BLAW - Chapter 19 - Chap 19 Third Party Rights to Contracts...

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Chap 19 Third Party Rights to Contracts As a general rule, parties not in privity of contract (i.e. parties other than the contracting parties) do not have rights or duties under the contract. However there are 3 exceptions: (1) Assignment: one of the contracting parties transfer his/her rights (think benefits) under the contract to a third party (2) Delegation: one of the contracting parties transfer his/her duties (think obligations) under the contract to a third party (3) the third party is a direct beneficiary of a contract involving two other parties (1) Assignments a/k/a Transferring Rights under a contract Assignment occurs when a party to a contract (assignor) transfers her rights (think benefits) to a contract to a 3 rd party (assignee). o An assignor is a party to a contract who transfers his or her rights to a third party, while an assignee is a party not in privity of contract who receives a transfer of rights to a contract. o An obligor is a contractual party who owes a duty to another party in privity of contract, while an obligee is a contractual party owed a duty from another party in privity of contract. Assignments of rights (benefits) are very important because they are utilized all the time in business financing. Millions of dollars change hands daily in the business world in the form of assignments of rights in contracts. Lending institutions, such as banks, frequently assign the rights to receive payments under their loan contracts to other firms, which pay for those rights. If you obtain a loan from you local bank to purchase a car, you may later receive in the mail a notice stating that your bank has transferred (assigned) its rights to receive payments on the loan to another firm and that, when the time comes to repay your loan, you must make the payments to that other firm. Assignment Relationship Example Alex entered into a contract with Brent where Alex agreed to sell his computer to Brent for $1000. Alex gave his computer to Brent, but now he is waiting for Brent to pay him the $1000. Alex is the obligee with regards to Brent, the obligor. Brent is the obligor because he still has to perform his duty of paying $1000. Alex assigns his rights to receive the $1000 to Carmen, a 3 rd party. Alex thus becomes the assignor and Carmen the assignee of the rights to the $1000. Brent, the obligor (the party owing performance under the contract) now owes performance to Carmen instead of Alex. Alex’s original contract rights are extinguished after assignment. The assignee “steps into the shoes of the assignor”—All of the assignor’s former rights under the contract are now enforceable by the assignee. The assignee essentially fills in for the assignor as the legal recipient of the contractual duties, so the assignee has the same rights (but nothing more) for enforcement. o
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BLAW - Chapter 19 - Chap 19 Third Party Rights to Contracts...

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