BUSINESS LAW
Twomey • Jennings 1 st Ed.
© 2004 West Legal Studies in Business
A Division of Thomson Learning

BUSINESS LAW
Twomey • Jennings 1 st Ed.
• When a contract shows a clear intent to benefit a third person or class of persons, those persons are called intended third party beneficiaries.
• A third party beneficiary is subject to any limitation or restriction found in the contract.
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
• 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.
• Intended third party beneficiaries may sue for breach of the contract.
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
• Creditor Beneficiary: a party to a contract is obligated to perform a duty to a third party beneficiary.
• Donee Beneficiary: promisee’s purpose in making the contract is to make a gift to a third party beneficiary.
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
Examples:
Roy premiums insurance
Phoenix
Insurance benefits
Donee
Beneficiary
Roy’s son
Max
Business sold to Harry
Money paid for business
Harry
Creditor
Beneficiary benefits The prior creditors of the business
(Harry takes over debts.)
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
• In contrast, an incidental beneficiary benefits from the performance of a contract, but the conferring of this benefit was not guaranteed by the contracting parties.
• An incidental beneficiary cannot sue on the contract.
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
Examples:
Roy premiums insurance
Phoenix
Insurance benefits
The insurance agent’s wife, who benefits from the agent’s salary.
Max
Business sold to Harry
Money paid for business
Harry benefits The owners of the businesses nearby, whose business increases due to increases in Harry’s business.
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
• An assignment is a transfer of a right; the assignor transfers a right to the assignee.
– Usually, there are no formal requirements for an assignment. Any words manifesting the intent to transfer are sufficient.
– 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.
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
• Assignor: absent an agreement to the contrary, an assignor remains liable on the original contract.
• Assignee: generally no liability.
Jackson v Dewitt (1999) The Pool and the Agreement Will Not Hold
Any Water.
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
Obligor owes money to obligee.
Obligee assigns claim to assignee (obligee becomes assignor).
Obligor pays assignor (original obligee) instead of assignee.
Yes
Has obligor been informed of assignment and been notified to pay assignee??
Money paid to assignor does not reduce or cancel obligor’s liability to assignee.
Assignee can sue assignor for money paid by obligor after assignment.
No
Money paid by obligor reduces or cancels liability .
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
Assignment of Right to
Money
Prohibition in Government
Contracts
Assignment of Right to
Performance
Increase of Burden
Personal Satisfaction
Personal Services
Credit Transaction
Delegation of Duties
Personal or Nonstandardized
Performance
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BUSINESS LAW
Twomey • Jennings 1 st Ed.
• 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 fact that there has been a delegation of duties does not release the assignor from responsibility for performance.
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