Chapter 16 Contracts—Third Party Rights BUSINESS LAW: Text & Cases — Legal, Ethical, International, and E-Commerce Environment 11 th Ed. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

2Introduction  Only the Parties to a contract have rights and liabilities under the contract.  Exceptions: –Assignment or Delegation. –Third party beneficiary contract.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 §1: Assignments and Delegations  Transfer of contractual rights is an assignment.  Transfer of contractual duties is a delegation.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4Assignments An Assignment is a transfer of rights in a bilateral contract to a third party.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5Assignments  Form of the Assignment. –CASE 16.1 Martha Graham School and Dance Foundation, Inc. v. Martha Graham Center of Contemporary Dance (2004).

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6Assignments  Rights that cannot be assigned: –If the assignment is contrary to statute. –When a contract is personal in nature. –Assignment materially changes rights or duties of obligor. –If the contract stipulates the right cannot be assigned.  Notice of Assignment.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7Delegations  Contractual duties in a bilateral contract that are delegated to a third party.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 Duties That Cannot be Delegated  When special trust has been placed on the obligor.  When performance requires personal skill or talents.  When performance will vary materially from obligee expectations.  When the contract expressly prohibits delegation.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 Effect of a Delegation  Delegator remains liable.  Delegatee liable if delegation contract creates a third party beneficiary relationship in the obligee.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Assignment of “All Rights”  Assignment of rights and a delegation of duties.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 §2: Third Party Beneficiaries Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person. Original parties to the contract intend at the time of contracting that the contract performance directly benefits a third person.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Types of Intended Beneficiaries  Creditor Beneficiaries.  Donee Beneficiaries.  Modern View: Does not draw such clear lines and distinguishes only between intended beneficiaries and incidental beneficiaries.  Determining whether a third party is intended or incidental: CASE 16.2 Midwestern Indemnity Co. v. Systems Builders, Inc. (2004).

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 The Vesting of an Intended Beneficiary’s Rights  For third party beneficiary contract to be effective, rights under the contract must vest: –Third party’s manifesting assent to the contract. –Third party’s materially altering position in detrimental reliance on the contract.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Determining Third Party Status

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 Intended v. 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 3rd party.Performance is rendered directly to 3rd party. 3rd party’s right to control contract details.3rd party’s right to control contract details. 3rd party expressly designated as beneficiary.3rd party expressly designated as beneficiary.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 Intended v. Incidental Beneficiaries  Incidental. –Contract between two parties is unintentional. –Incidental beneficiary cannot sue to enforce the contract. –CASE 16.3 Revels v. Miss America Organization (2007).