Question: Assignments of contractual rights and delegations of duties are common in the business world. As you discovered in this chapter, third party rights and duties stem from the law on assignments, delegations, and third party beneficiaries. A third party may even be unaware that he or she has rights in a contract, as can happen when a person is the beneficiary of a life insurance policy. In certain situations, businesses may wish to attempt to prohibit a third party from acquiring such rights. The general rule, though, is that any contractual right or duty can be assigned or delegated unless the assignment or delegation is prohibited by
(1) the contract,
(2) a statute, or
(3) other limitations.
For example, a tenant under a long-term lease contract may assign the lease to another party. To avoid such assignments, property owners often prohibit the assignment of the balance of a lease term unless the property owner's consent is obtained. In the manufacture and sale of goods, manufacturers can assign or delegate the production of such goods to a third party unless prohibited by contract. Consequently, most purchase orders (contracts) have a clause that prohibits such assignments or delegations without the buyer's consent.
CHECKLIST FOR THE BUSINESSPERSON
1 Determine whether you can assign or delegate your rights or duties under a contract to a third party
2 If you can assign or delegate your contract rights or performance, attempt to determine your benefits and obligations, such as notice to customers, if you do make the assignment or delegation.
3 If you do not want your contract rights or duties to be assigned or delegated, insert a contract clause that prohibits assignment or delegation without your consent.
4 Whenever you might be a third party beneficiary to a contract, such as a creditor beneficiary, take steps to determine your rights.