Third Party Rights In Contracts

When you have a valid and legally enforceable contract, there are rights and duties of the parties to the contract. In general, only the parties that entered the contract have rights and liabilities according to it. This is called the privity of the contract, excluding third parties.

However, there are two exceptions to the privity of contracts: assignment of rights and delegations of duties. Another form of third party rights in a contract is a third party beneficiary contract. What are these types of third party rights in contracts?

Assignment of Rights

When you sign a bilateral contract, one party has a right to perform a task assigned by the other. The assignment of rights occurs when a third party is assigned the job of performing

You can't hire an attorney and have a court case delegated to a paralegal or legal researcher. If you hire a doctor, they cannot delegate the work to someone without the necessary expertise. Delegation of duties isn't allowed when special trust is placed in the obligor, such as fiduciary duties. Duties cannot be delegated if the performance of the third party is very different than the results if performed by the assignee. If one artist is hired to create a work, they cannot delegate to someone who will create something very

Creditor beneficiaries are a common form of third party beneficiary contract. For this type of third party right in a contract, there must either be an existing debtor-creditor relationship or one established, such as hiring a debt collector to collect what someone hasn't paid for completed work. Assumptions of mortgages are a type of third party beneficiary contract, though not all lenders will permit this.

Donee beneficiaries occur when someone is entering a contract to give a gift to a third party. Some of the most common donee beneficiary contracts are life insurance policies, where one person enters a contract with a life insurance company to give money to the beneficiaries upon the death of the person entering into the contract with the insurer. Living revocable trusts are another type, where the donee is the person receiving the