Unit 3: Conditions and Third
Party Contracts
1
Introduction
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Only the Parties to a contract have
rights and liabilities under the contract.
Exceptions:
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Assignment or Delegation.
Third party beneficiary contract.
2
Conditions
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How does a party know when his or her obligations
under the contract are at an end?
A party may be discharged from a valid contract by:
 A condition occurring or not occurring.
 Full performance or material breach by the other
party.
 Agreement of the parties.
 Operation of law.
3
Conditions
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
Conditions
Possible future event, the
occurrence or nonoccurrence of
which will trigger the performance
of a legal obligation or terminate an
existing obligation under a
contract.
4
Assignments and
Delegations
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Transfer of contractual rights is an
assignment.
Transfer of contractual duties is a
delegation.
5
Assignments
Transfer of rights in a bilateral contract to
a third party.
Obligee/
Assignor
Original Contract Formed
Obligor
Assignment
Duties Owed
After Assignment
Assignee
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Assignments
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Rights that cannot be assigned:
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If the assignment is contrary to statute.
When a contract is personal in nature.
Assignment materially changes rights or
duties of obligor.
If the contract stipulates the right cannot
be assigned.
Notice of Assignment.
7

Delegations
Contractual duties in a bilateral contract
that are delegated to a third party.
Obligee
Original Contract Formed
Duties Owed
After Delegation
Obligor
Delagatee
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Duties That
Cannot be Delegated
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When special trust has been placed on
the obligor.
When performance requires personal
skill or talents.
When performance will vary materially
from obligee expectations.
When the contract expressly prohibits
delegation.
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Effect of a Delegation

Delegator remains liable.
10
Assignment of “All Rights”

Assignment of rights and a delegation
of duties.
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Third Party Beneficiaries
Original parties to the contract intend
at the time of contracting that the
contract performance directly benefits a
third person.
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Types of Intended
Beneficiaries



Creditor Beneficiaries.
Donee Beneficiaries.
Modern View: Does not draw such
clear lines and distinguishes only
between intended beneficiaries and
incidental beneficiaries.
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The Vesting of an Intended
Beneficiary’s Rights

For third party beneficiary contract to
be effective, rights under the contract
must vest:


Third party’s manifesting assent to the
contract.
Third party’s materially altering position in
detrimental reliance on the contract.
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Intended v. Incidental
Beneficiaries

Intended:

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Promisee intended to confer on the
beneficiary the right to bring suit to
enforce the contract.
Factors:


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Performance is rendered directly to 3rd party.
3rd party’s right to control contract details.
3rd party expressly designated as beneficiary.
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Intended v. Incidental
Beneficiaries

Incidental.

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Contract between two parties is
unintentional.
Incidental beneficiary cannot sue to
enforce the contract.
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Practice Question # 1
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The transfer of contract rights to a third
person is known as:
a. a delegation.
b. an assignment.
c. a restitution
d. a reformation.

17
Answer to Practice Question #
1

B
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Practice Question # 2
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Marta owes a contract debt to Kayla in the
amount of $10,000. Kayla assigns to John her
right to receive this $10,000 from Marta.
Marta is:
a. the obligee.
b. the obligor.
c. the assignor
d. the assignor.

19
Answer to Practice Question #
2

B
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Practice Question # 3

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As a general rule, which rights can be
assigned?
a. Only rights to receive negotiable
instruments.
b. Only rights to receive monetary damages.
c. All rights, with a few exceptions.
d. No rights may be assigned, only duties
may be assigned.

21
Answer to Practice Question #
3

C
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Practice Question # 4
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Sally agrees to work as a chef for Fred. If
Fred assigns his right to Sally's services to
Don, this assignment:
a. generally will not be allowed because it
involves personal services.
b. generally will be allowed because it is an
assignment rather than a delegation.
c. generally will be allowed because it
involves personal services.
d. will be allowed only if Don agrees.

23
Answer to Practice Question #
4

A
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Practice Question # 5
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When someone transfers his or her
contractual rights to you in an assignment,
you would be well advised to:
a. provide the obligor with a huge money
payment.
b. always do nothing; this is safest.
c. tell the assignee what has happened.
d. notify the obligor of the assignment.

25
Answer to Practice Question #
5

D
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Practice Question # 6
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As a general rule, which of the following is a
duty that MAY NOT be delegated?
a. A duty to transport paper in a tractor
trailer.
b. A duty to paint a portrait.
c. A duty to supply paper clips.
d. A duty to supply ice to a concession stand.

27
Answer to Practice Question #
6

B
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Practice Question # 7
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If Carlos contracts with Maryann to paint her
house and if Carlos (with Maryann's approval)
delegates his duties to James, what happens
if James fails to paint the house?
a. Nothing. Maryann is out of luck.
b. Maryann may sue both Carlos and James.
c. Maryann may sue only James.
d. Maryann may sue only Carlos.
29
Answer to Practice Question #
7

B
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Practice Question # 8
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If your father enters into a life insurance
contract that states that you will receive
$75,000 when he dies, you are:
a. a substantial performer.
b. an assignor.
c. an intended third party beneficiary.
d. a delegator.
31
Answer to Practice Question #
8

C
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Practice Question # 9
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Melissa promises to pay Jane $1,000 for a
pure-bred, champion Bearded Collie named
Sir Josh. When Melissa discovers that she
really doesn't have the $1,000, Bob promises
Melissa that he will pay Jane the $1,000. In
this case, Jane is:
a. out of luck.
b. a creditor beneficiary.
c. a donee beneficiary.
d. a lapsed beneficiary.
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Answer to Practice Question #
9

B
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