THIRD PARTIES' CONTRACT RIGHTS
I. Assignment of Contracts
When rights under a contract are transferred, this is called an assignment. The person who
makes an assignment is the assignor, and the person who accepts the assignment is called the
B. What Contracts Are Assignable?
Most, but not all, contracts are assignable.
1. If the assignment would materially alter the duties of the promisor, the assignment contract is
2. Contracts involving personal rights are generally non-assignable.
3. Contracts that expressly forbid assignment are non-assignable.
4. Assignments contrary to public policy are non-assignable.
Example: Travelers Casualty and Surety Co., Inc. v. U.S. Filter Corp.: Because the insurer’s did
not consent to the assignment, the non-assignment without consent clause prevented the
II. Consequences of Assignment
A. The Rights and Duties of Assignees
An assignee can assert the original rights of the assignor against the promisor. It is the
responsibility of the assignee to notify the obligor of the assignment.
B. Delegation of Duties
Like assignment, not all duties are delegable.
Example: Riegleman v. Krieg: A patient was found to have delegated his duty to pay his law
1. The promisor who delegates duties is still liable to the promisee if the delegate fails to
2. A novation releases one of the original contracting parties from the contract.
III. Third-Party Beneficiary Contracts
A. There are two types of third-party beneficiaries under a contract: Intended and Incidental.
An Intended beneficiary is either a donee or creditor beneficiary, and acquires rights to enforce
the original contract depending on which category of beneficiary he/she is.
B. Donee Beneficiaries
A Donee Beneficiary is a beneficiary of a contract where the promisee's primary purpose was to
make a gift to the third party. A donee beneficiary can enforce the contract against the original
promisor, but not promisee.
Example: Caba v. Barker: Residual beneficiaries of a will are held to be donee beneficiaries of
the contract between the testator and her attorney to make the will invulnerable to contest.
C. Creditor Beneficiaries
If the promisor’s performance will satisfy a legal duty that the promisee owes a third party, the
third party is a creditor beneficiary and may enforce the contract against both the promisee and
17-1 D. Incidental Beneficiaries
An Incidental beneficiary acquires no contract rights.
Example: Audler v. CBC Innovis Inc.: Although flood insurance would cover the loss of Audler,
the purpose of requiring flood insurance was to protect the lender. Audler would be an incidental
beneficiary of the law.
1. You should be able to compare contract rights and duties with assignment and delegation of rights
2. You should understand the difference between contract rights and duties which are assignable or
delegable and those which are not.
3. You should understand the difference between creditor and donee beneficiaries, and incidental
4. You should understand who the assignor, assignee, and promisor are in the context of an assignment,
and what the rights and duties of each are after the assignment occurs.
5. You should understand exactly what a delegation of duties involves and what the rights and duties of
the parties are after the delegation occurs.
6. You should know why the assignee should give notice of the assignment to the promisor.
7. You should know what implied warranties an assignor who is paid for the assignment to the assignee
8. You should know which types of contract rights are nonassignable.
9. You should know which types of contract duties may not be delegated.
10. You should know how to prohibit assignments and delegations to a contract.
1. In every bilateral contract situation there is a promisor and promisee, and each party has
corresponding rights and duties. Thus either party (or both) may generally assign rights and transfer
duties to a third party, who then acquires certain rights and duties under the contract.
2. A delegate of a duty under a contract must consent to that delegation and assume the duty under the
contract in order to be obligated to the promisee.
3. An assignment of rights generally includes a delegation of duty under the UCC and the Restatement.
4. Public policy favors assignment, and anti-assignment clauses are strictly construed and may be
unenforceable in some cases for public policy reasons.
5. A third-party beneficiary will only acquire contract rights if he/she is an intended beneficiary. An
example of an intended beneficiary is the beneficiary under a life insurance contract.
6. Remember that an assignment does not require formalities, a writing, or consideration to be valid.
7. Assignments are not permitted in situations where the assignment would materially change the
promisor's duty or the promisor's risk. This means that an assignment of an insurance contract by
the party who is both the insured and the beneficiary to another who becomes both insured and
beneficiary would be invalid.
8. An example of a situation in which a delegation of duties would be invalid because it is a delegation
of duties which depend on personal skill, character, or judgment would be a situation in which B,
who is an artist, assigns his contract to paint A's portrait to C, who is not an artist.
9. Remember that the assignee must give notice of the assignment to the promisor or the promisor is not
bound to render performance to the assignee. This means that if the promisor renders performance to
the assignor because he has not been notified of the assignment, the promisor is discharged and the
assignee would be forced to sue the assignor to obtain the assigned benefit.
17-2 10. If a duty is properly delegated but the assignee fails to render performance to the promisor, the
assignor is still liable to the promisor, and will therefore be legally required to render performance
himself. Then the assignor would be forced to sue the assignee to obtain reimbursement for his
performance of the delegated duties.
In the blank provided, put "T" if the statement is True or "F" if the statement is False.
_____ 1. Delegation of contract duties generally extinguishes the contract obligations of the delegating
_____ 2. Assignment of rights generally includes delegation of duty.
_____ 3. A transfer of rights under a contract is called a delegation.
_____ 4. An assignment of rights for consideration generally includes an implied warranty that the
claim is valid.