Chapter 11

CONTRACTS INVOLVING MORE THAN TWO PARTIES

ChapterScope

This chapter considers contracts in which more than two parties are involved. The discussion focuses on multiple parties in two different kinds of contracts: (1) contracts in which a party seeks to assign his rights to a third person, or to delegate his duties to a third person; and (2) contracts in which a person who is not an actual party is a beneficiary of the contract. Key concepts:

• Assignment: An assignment is a present transfer of a party’s already-existing rights under a contract.
  • Assignable rights: The general rule (but subject to important exceptions) is that contract rights are assignable.
  • Rights against obligor: Generally, the assignee takes subject to any defenses which could have been asserted by the obligor against the assignor.
• Delegation: A delegation is a present transfer of a party’s already existing duties under a contract.
  • Delegable duties: The general rule is that contract duties are delegable. The exception is that a duty will be non-delegable if the non-delegating party has a substantial interest in having the delegator perform.
  • Delegator remains liable: After the delegation, the delegator remains liable to the obligee.
• Third party beneficiary: A person who is not a party to a contract becomes a third party beneficiary at the time the contract is formed, if the parties to the contract intend to confer a benefit on that person.
  • Right to sue: A third party beneficiary has the right to bring suit against one of the original parties if the latter does not perform.
  • Contrast with incidental beneficiary: By contrast, an “incidental” beneficiary—one who would be benefited by performance, but upon whom the original parties did not intend to confer a benefit—may not sue.
  • Vesting of rights: The contracting parties’ power to modify or discharge the contract terminates when the third party beneficiary’s rights have “vested.” Vesting occurs when, before the beneficiary receives notice of the modification, the beneficiary either: (1) changes her position in justifiable reliance on the contract, (2) brings suit on the contract, or (3) manifests assent to it.