CHAPTER 19

Assignment, Delegation, and Third-Party Beneficiaries

§19.1 INTRODUCTION

During the entire course of this book, it has been emphasized that contract is a consensual relationship created by agreement between the parties. In dealing with the enforcement of contracts, it has been taken for granted that contractual rights and duties arise only between the parties and that the power of enforcement resides in each against the other. In the great majority of contracts, this assumption is accurate. A person who is not a party to a contract cannot be bound by it and acquires no rights under it. However, this chapter deals with two situations in which this rule is qualified. Although these situations have in common the fact that a nonparty to the contract obtains the right to enforce a promise under it, they are otherwise quite distinct and are based on very different premises:

  A contract may create rights in a third party when the parties to the contract expressly or impliedly agree, at the time of making it, that the performance of one of them will be rendered to or for the benefit of a person who is not a party to the contract, and that the nonparty will have the right to enforce that commitment. The creation of the third-party rights is contemplated by the parties and occurs at the time of contract formation.

  The assignment of contractual rights and the delegation of contractual duties does not involve any conferral of rights on a nonparty at the time of contracting. Rather, it is the transfer of rights or obligations by one of the parties at some time after the contract has been executed. Each party’s right to performance under the contract is an asset belonging to that party. As a property interest, it is generally capable (with exceptions to be noted later) of being transferred (assigned) by sale, donation, or other means of disposition. When a party assigns rights under a contract (thereby becoming the assignor), ownership of those rights passes to the recipient (assignee) who is substituted for the assignor as the person entitled to performance. Instead of, or in addition to, assigning rights under a contract, a party may wish to transfer (delegate) all or some of her obligations under the contract. Unlike assignment, delegation is not based on any concept of ownership—one cannot own a duty. Nevertheless, it is also generally permissible provided that it does not impair the reasonable expectations of the party to whom the performance is due.