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Chapter 15 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.

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chapter 15 contracts third party rights
Chapter 15

Contracts: Third Party Rights

  • 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
§1: Assignments and Delegations
  • Transfer of contractual rights is an assignment.
  • Transfer of contractual duties is a delegation.




Original Contract Formed


Duties Owed

After Assignment



Assignment - Transfer of rights in bilateral contract to 3rd party.

  • Rights cannot be assigned:
    • If the assignment is contrary to statute.
    • When a contract is personal in nature.
    • Assignment materially changes rights or duties of obligor.
    • If the contract stipulates the right cannot be assigned. Case 15.1:Forest Commodity v. Lone Star (2002).
  • Valid notice must be given to all parties.
    • Case 15.2:Gold v. Ziff Communications (2001).



Original Contract Formed

Duties Owed

After Delegation


  • Contractual duties in a bilateral contract that are delegated to a 3rd party.
duties that cannot be delegated
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
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 “All Rights”
  • Assignment of rights and a delegation of duties.
2 third party beneficiaries
§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
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
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 v. IncidentalBeneficiaries
  • 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
Intended v. IncidentalBeneficiaries [2]
  • Incidental.
    • Contract between two parties is unintentional.
    • Incidental beneficiary cannot sue to enforce the contract.
  • Case 15.3:Vogan v. Hayes Appraisal Associates, Inc. (1999).
law on the web
Law on the Web
  • “SmartAgreements” website.
  • New York Law Journal article on assignments.
  • Legal Research Exercises on the Web.