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Third Party Rights in Contracts. Assignment. (p. 307 example). employment. Mimi benefit. Trevor detriment. Trevor now pays Natalie. $200. $200 benefit. Natalie. Delegation. ice. Ice Cream Factory benefit. Ida’s Ice detriment. Delegation of duty to supply ice. payment. ice.

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third party rights in contracts
Third Party Rights in Contracts


(p. 307 example)






Trevor now

pays Natalie


$200 benefit




Ice Cream



Ida’s Ice


Delegation of

duty to supply ice



Mr. Ice

payment if assignment too

Third Party Beneficiary

(p. 304 example)




Phoenix Insurance

Roy’s son








Metropolitan Medical



Chapter 18

payment of medical bills

discharge of an assigned obligation
Discharge of an Assigned Obligation

Obligor owes money to obligee.

Obligee assigns claim to assignee (obligee becomes assignor).

Obligor pays assignor money due.

Has obligor been informed of assignment and been notified to pay assignee??



Money paid by

obligor reduces

or cancels liability.

Money paid does

not reduce or

cancel liability.

Assignee can sue

assignor for money

paid by obligor

after assignment.

Chapter 18

limitations on transfer of rights and duties
Limitations on Transfer of Rights and Duties

Assignment of Right toMoney

Delegation of Duties

Assignment of Right toPerformance

Increase of Burden

Personal Satisfaction

Personal Services

Credit Transaction

Personal or Nonstandardized


Prohibition in Government


Chapter 18

can a third person sue on a contract
Can a Third Person Sue on A Contract?

Third Party Beneficiary

X Beneficiary

Incidental Beneficiary

Right to Money

Y Assignee

Right to Performance



A and B

Increased Burden

Personal Satisfaction

Personal Services

Credit Transaction

Standardized Nature

Z Delegee

Personal Nature

Chapter 18

what a third party beneficiary must prove
What a Third Party Beneficiary Must Prove



Binding ContractBenefiting Intent

Compliance with Contract Procedure

Beneficiary’s Loss

Suit within Contract Time Limitation

Suit within Statute of Limitations

Third Party

Chapter 18

chapter 18 summary
Chapter 18 Summary

Ordinarily, only the parties to contracts have rights and duties with respect to such contracts. Exceptions are made in the case of third party beneficiary contracts and assignments.

Chapter 18

chapter 18 summary cont
Chapter 18 Summary (cont.)

When a contract shows a clear intent to benefit a third person or class of persons, those persons are called third party beneficiaries, and they may sue for breach of the contract. A third party beneficiary is subject to any limitation or restriction found in the contract. A third party beneficiary loses all rights when the original contract is terminated by operation of law or if the contract reserves the right to change beneficiaries and such a change is made.

Chapter 18

chapter 18 summary cont8
Chapter 18 Summary (cont.)

In contrast, an incidental beneficiary benefits from the performance of a contract, but the conferring of this benefit was not intended by the contracting parties. An incidental beneficiary cannot sue on the contract.

Chapter 18

chapter 18 summary cont9
Chapter 18 Summary (cont.)

An assignment is a transfer of a right; the assignor transfers a right to the assignee. In the absence of local statute, there are no formal requirements for an assignment. Any words manifesting the intent to transfer are sufficient to constitute an assignment.

Chapter 18

chapter 18 summary cont10
Chapter 18 Summary (cont.)

No consideration is required. Any right to money may be assigned, whether the assignor is entitled to the money at the time of the assignment or will be entitled or expects to be entitled at some time in the future. By the modern view, a contract term prohibiting the assignment of a right to money is invalid and does not prevent the making of an assignment.

Chapter 18

chapter 18 summary cont11
Chapter 18 Summary (cont.)

A right to a performance may also be assigned except when it would increase the burden of performance, when performance under the contract is to be measured by the personal satisfaction of the obligee, or when the contract involves the performance of personal services or the credit of the person entitled to the performance.

Chapter 18

chapter 18 summary cont12
Chapter 18 Summary (cont.)

When a valid assignment is made, the assignee has the same rights—and only the same rights—as the assignor. The assignee is also subject to the same defenses and setoffs as the assignor had been.

Chapter 18

chapter 18 summary cont13
Chapter 18 Summary (cont.)

The performance of duties under a contract may be delegated to another person except when a personal element of skill or judgment of the original contracting party is involved. The intent to delegate duties may be expressly stated.

Chapter 18

chapter 18 summary cont14
Chapter 18 Summary (cont.)

The intent may also be found in an “assignment” of “the contract” unless the circumstances make it clear that only the right to money was intended to be transferred. The fact that there has been a delegation of duties does not release the assignor from responsibility for performance.

Chapter 18

chapter 18 summary cont15
Chapter 18 Summary (cont.)

The assignor is liable for breach of the contract if the assignee does not properly perform the delegated duties. In the absence of an effective delegation or the formation of a third party beneficiary contract, an assignee of rights is not liable to the obligee of the contract for its performance by the assignor.

Chapter 18

chapter 18 summary cont16
Chapter 18 Summary (cont.)

Notice is not required to effect an assignment. When notice of the assignment is given to the obligor together with a demand that future payments be made to the assignee, the obligor cannot discharge liability by payment to the assignor.

Chapter 18

chapter 18 summary cont17
Chapter 18 Summary (cont.)

When an assignment is made for a consideration, the assignor makes implied warranties that the right assigned is valid and that the assignor owns that right and will not interfere with its enforcement by the assignee. The assignor does not warrant that the obligor on the assigned right will perform the obligation of the contract.

Chapter 18