Business Law Final Chapter 18 Intended beneficiary third person of a contract whom the contract is intended to benefit Third party beneficiary third person whom the parties to a contract intend to benefit by making of the contract and to confer upon such person the right to sue for breach of contract The third party person who is benefiting from the contract can sue if the contract fails due to the fact they are not receiving their benefits from the contract Intended beneficiary is sometimes classified as a creditor beneficiary when the promisee s primary intent is to discharge a duty owed to the third party A man sells his business and owes payments to a company The buyer of the business agrees to pick up the final payments for the business If the buyer fails to make the payments The company due to receive the payments can sue as they were the intended creditor Donee beneficiary promisee s primary intent in contracting is to give a benefit A third person does not have the status of an intended third party beneficiary unless it is clear at the time the contract was formed the parties intended to impose a direct obligation with respect to the third person Description of third party beneficiary does not need to be identified by name Example a contract between the promoter of an automobile stock car race and the owner of the racetrack contains a promise by the owner to pay specified sums of money to each driver racing a car in certain races A person driving in one of the designated races is a third party beneficiary and can sue the owner of the contract for promised compensation Two parties can cancel a contract without consent of the intended third party beneficiary by acting in accordance with the contract provision as long as the contract allows change of a the promise beneficiary or allows the cancellation of the contract If the benefit was not intended the third person is an incidental beneficiary Whether or not a third party is an intended or incidental beneficiary therefore comes down to determining whether or not a reasonable person would believe that the promise intended to confer on the beneficiary an enforceable benefit under the contract in question Assignment transfer of a right generally used in connection with personal property rights as rights under a contract commercial paper an insurance policy a mortgage or a lease The party owing a duty or debt under the contract is the obligor or debtor and the party to whom the obligation is owed is the obligee Assignment takes effect the moment it is made The assignee should give immediate notice of the assignment to the obligor setting forth the obligor s duty to the assignee in order to prevent improper payment If the obligor is notified in any manner that there has been an assignment and that any money due must be paid to the assignee the obligor s obligation can be discharged only by making payment to the assignee The Uniform Consumer Credit Code UCCC protect consumer debtors making payments to an assignor without knowledge of the assignment and imposes a penalty for using a contract term that would destroy this protection of consumers Assignments of contracts are generally made to raise money Example automobile dealer assigns a customer s credit contract to finance company and receives cash for it Cause of action right to damages or other judicial relief when a legally protected right of the plaintiff is violated by an unlawful act of the defendant Person owes a painting company 5 000 for painting her house then painting company assigned the claim to Main Street Bank Person refused to pay the bank because she never consented to the assignment Irrelevant since the painting company owned the claim and could transfer it to the bank Future rights to money may be assigned A building contractor may assign its rights to money not yet due under an existing contract s payment on completion phase schedule A clear and specific contractual prohibition against the assignment of rights is enforceable at common law However it is ineffective against 1 The assignment of rights to payment for goods or services including accounts receivable 20 assignment of the rights to damages for breach of sales contract If the transfer of a right would materially affect or alter a duty or the rights of the obligor an assignment is not permitted Asking to have goods delivered to an unreasonable place would not be given effect ex not your place of business where the goods are specifically for causing your performance to slump Contracts for personal services are generally not assignable Some courts permit a successor employer to enforce an employee s noncompetition agreement as an assignee of the original employer However a majority of states have considered this issue have concluded that restrictive covenants are personal in nature and non assignable When a transaction is based on extending credit the person to whom credit is extended cannot assign any rights under the contract to another Jack contracted to sell summer camp to Pat for 200 000 with 100 000 in cash due at the closing and the balance due on installment basis secured by a mortgage Several days after Pat finds a better property and his sister Meg was happy to take over the contract Pat assigned rights to Meg Jack found a better offer after contracting with Pat refused to consent to the assignment The assignment to Meg is prohibited because the assignee Meg is a different credit risk even though the property tp serve as security remained unchanged Unless restricted by the terms of the assignment or applicable law the assignee acquires all the rights of the assignor Example When a contractor is not entitled to receive the balance of money due under the contract until all bills of suppliers of materials have been paid the assignee to whom the contractor assigns the balance due under the contract is subject to the same condition The making of an assignment does not relieve the assignor of any obligation of the contract In the absence of a contrary agreement an assignor continues to be bound by the obligations of the original contract Example Boatbuilder Derektor NY s assignment of obligations to a CT boatbuilder did not release it from all liabilities under its boatbuilding contract with NY Water Taxi and NYWT was allowed to proceed against Derecktor for breach of contract design and breach of contract workmanship Novation substitution for an old contract with a new one that either replaces an