THIRD PARTIES AND CONTRACTS

1
THIRD PARTIES AND CONTRACTS

• PRIVITY OF CONTRACT ONLY PARTIES TO CONTRACT
  HAVE RIGHTS OR DUTIES UNDER THE CONTRACT
• THIRD PARTIES CANNOT SUE OR BE SUED FOR BREACH OF
  CONTRACT

2
THIRD PARTIES AND CONTRACTS

• EXCEPTIONS TO PRIVITY RULE
• THIRD PARTIES CAN ACQUIRE RIGHTS OR ASSUME DUTIES
  UNDER A TRANSFER OF THOSE RIGHTS OR DUTIES
• THIRD PARTY BENEFICIARIES HAVE RIGHTS UNDER A
  CONTRACT

3
ASSIGNMENTS

• TRANSFER OF CONTRACT RIGHTS TO A THIRD PARTY
• ASSIGNOR PERSON TRANSFERRING THE RIGHTS
• ASSIGNEE PERSON ACQUIRING THE RIGHTS
• OBLIGOR PERSON OBLIGATED TO PROVIDE CONTRACT
  RIGHTS

4
ASSIGNMENTS

• General rule - Contract rights are freely
  transferable
• No need to get consent from other party to
  contract
• Exceptions
• Contracts and statutes can restrict transfer
• Some contract rights by their nature are not
  freely transferable

5
ASSIGNMENTS

• Contract Rights Not Freely Transferable
• Where transfer will increase risk or burden to
  other party
• Credit transactions
• Liability insurance
• Highly personal transactions
• Partnership agreements

6
ASSIGNMENTS

• Notice of assignment essential for assignee to
  give notice of the assignment for it to be
  legally binding on obligor
• Rights of assignee stands in shoes of
  assignor
• Assignee acquires only rights that assignor had
  under the contract
• Assignee is subject to any contract defenses and
  setoffs that obligor had against the assignor

7
DELEGATION

• TRANSFER OF DUTIES TO A THIRD PARTY
• Delegator person making the transfer of duties
• Delegatee person to whom the duties are
  transferred
• Obligee Person entitled to performance of the
  duties under the contract

8
DELEGATION

• General rule - duties under a contract are freely
  transferable
• Need not get the consent of the other party
• Some duties are not freely transferable
• Contract and statutory limitations
• Nature of the duties makes them nontransferable
  without consent

9
DELEGATION

• Duties not freely transferable
• Duties dependent upon personal skill or judgment
• Professional services
• Duties that require specialized skill
• Highly personal duties

10
DELEGATION

• Liability of the Parties
• Delegator
• Remains liable for performance of the contract
  duties unless there is a novation
• Cannot escape obligations under a contract by
  transferring them to someone else

11
NOVATION

• Substitution of parties under a contract
• Requires consent of one party to release existing
  party and substitute a third party in his or her
  place
• Legal effect discharge existing party from
  obligations under the contract

12
Liability of the Delegatee

• Liable to delegator for performance
• E.g., subcontractor liable to contractor for
  performance of subcontract
• Not liable to obligee unless there is an
  assumption of duties
• E.g., subcontractor not directly liable to owner
  for performance of work

13
ASSUMPTION OF DUTIES

• Can be express (assumption contract) or implied
• Assignment of rights and duties generally
  entails an assumption of duties as well
• E.g., a transfer of the contract to a third
  party

14
THIRD PARTY BENEFICIARY CONTRACTS

• CONTRACT ENTERED INTO FOR THE BENEFIT OF A THIRD
  PARTY
• THIRD PARTY BENEFICIARY HAS RIGHTS UNDER THE
  CONTRACT

15
INTENTIONAL V. INCIDENTAL BENEFICIARIES

• INTENTIONAL BENEFICIARY
• HAS RIGHTS UNDER THE CONTRACT
• INCIDENTAL BENEFICIARY
• BENEFITS FROM THE CONTRACT BUT HAS NO RIGHTS
  UNDER IT

16
INTENTIONAL BENEFICIARIES

• CREDITOR BENEFICIARY
• PARTIES INTEND TO PAY A DEBT OR SATISFY
  OBLIGATION TO A THIRD PARTY UNDER THE CONTRACT
• E.G., ASSUMPTION CONTRACTS E.G., PURCHASER OF
  BUSINESS WHO ASSUMES ITS DEBTS, CREDITORS ARE
  THIRD PARTY BENEFICIARIES

17
INTENTIONAL BENEFICIARIES

• DONEE BENEFICIARY
• PARTIES INTEND TO MAKE A GIFT TO A PERSON UNDER
  THE CONTRACT
• E.G., LIFE INSURANCE WHERE PROCEEDS ARE PAYABLE
  TO A FAMILY MEMBER