Mastering the Bar Exam: Contracts & Sales Law - Third Party Rights and Obligations - Detailed Analysis (Module Six)

1. Assignment and Delegation.

Assignment of Rights.

Definition: Assignment involves transferring contractual rights from one party (assignor) to another (assignee).

Effectiveness: For an assignment to be effective, the assignor must intend to make the assignment and not merely promise to assign in the future.

Limitations: Assignments that materially change the duties or risks of the obligor, violate the law or public policy, or are prohibited by the contract itself, are not allowed.

Delegation of Duties.

Definition: Delegation is the transfer of contractual duties from one party (delegator) to another (delegatee).

Obligor’s Consent: Generally, contractual duties can be delegated without the obligor’s consent unless the contract prohibits delegation or the duties are highly personal in nature.

Delegator's Liability: The delegator remains liable to the obligee for the performance of the contractual duty.

Rights of the Assignee.

Rights Acquired: The assignee steps into the shoes of the assignor and acquires the rights under the contract.

Enforcement: The assignee can enforce the rights against the obligor, subject to the same defenses the obligor could have raised against the assignor.

Notification: It is generally advisable for the assignee to notify the obligor of the assignment to protect their rights.

Obligations of the Delegator.

Liability: The delegator remains liable for the performance of the contractual obligations unless the obligee agrees to release them and accept the delegatee as the new party to the contract.

2. Third-Party Beneficiary Contracts.

Third-party beneficiary contracts create rights or benefits for a person who is not a party to the contract.

Intended Beneficiaries.

Definition: Intended beneficiaries are those whom the contracting parties intend to benefit at the time of contracting.

Rights: Intended beneficiaries can enforce the contract if they meet certain criteria: the performance under the contract must satisfy a duty owed to the beneficiary, and the contract must clearly express an intention to benefit the third party.

Vesting of Rights: Rights of the intended beneficiary vest when they learn of and detrimentally rely on the contract, assent to it at the request of the parties, or file a lawsuit to enforce it.

Case Example: In Lawrence v Fox (1859), the court held that a third-party beneficiary could sue the promisor directly to enforce the promise.

Incidental Beneficiaries.

Definition: Incidental beneficiaries are third parties who may benefit from the performance of a contract but for whom the benefit was not intended.

Lack of Enforceable Rights: Incidental beneficiaries do not have rights to enforce the contract as they are not the intended focus of the contract.

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