Donald R. Simon, Esq.

1
Business Law I

• Donald R. Simon, Esq.
• Adjunct Faculty
• KCKCC - Leavenworth Center

2
Business Law I

• Week 8
• Assignment of Ks.
• Delegation.
• Rights of third parties.
• Third party beneficiaries.

3
Business Law I

• Chap. 17
• Rights of
• Third Parties

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Chapter 17

• Rights of 3rd parties
• Since a K is founded on the consent of the
  contracting parties, it makes sense that they
  would be only ones with duties and rights under a
  K.
• However, there are 2 situations in which people
  who are not parties to a K may have legally
  enforceable rights
• Assignment and
• 3rd party beneficiaries.

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Chapter 17

• Assignment
• Obligor a person who owes a duty to perform
  under a K.
• Obligee a person to whom a duty is owed.
• Assignor person who transfers the right to
  receive obligors performance.
• Assignee person to whom the right to receive
  obligors performance is transferred.

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Chapter 17

• Assignment
• Transfer of a right under a K.
• E.g., Jane arranges for her employer to transfer
  her next paycheck to her parents bank account.
• Employer is the obligor (owes Jane money).
• Jane is the obligee and assignor.
• Janes parents are the assignees.

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Chapter 17

• Assignment

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Chapter 17

• Assignment
• The effect of the assignment is to extinguish the
  assignors right to receive performance and to
  transfer that right to the assignee.
• People assign rights for a variety of reasons
• To satisfy a debt to a 3rd party
• As a way to obtain financing (accounts
  receivable) or
• As a gift.

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Chapter 17

• Assignment
• Common law favors the freedom of assignment, so
  an assignment will generally be permitted unless
  there is an express prohibition against
  assignment in the K.
• Assignments may be made in any way sufficient to
  show assignors intent to assign.
• A writing is not necessary unless required by a
  statute of frauds.

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Chapter 17

• Assignment
• Assignee does not need to give consideration to
  assignor in exchange for the assignment.
• Assignment will not be effective if it
• Is contrary to public policy.
• Adversely affects obligor in some significant
  way.
• Violates a non-assignment clause in a K.

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Chapter 17

• Assignment
• Assignment may be ineffective if the K right
  involved a personal relationship or element of
  personal skill or character.
• When an assignment occurs, the assignee is said
  to step into the shoes of the assignor, meaning
  the assignee acquires all the rights that the
  assignor had under the K.

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Chapter 17

• Assignment
• Assignee should promptly notify the obligor of
  the assignment. Not a legal requirementjust
  good biz sense.
• An obligor who renders performance to the
  assignor without notice of the assignment has no
  further obligation under the K.
• An assignor who accepts performance from the
  obligor after the assignment holds any benefits
  in trust for the assignee.

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Chapter 17

• Delegation
• Appointment of another person to perform a duty
  under a K.
• E.g., Mike mows Janets lawn weekly. Mike
  becomes ill and arranges for Sonny to mow Janets
  lawn.
• Janet is the obligee.
• Mike is the obligor and delegator.
• Sonny is the delegatee.

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Chapter 17

• Delegation
• Obligor a person who owes a duty to perform
  under a K.
• Obligee a person to whom a duty is owed.
• Delegator person who appoints another to perform
  his/her duty to obligee.
• Delegatee person who is appointed to perform the
  obligors duty to the obligee.

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Chapter 17

• Delegation

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Chapter 17

• Delegation
• NOTE an assignment extinguishes the assignors
  right and transfers it to the assignee, but the
  delegation of a duty does not extinguish the duty
  owed by delegator.
• Delegator remains liable to the obligee unless
  the obligee agrees to make a new K substituting
  the delegatees for the delegator (called
  novation).

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Chapter 17

• Delegation
• Delegable duties
• A duty that can be performed fully by a number of
  different persons.
• Duties are not delegable if the delegation
• Is contrary to public policy or
• Is prohibited by a K clause.

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Chapter 17

• Delegation
• Delegable duties
• Also, duties that are dependent on the individual
  traits, skill, or judgment of the person who owes
  the duty to perform may not be delegable.
• E.g., a hip hop artist could not reasonably
  delegate concert obligation to an opera star.

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Chapter 17

• Delegation
• Delegable duties
• Similarly, an employee could not normally
  delegate his/her duties under an employment K to
  some 3rd person, b/c employment Ks are made with
  the understanding that the person the employer
  hire will perform the work.
• General contractor exception person hiring a
  general contractor would normally understand that
  at least some of the work would be delegated to
  subcontractors.

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Chapter 17

• Delegation
• Delegation may be made in any way that shows the
  delegators intent to delegate.
• Delegator may be discharged from performance by a
  substituted K (novation) in which obligee
  agrees to discharge original obligor and
  substitute a new obligor.
• Effect Original obligor has no further
  obligation.

