Definitions

A third-party beneficiary contract results when two parties enter into a contract with the understanding and intent that the performance to be rendered by one will go to a third person.

Intended Beneficiaries

Intended beneficiaries are those persons who have a right to sue on a third-party beneficiary contract because the original contracting parties either explicitly or implicitly intended to benefit them.

If the third-party beneficiary contract is designed to satisfy an obligation of the promisee to the third party, the third-party beneficiary does not give up his rights against the promisee until such time as the promisor renders performance to the third-party beneficiary.

Incidental Beneficiaries

An incidental beneficiary, a person that the original contracting parties did not intend to benefit, has no right to enforce a third-party beneficiary contract.

Modification of the Third-Party Beneficiary's Rights

The promisor and promisee of a third-party beneficiary contract can modify their contract to the detriment of the intended beneficiary only until the beneficiary either assents to the contract at a party's request, sues on the contract, or changes her position in reliance on it.

Enforcement by Third Party

The third party need not provide consideration to be able to sue on a third-party beneficiary contract.

The promisor of a third-party beneficiary contract has a valid defense in a suit by the intended beneficiary if the promisee fails to perform his obligations to the promisor.

The promisor can raise any defense against the third-party beneficiary that he had against the original promisee.

Assignment of Rights

Assignment refers to the transfer of rights under a contract, and delegation involves the obtaining of someone else to perform a party's obligations under a contract.  Although the two are clearly distinct in concept, the term "assignment" is often used to refer to both assignment of rights and delegation of duties.

There can be no assignment which: (a) materially increases the duty or risk of the obligor; or (b) materially reduces the obligor's chance of obtaining performance. 

The benefits of a UCC contract are assignable even if the contract prohibits assignment.

The benefits of a contract can be assigned without the assignee becoming bound to perform the obligations of the contract.

An assignee takes rights under the contract subject to any defenses which the contracting party has against the assignor.

If a party to a contract is notified of the assignment of rights under that contract, the contracting party cannot raise against the assignee rights against the assignor which accrue after notice of the assignment.

Delegation of Duties

A contract is not delegable if the party wishing to delegate possesses unique characteristics such that the performance rendered by a delegatee would vary materially from that bargained for.

A contract is also not delegable if the contract specifically prohibits it.

The party delegating duties (the delegator) remains liable on the contract as a surety for the performance of the delegatee, the party now principally liable on the contract.