be modified or rescinded by parties. Accord & satisfaction is not available. TP can bring suit for tortious interference with K rights against party trying to tamper with the K.

Can bring suit to remedy breach of vested rights Any defense that would have had against another party to the K can be used against TP (i.e. no real K, other party had already breached by failure of consideration, statute of frauds, etc.). TP is vulnerable to counterclaims (breach by party A with recovery by party B will offset any recovery TP can get), and setoffs. TP can never have any liability for the K – only benefits. Party who paid for benefit to TP cannot recover at law for breach: Only TP can. But in equity, party can request specific performance, or value of payment in quasi-K, or in promissory estoppel. NO remedy ever for party if TP has brought suit.

Set off Dollar value of intended beneficiary’s cause of action is $100,000. A has a counterclaim against B for breach of K worth $75,000. A may also establish counterclaim against B and use this counterclaim to diminish liability to intended beneficiary to difference between K claim and intended beneficiary claim by $25,000.

2. Assignment of rights to TP One of the parties, after K, seeks to assign his right to receive performance or delegate his duty to perform to an assignee/delegate not mentioned in K. Common law favors ability to assign and delegate. Consent of other party to K not required. Assignment or delegation is improper when result is to prejudice performance owed to other party. Oral is ok, and no consideration needed (but see revocation).

Prejudice Ex: Assignment of right by A to X to receive B’s performance, if this adds to or varies the performance that B consented to at the formation stage, no valid assignment. If delegation from B to Y of duties that B had contracted to A would prejudice the security A had enjoyed or the quality of the performance which A would receive, no appropriate case for delegation.

Present assignment: Manifestation of present intention by party to achieve present transfer of present rights to TP. > Rights transferred must be under a current K – not a future one, unless existing economic relationship. Subject matter must be clearly identified to TP. Assigning party must not retain any powers.

Present assignment Acts and words sufficient to define subject matter being transferred, A must wholly and immediately divest herself of all right, title, and subject matter and transfer that interest to X, this is the present assignment. Fact patterns: Questioning A the assignor. Whatever motivates A doesn’t matter. No present assignment unless A manifests intention to make assignment right here & right now. A statement from A to X that next week, I will assign my rights …this is not a present assignment.

Economic Relationship EX: In N. California, farmers go out and borrow money from banks every spring. They pledge as security the purchasers of their crops in the late fall. There is no K, but there is an established economic relationship between the farmers in Davis and the 5 cooperatives in Davis that habitually borrow their crops. So, as far as equity is concerned, an assignment has taken place. What the assignor has is bare legal title. The equitable interest belongs to the bank as the assignee. They may bring a suit to unite the equitable claim with the bare legal title.

Operative? Nonassigning party not bound if assignment materially alters nature or extent of duties or risk assumed. Example: Personal services usually can’t be assigned, nor can insurance policy coverage. Contract terms which restrict right to assign are invalid if assignee is a BFP who is ignorant of the prohibition term. Obligator must perform, but can bring suit against assignor for breach of covenant not to assign.

Modifying duties materially Ex: K between A and B. B is to render personal services to A. A has paid B a $15,000 annual retainer during which B has agreed to represent A’s legal interests during the calendar year 1990. It would obviously materially vary the nature of the duties that B had assumed in the K required obligor to render duties to someone else, instead of person of her selection.

Insurance Policy You are A. K insurance carrier is B. B has agreed to pay you if you suffer casualty loss. Suppose you attempt to assign the coverage of your policy to my 16-year old son. This would not discharge duties. But, it would dramatically increase the risk to the carrier that those conditional obligations would mature. Carrier could successfully refuse to recognize the assignment based on the material change and dimension of risk it assumed in forming the K with you; you could not make a present assignment. You cannot assign coverage of policy, but you could assign the right to receive the payment (changing the insurance beneficiary).

Contract terms which extinguish power to make the assignment are enforceable. This can be done by a rescission clause which revokes K upon assignment, or a provision which treats assignment as triggering an express condition subsequent which extinguishes other party’s duties. BFP assignee can sue assignor for breach of implied warranty that assignor has right and power to make present, operative assignment and won’t interfere with quiet enjoyment.

Revocable by assignor? Revocable if oral and no consideration. All other assignments are irrevocable. No right to revoke if in writing and writing is delivered to TP, even if no consideration. No right to revoke if consideration was paid (BFP), even if assignment was oral. TP who paid consideration can sue assignor for breach of implied warranty that assignor has right and power to make present, operative assignment and won’t interfere with quiet enjoyment. If multiple TP’s: Ones who paid value supersede those who don’t. Among value payers, in CA the first to provide notice of assignment to obligor wins; in the rest of America (the American Rule), the first person who paid consideration wins.

Remedy(Assignment) If obligor breaches, only assignee can sue, because assignee stands in the shoes of assignor. Any defenses which obligor could have brought against assignor can be used against assignee, including setoffs which matured at time of notice and counterclaims.

III. Delegation of duties to TP Subsequent to formation, one party (delegator) finds TP (delegate) to assume primary responsibility for value (K). Other party has an affirmative duty to cooperate in receiving performance from TP. TP’s breach gives other party the right to sue either TP as an intended beneficiary of the second contract, or delegator under the first contract (in which case delegator may implead delegate for breach). Delegation is null and void if materially prejudices or threatens the commercially reasonable interests of other party.