What is the difference between an assignment and a delegation? What is the difference between an assignment and a delegation? If a contract requires a party to perform personal services, can the right to receive those services be assigned? Why or why not?  If a contract requires a party to perform personal services, can the right to receive those services be assigned? Why or why not?  © 2012 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. 2

What rights can be assigned despite a contract clause expressly prohibiting assignment? What rights can be assigned despite a contract clause expressly prohibiting assignment? What factors indicate that a third party beneficiary is an intended beneficiary?  What factors indicate that a third party beneficiary is an intended beneficiary?  © 2012 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. 3

How do a third party beneficiary’s rights become vested so that this party can sue to enforce the contract? How do a third party beneficiary’s rights become vested so that this party can sue to enforce the contract? © 2012 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. 4

Privity of Contract: only original parties to a contract have rights and liabilities under the contract. Privity of Contract: only original parties to a contract have rights and liabilities under the contract. Exceptions: Exceptions: – Assignment or Delegation.  – Third party Beneficiary Contract.  © 2012 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. 5

Terminology: Terminology: – Assignor: party assigning rights to third party. – Assignee: party receiving rights. – Obligee: person to whom a duty or obligation is owed. – Obligor: person who is obligated to perform the duty. © 2012 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. 6

Effect of An Assignment. Effect of An Assignment. – When rights of assignor are unconditionally assigned, her rights are extinguished. – The third party (assignee) has right to demand performance from original party to contract.  © 2012 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. 7

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Rights That Cannot be Assigned: Rights That Cannot be Assigned: – When a Statute Expressly Prohibits Assignment. – When a Contract is Personal in Nature. – When an Assignment Will Significantly Change the Risk or Duties of the Obligor. – When The Contract Prohibits Assignment. © 2012 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. 9

Notice of Assignment. 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? Obligor can discharge his obligation by performance to assignor. © 2012 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. 10

Contractual duties in a bilateral contract that are delegated to a third party. Contractual duties in a bilateral contract that are delegated to a third party. Terminology: Terminology: – Delegator: party making the delegation of duty. – Delegatee: party to whom the duty is owed. © 2012 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. 11

© 2012 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. 12

Duties That Cannot Be Delegated. Duties That Cannot Be Delegated. – When performance depends on the person skills or talents of the obligor. – When special trust has been placed in the obligor. – When performance by a third party will vary materially from that expected by the obligee under the contract.  © 2012 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. 13

Duties That Cannot Be Delegated. Duties That Cannot Be Delegated. – When the Contract Expressly Prohibits Delegation. – When the Duties are Personal in Nature (special trust). – When Performance by a Third Party Will Vary Materially From that Expected by the Obligee. – When the Contract Prohibits Delegation. © 2012 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. 14

Effect of a Delegation. Effect of a Delegation. – Delegator remains liable. – Delegatee is liable if delegation contract creates a third party beneficiary relationship in the obligee. © 2012 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. 15

“Assignment of All Rights.” “Assignment 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. Senna Hills, Ltd. v. Sonterra Energy Corp. – CASE 17.1 Senna Hills, Ltd. v. Sonterra Energy Corp. (2010). © 2012 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. 16

2 nd Exception to Privity of Contract. Original parties to the contract intend at the time of contracting to directly benefit a third person. 2 nd Exception to Privity of Contract. Original parties to the contract intend at the time of contracting to directly benefit a third person. © 2012 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. 17

Types of Intended 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). Allan v. Nersesova – CASE 17.2 Allan v. Nersesova (2010). Why was Allan a creditor beneficiary? © 2012 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. 18

Types of Intended Beneficiaries (cont’d). Types of Intended Beneficiaries (cont’d). – 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. – Today: distinguish only between intended and incidental beneficiaries. © 2012 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. 19

When the Rights of an Intended Beneficiary Vest. 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. TPB demonstrates consent to the promise at request of promisor/promisee. © 2012 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. 20

When the Rights of an Intended Beneficiary Vest (cont’d). When the Rights of an Intended Beneficiary Vest (cont’d). – If contract reserves rights to contracting parties to rescind, cancel, or modify the contract the TPB’s rights also change. © 2012 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. 21

© 2012 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. 22

Intended Versus Incidental Beneficiaries. Intended Versus Incidental Beneficiaries. – Intended : promisee intended to confer on the beneficiary the right to bring suit to enforce the contract. Factors: – Performance is rendered directly to TPB. – TPB’s right to control contract details. – TPB expressly designated as beneficiary. © 2012 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. 23

Intended Versus Incidental Beneficiaries. Intended Versus Incidental Beneficiaries. – Incidental : TPB’s benefit from contract between two parties is unintentional. Incidental beneficiary cannot sue to enforce the contract. Revels v. Miss America Organization CASE 17.3 Revels v. Miss America Organization (2007). Why wasn’t Revels an intended beneficiary? © 2012 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. 24