Third-Party Rights to Contracts

Chapter 19Third-Party Rights to ContractsCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Obligor and Obligee (Definitions):Obligor: Contractual party who owes duty to other party in privity of contractObligee: Contractual party owed duty from other party in privity of contractAssignment (Definitions):Assignment: Transfer of rights under a contract to a third partyAssignor: Party to contract who transfers his/her rights to a third partyAssignee: Party (not in privity of contract) who receives transfer of rights to a contractContractual Rights That Cannot Be AssignedRights that are personal in natureRights that would increase obligor’s risks/dutiesRights in a contract that, by its terms, expressly forbids assignmentsRights whose assignment prohibited by law/public policyDelegation (Definitions):Delegation: Transfer of duty under a contract to a third partyDelegator: Party to a contract who transfers his/her duty to a third partyDelegatee: Party (not in privity of contract) who receives transfer of duty to a contractContractual Duties That Cannot Be AssignedDuties personal in natureDuties resulting in performance substantially different from that which obligee originally contracted (i.e., delegatee’s performance will vary significantly from delegator’s)Duties in a contract that expressly forbids delegationThird Party Beneficiary Contracts (Definitions):Intended Beneficiary: Third party to contract whom contracting parties intended to benefit directly from contract. Intended beneficiaries can sue to enforce contract obligationsPromisor: Party to contract who made promise that benefits third partyPromisee: Party to contract who owes something to promisor in exchange for promise made to third-party beneficiaryCreditor beneficiary. Third party who benefits from contract in which promisor agrees to pay promisee’s debtDonee beneficiary: Third party who benefits from contract in which promisor agrees to give a gift to third partyVesting: Maturing of rights, such that a party can legally act on the rightsIncidental Beneficiary: Third party who unintentionally gains benefit from contract between other parties. Contracting parties do not intend to benefit incidental beneficiary. Incidental beneficiaries cannot sue to enforce contract obligationsCreditor Versus Donee Beneficiaries Creditor BeneficiaryContractual performance fulfills obligation to third partyEnforcement of rightsBeneficiary can enforce rights to contract if contract valid and rights have vestedBeneficiary can enforce rights against promisor or promisee Donee BeneficiaryContractual performance gives a gift to third partyBeneficiary has limited ability to enforce contract (depending on jurisdiction)Beneficiary can enforce rights against promisorIntended Versus Incidental Beneficiaries Intended BeneficiaryContracting parties intended to benefit third party with their contractBeneficiary has right to enforce contractBeneficiary benefits from direct reception of contractual performance Incidental BeneficiaryContracting parties did not intend to benefit third party with contractBeneficiary does not have right to enforce contractBeneficiary benefits from indirect circumstances created by contractual performance