12.

Law for Business, 17e

by Ashcroft and
Ashcroft

Chapter 12:
Third Parties and
Contracts
 12.2

Chapter 12 Objectives
 Discuss the difference between a third-party
beneficiary contract and a novation.

 Explain the difference between assignment of a

contract and delegation of duties under it.

 Describe the different types of contracts involving

more than two people.
 12.3

1. Third Party Beneficiaries

 Third party beneficiary is whom the parties to contract agree/
intend to benefit.

 To have the rights of benefit under the contract, the third

party must show that the parties to contract agree to benefit
him
 Ex:
• A kid doesn’t have money to pay the tuition fee, her/his parents are
the ones who pay the fee for the study. The kid is the third party
beneficiary.
• Parents buy their kid an insurance. The kid is not party to contract
but the kid is the third party beneficiary who have benefit from the
contract.
 12.4

1. Third Party Beneficiaries

 Creditor beneficiary: is a person to whom the promisee owes
an obligation or duty which will be discharged to the extent
that promisor performs promise.
• Ex: B (Promisee) owes C a debt. A (promisor) buy a house from
B and owe B a duty to pay for the house. If it’s indicated in the
contract that A take all the duty to pay B’s debt to C, C will be
the creditor beneficiary.

 Donee beneficiary: is the one to whom the promisee owes

no legal duty but to whom performance is a gift

 Incidental beneficiary: incidentally benefits promisee

 12.5

2. Ways to Involve Third Parties

 Novation is the termination of a contract (both rights and

duties) and substitution of a new one with the same terms
but with a new party.
• Need to have agreements from all parties to a contract
 12.6

2. Ways to Involve Third Parties

 Assignment is the transfer of rights in a contract to a person not a
party.
• Assignor: the party making assignment
• Assignee (third party): a person to whom contract right is assigned

 Rules:
• The assignee must notify the promisor about the assignment
• The promisee have to ensure the valid rights and good title of the
rights (no disputes)
• The promisee doesn’t need to ensure that the promisor will
implement the duties.

 Prohibition: Often, Statues in many states prohibit the assignment of

wages; personal service; the pay of public officials; future pay by
soldiers, sailors or prohibition in contract…
 12.7

2. Ways to Involve Third Parties

 Delegation is the transfer of duties without transfer of rights.
 Rule:
• The third party don’t need to notify the promisee about the
transfer of duties
• The transfer of duty to the third party doesn’t release the
promisor from the full duty under the contract. If any bad
performance or breach of contract, the promisor will be fully
liable. The promisor may then sue the third party.
# VN: after delegation of duties, the promisor has no duties to the
promisee, but the delegation must be agreed by the promisee.
• Only when performance is standardized may one delegate its
performance to another.
 12.8

2. Ways to Involve Third Parties

 Prohibition of Delegation
- Indicated in a contract
- Delegation of wage
- Personal services or fields that the performance is hard to be
determined by recognized standard. Ex: education, music, art,
heath… except the approval of the promisee.

 The assignment or transfer cannot modify rights transferred

by assignment and duties transferred by delegation.
 12.9

3. Types of Third Party Contracts

Joint contracts - obligate two or more

people together toward performance

Several contracts - when parties agree to

perform the same obligation

Joint and several contracts - bind two or

more people jointly and severally
 12.10

3. Types of Third Party Contracts

 Joint Contracts
• A contract in which 2 or more people have all promised the entire
performance, which is the subject of the contract.

• Each obligator is bound for the performance of the entire

obligation

• 2 or more people are jointly entitled to the performance of another

party/ parties.

 Several contracts
• A contract when 2 or more people individual agree to perform the
same obligation even though the individual agreements are
contained in the same document
 12.11

3. Types of Third Party Contracts

 Joint and Several contracts
• A contract in which 2 or more people are bound both jointly and
severally.

• The other party to contract may treat the obligation as either a

joint obligation or as a group of individual obligations and may
bring suit against all or any one or more of them at one time.

• This kind of contract is applied often. If no indication among

parties to the contract, it is assume joint and several contract.

• Popular in VN (Nghĩa vụ liên đới)

 12.12

The End

Make sure you

understand the concepts
in this chapter.