Week 4-2

Contracts —Third
Party Rights
 Introduction
Only the Parties to a contract have rights
and liabilities under the contract.
Exceptions:
Assignment or Delegation.
Third party beneficiary contract.
 §1: Assignments and
Delegations
How Do Assignments Functions?
Form of the Assignment.
Consideration.
Rights that Cannot be Assigned.
Notice of Assignment.
 Assignments [2]
Assignment - Transfer of rights in
bilateral contract to 3rd party.

Obligee/ Original Contract Formed Obligor

Assignor

Assignment

Duties Owed
After Assignment
Assignee
 Assignments [3]
Rights cannot be assigned:
If the assignment is contrary to statute.
When a contract is personal in nature.
If the assignment materially changes the rights
or duties of the obligor.
If the contract stipulates the right cannot be
assigned.
Valid notice must be given to all parties.
 Delegation
Contractual duties in a bilateral contract
that are delegated to a 3rd party.

Obligee Original Contract Formed Obligor

Duties Owed
After Delegation Delagatee
 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.
 Effect of a Delegation
Delegator remains liable.
Delegatee liable if delegation contract
creates a third party beneficiary
relationship in the obligee.
 Assignment of “All Rights”
Assignment of rights and a delegation of
duties.
§2: Third Party Beneficiaries
Original parties to the contract intend at
the time of contracting that the contract
performance directly benefits a third
person.
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.
 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.
 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.
• 3rd party’s right to control contract details.
• 3rd party expressly designated as beneficiary.
 Intended v. Incidental
Beneficiaries [2]
Incidental:
Contract between two parties is
unintentional.
Incidental beneficiary cannot sue to
enforce the contract.