Sometimes a person who entered into a contract must transfer the contract rights or duties to anothe

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Overview

• Sometimes a person who entered into a contract
  must transfer the contract rights or duties to
  another person (third party)
• Examples sublease of your apartment, asking
  another person take over work you agreed to do,
  or doing something to benefit a third person
• Key to successful transfer understand the third
  partys abilities, limitations, and needs

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Overview

• A person who owes a duty to perform under a
  contract is called an obligor
• The person to whom the duty is owed is called the
  obligee

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Assignment of Contracts

• Transfer of a right under a contract is called an
  assignment
• Example 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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Assignment Process
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Details of Assignment

• Assignments may be made in any way sufficient to
  show assignors intent to assign
• A writing is not necessary
• Unless statute of frauds applies
• Assignee does not need to give consideration to
  assignor in exchange for the assignment

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Limitations on Assignment

• Assignment will not be effective if it
• Is contrary to public policy
• Violates a non-assignment clause in a contract
• Adversely affects obligor in some significant way
• Assignment may be ineffective if the contract
  right involved a personal relationship or element
  of personal skill or character
• But see Managed Health Care Associates v. Kethan

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Managed Health Care Associates v. Kethan

• Facts Procedural History
• Kethan signed an employment agreement with
  MedEcon that contained a non-compete clause and
  requirement that modifications be in writing
• MHA purchased MedEcon and Kethan left to join
  First Choice, a customer with whom Kethan had
  developed a sales relationship
• MHA sought an injunction to prohibit Kethan from
  working for First Choice, but the district court
  denied the suit and MHA appealed

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Managed Health Care Associates v. Kethan

• Issue and Legal Reasoning
• First issue is whether MedEcons assignment of
  Kethans employment agreement modified the terms
  of his contract
• An assignment does not modify the terms of the
  underlying contract, thus did not modify Kethans
  employment agreement
• Second issue is whether a non-competition clause
  is assignable under Kentucky law
• Yes

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Managed Health Care Associates v. Kethan

• Holding
• Kethan was able to develop his business
  relationship with First Choice because MedEcon
  employed him and placed him in charge of the
  First Choice account
• Kethan is precisely the type of employee for whom
  noncompetition clauses were designed
• Reversed and remanded in favor of MHA

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Delegation of Duties

• Appointment of another person to perform a duty
  under a contract is called a delegation
• Example 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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Delegation of Duties

• Caution 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 contract
  substituting the delegatees for the delegator

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Delegation Process
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Effective Delegation

• In an effective delegation, performance by the
  delegatee will discharge the delegator
• The reason why you should understand the
  delegatees abilities and limitations

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Non-delegable Duties

• Duties are not delegable if the delegation
• Is contrary to public policy
• Is prohibited by a contract clause
• 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
• Example a hip hop artist probably could not
  delegate concert obligation to an opera star

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Details of Delegation

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

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Third-Party Beneficiaries

• If parties to a contract intended to benefit a
  third party, courts give effect to their intent
  permitting third party to enforce the contract
• Referred to as third-party beneficiary
• Example 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 contract
• Father may also sue Homes, Inc.

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Third-Party Beneficiary Diagram
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Incidental Beneficiaries

• Incidental beneficiary is one obtaining a benefit
  as unintended by-product of a contract
• No rights under contract
• In foregoing example, Sons Wife would be an
  incidental beneficiary

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Locke v. Ozark City Board of Ed.

• Facts Procedural History
• Locke, a high school teacher and umpire at high
  school games, was severely injured by a parent of
  a high school athlete after a game
• Locke sued the Board because (a) it failed to
  provide adequate police protection as required
  by the Alabama High School Athletic Assoc., (b)
  such failure was a breach of contract between
  Board and AHSAA, and (c) Locke was an intended
  third-party beneficiary of the contract
• Trial court entered summary judgment for Board
  and Locke appealed

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Locke v. Ozark City Board of Ed.

• Issue
• Was Locke a third-party beneficiary?
• Law Applied to Facts
• Locke must show 1) contracting parties intended
  direct benefit upon a third party 2) Locke was
  an intended beneficiary of the contract 3)
  contract was breached, and 4) contract was
  intended for his direct, as opposed to
  incidental, benefit
• Contract states that the purpose of adequate
  police protection is to provide good game
  administration and supervision.

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Locke v. Ozark City Board of Ed.

• Holding
• Based on the plain language of the contract and
  the surrounding circumstances, the contract
  anticipates third-party umpires, the contract was
  intended to directly benefit umpires like Locke
• Reversed and remanded in favor of Locke

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