Overview
• 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,
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Overview
• 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
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Assignment of Contracts
• 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
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Assignment Process
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Details of Assignment
• 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
17give
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Limitations on Assignment
• 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
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or character
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
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court denied the suit and MHA appealed
Managed Health Care
Associates v. Kethan
• 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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Delegation of Duties
• 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
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Delegation of Duties
• 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
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Delegation Process
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Effective Delegation
• In an effective delegation,
performance by the delegatee will
discharge the delegator
– The reason why you should understand the
delegatee’s abilities and limitations
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Non-delegable Duties
• 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
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Details of Delegation
• 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
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Third-Party Beneficiaries
• 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
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Third-Party Beneficiary Diagram
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Incidental Beneficiaries
• Incidental beneficiary
is one obtaining a
benefit as
unintended by-
product of a contract
– No rights under
contract
• In foregoing
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18 Son’s Wife
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
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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
17 - 20 “adequate police protection” is to “provide
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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