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Chapter 17

• Third-Party Beneficiaries
• If parties to a K intended to benefit a third
  party, courts give effect to their intent
  permitting third party to enforce the K.
• E.g., Father contracts and pays for Homes, Inc.
  to build house as gift for Son.
• Son (third-party beneficiary) may sue Homes, Inc.
  if the company breaches the K.
• Father may also sue Homes, Inc.

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Chapter 17

• Third-Party Beneficiaries

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Chapter 17

• Third-Party Beneficiaries
• Incidental beneficiary obtaining a benefit as
  unintended by-product of a K.
• No rights under K.
• In foregoing example, Sons Wife would be an
  incidental beneficiary.

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Chapter 17

• Third-Party Beneficiaries
• Creditor beneficiary promisors performance is
  intended to satisfy a legal duty (usually a debt)
  to a 3rd party.
• Donee beneficiary a non-party who benefits from
  a promise that is made for the purpose of making
  a gift to him or her.

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Chapter 17

• Third-Party Beneficiaries
• Donee beneficiary
• A donor wishes to give a donee 200 as an
  anniversary present. The donor plans to sell a
  television set for 200 to a purchaser, who
  promises to pay the donee the 200 directly. The
  donee is a donee beneficiary of the purchasers
  promise to pay the money and may enforce this
  claim against the purchaser.

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Chapter 17

• Third-Party Beneficiaries
• Donee beneficiary
• The donee has no claim against the donor, the
  promisee, as the donor has no legal duty to the
  donee but is merely giving the donee a gift.
  However, the donor will be able to sue the
  purchaser for refusal to pay the donee, because
  it would be a breach of the terms of their K of
  sale.

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Chapter 17

• Third-Party Beneficiaries
• Vesting
• Once the beneficiarys rights have vested, the
  original parties to the K are both bound to
  perform the K.
• Any effort by the promisor or the promisee to
  rescind or modify the K at that point are void.
• Indeed, if the promisee changed his/her mind and
  offered to pay the promisor money not to perform,
  the third party could sue the promisee for
  tortious interference with the third partys K
  rights.

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Chapter 17

• Third-Party Beneficiaries
• Vesting
• There are 3 tests used to determine whether the
  third-party beneficiarys rights have vested
• If the beneficiary knows of and has detrimentally
  relied on the rights created
• If the beneficiary expressly assented to the K at
  the request of one of the parties or
• If the beneficiary files a lawsuit to enforce the
  K.

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Chapter 17

• Rights of 3rd Parties
• True or False?
• All duties may be delegated.
• False. Duties may not be delegated if delegation
  of the duty is contrary to public policy,
  prohibited by K, or the duty is unique to the
  obligor based upon individual traits, skill, or
  judgment of the person who owes the duty to
  perform.

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Chapter 17

• Rights of 3rd Parties
• True or False?
• Sheila assigned her right to the proceeds of a
  prize to a charity. Sheila is an assignee and
  the charity is the assignor.
• False. Sheila is the assignor and the charity is
  the assignee.

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Chapter 17

• Rights of 3rd Parties
• True or False?
• Joshua contracted with Bigg Homes, Inc. to build
  a two-story house that will improve the value of
  nearby homes. Joshuas neighbor is an incidental
  beneficiary.
• True. The neighbor will derive benefit from
  Joshuas home as an incidental beneficiary, but
  could not sue Joshua or Bigg Homes if either
  party to the K breaches the K. NOTE if the
  homebuilding caused damage to the neighbors
  house or devalued nearby homes, the neighbor may
  indeed have recourse under nuisance law or other
  property-based law.

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Chapter 17

• Rights of 3rd Parties
• Multiple choice
• James financed car purchase with CarCo, then sold
  the car to Marsha. Marsha agreed to pay
  remaining amount of the car loan, but failed to
  make payments. CarCo may sue
• James only since he contracted with CarCo.
• James and Marsha since CarCo is a creditor
  beneficiary of the contract between James and
  Marsha.
• Marsha only since Marsha was substituted for
  James.
• Answer b

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Chapter 17

• Rights of 3rd Parties
• Multiple choice
• Mack contracted with Dept. Store to play piano in
  the store. The K had a non-assignment clause.
  Mack got another job and delegated his duties to
  Sarah. Does Dept. Store have a valid claim
  against Mack?
• Yes. Mack breached the non-assignment clause by
  delegating his duties to Sarah.
• No. Mack found someone to replace him.
• No. The K didnt have a non-delegation clause.
• Answer a

34
Business Law I

• Week 9
• Performance of Ks.
• Breach of K.
• Remedies for non-performance.
• Quiz Chaps. 16, 17, and 18.