• Sometimes a person who entered into a contract must transfer the contract rights or duties to another person (third party)– Examples: sublease of your apartment, asking

another person take over work you agreed to do, or doing something to benefit a third person

• Key to successful transfer: understand the third party’s abilities, limitations, and needs

Overview

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• A person who owes a duty to perform under a contract is called an obligor

• The person to whom the duty is owed is called the obligee

Overview

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• Transfer of a right under a contract is called an assignment

• Example: Jane arranges for her employer to transfer her next paycheck to her parents’ bank account– Employer is the obligor (owes Jane money)– Jane is the obligee and assignor– Jane’s parents are the assignees

Assignment of Contracts

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Assignment Process

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• Assignments may be made in any way sufficient to show assignor’s intent to assign

• A writing is not necessary– Unless statute of frauds applies

• Assignee does not need to give consideration to assignor in exchange for the assignment

Details of Assignment

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• Assignment will not be effective if it:– Is contrary to public policy

– Violates a non-assignment clause in a contract

– Adversely affects obligor in some significant way

• Assignment may be ineffective if the contract right involved a personal relationship or element of personal skill or character – But see Managed Health Care Associates v. Kethan

Limitations on Assignment

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Managed Health Care Associates v. Kethan

• Facts & Procedural History: – Kethan signed an employment agreement with

MedEcon that contained a non-compete clause and requirement that modifications be in writing

– MHA purchased MedEcon and Kethan left to join First Choice, a customer with whom Kethan had developed a sales relationship

– MHA sought an injunction to prohibit Kethan from working for First Choice, but the district court denied the suit and MHA appealed

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• Issue and Legal Reasoning: – First issue is whether MedEcon’s assignment of

Kethan’s employment agreement modified the terms of his contract• An assignment does not modify the terms of the

underlying contract, thus did not modify Kethan’s employment agreement

– Second issue is whether a non-competition clause is assignable under Kentucky law• Yes

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Managed Health Care Associates v. Kethan

• Holding: – Kethan was able to develop his business

relationship with First Choice because MedEcon employed him and placed him in charge of the First Choice account

– Kethan is precisely the type of employee for whom noncompetition clauses were designed

– Reversed and remanded in favor of MHA

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Managed Health Care Associates v. Kethan

• Appointment of another person to perform a duty under a contract is called a delegation

• Example: Mike mows Janet’s lawn weekly. Mike becomes ill and arranges for Sonny to mow Janet’s lawn.– Janet is the obligee– Mike is the obligor and delegator– Sonny is the delegatee

Delegation of Duties

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• Caution: an assignment extinguishes the assignor’s right and transfers it to the assignee, but the delegation of a duty does not extinguish the duty owed by delegator–Delegator remains liable to the obligee

unless the obligee agrees to make a new contract substituting the delegatee’s for the delegator

Delegation of Duties

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Delegation Process

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• In an effective delegation, performance by the delegatee will discharge the delegator– The reason why you should understand the

delegatee’s abilities and limitations

Effective Delegation

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• Duties are not delegable if the delegation:– Is contrary to public policy– Is prohibited by a contract clause

• Also, duties that are dependent on the individual traits, skill, or judgment of the person who owes the duty to perform may not be delegable– Example: a hip hop artist probably could not

delegate concert obligation to an opera star

Non-delegable Duties

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• Delegation may be made in any way that shows the delegator’s intent to delegate

• Delegator may be discharged from contract performance by a substituted contract (novation) in which obligee agrees to discharge original obligor and substitute a new obligor – Effect: original obligor has no further obligation and

obligee looks to the new obligor for performance

Details of Delegation

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• If parties to a contract intended to benefit a third party, courts give effect to their intent permitting third party to enforce the contract– Referred to as third-party beneficiary

• Example: Father contracts and pays for Homes, Inc. to build house as gift for Son– Son (third-party beneficiary) may sue Homes, Inc.

if the company breaches the contract• Father may also sue Homes, Inc.

Third-Party Beneficiaries

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Third-Party Beneficiary Diagram

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• Incidental beneficiary is one obtaining a benefit as unintended by-product of a contract– No rights under contract

• In foregoing example, Son’s Wife would be an incidental beneficiary

Incidental Beneficiaries

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Locke v. Ozark City Board of Ed.

• Facts & Procedural History: – Locke, a high school teacher and umpire at high

school games, was severely injured by a parent of a high school athlete after a game

– Locke sued the Board because (a) it failed to provide “adequate police protection” as required by the Alabama High School Athletic Assoc., (b) such failure was a breach of contract between Board and AHSAA, and (c) Locke was an intended third-party beneficiary of the contract

– Trial court entered summary judgment for Board and Locke appealed

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Locke v. Ozark City Board of Ed.

• Issue: – Was Locke a third-party beneficiary?

• Law Applied to Facts:– Locke must show: 1) contracting parties intended

direct benefit upon a third party; 2) Locke was an intended beneficiary of the contract; 3) contract was breached, and 4) contract was intended for his direct, as opposed to incidental, benefit

– Contract states that the purpose of “adequate police protection” is to “provide good game administration and supervision.”

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Locke v. Ozark City Board of Ed.

• Holding:– Based on the plain language of the contract

and the surrounding circumstances, the contract anticipates third-party umpires, the contract was intended to directly benefit umpires like Locke

– Reversed and remanded in favor of Locke

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