If the promisee has intended to make a gift of the performance to the third party，the latter is called a donee-beneficiary. Beneficiaries of life insurance contracts are a typical example of third party donee-beneficiaries—The insured has made a contract with the insurance company for the purpose of making a gift to the party named in the policy.

If the promisee has contracted for the promisor to pay the debt he owes to a third party such third party is a creditor-beneficiary—he is the creditor of the promisee and he gains the benefit of collecting the debt the promisee owes to him from the promisor.

Third party beneficiary contracts create a right for the third party to enforce the contract. This means that the beneficiary need not proceed first against the promisee. This rule is especially important for the donee beneficiary who, because of the lack of consideration* would not have a direct claim against the promisee.

To enforce his right, the third party beneficiary must establish that the parties actually intended to benefit him. If this intent does not exist a third party may derive an incidental benefit from the contract, but such an incidental beneficiary does not have a cause of action.

A third party beneficiary takes the benefit of the contract subject to all the legal defenses arising out of the contract.1 This means that i{ the promisee has not satisfied the conditions for the other party’s obligation to benefit the third party, the third party would be denied recovery.

Assignment and Delegation

Contractual rights and duties can be transferred to third parties, except when they are highly personal. When rights, or rights as well as duties, are transferred« the transfer is an assignment.

A valid assignment entitles the assignee to receive the performance from the original contract debtor. Performance for the original contract creditor will not discharge the contract.

The assignee stands in the shoes of the assignor—His rights are neither better nor worse than those of the assignor. In other words, the contract debtor has the same defenses against the assignee that he had against the assignor.

Contract rights may be assigned by one party without the consent of the other. In fact, the contract creditor need not notify the debtor of the assignment. However, the assignee should notify the debtor of his newly acquired rights as soon as possible. By notification the assignee protects himself against the possibility that the debtor» in good faith, pays the claim to the assignor or that the assignor effects a subsequent assignment of the same claim to another who could gain priority over the first assignee by notification to the debtor.

When contractual duties are assumed by third parties, a delegation has occurred. Performance by the delegatee constitutes performance of the contract. If the delegatee does not perform» the contract creditor has a claim against his original contract debtor and against the delegatee, because the delegation will have the effect of a third party beneficiary contract in favor of the original contract creditor.

Novation A novation is an agreement whereby one of the original parties is replaced by a new party who assumes the rights and duties of the original party. In a novation, unlike in an assignment-delegation, one party is completely released from contractual obligation as another is substituted.

For a novation to be effective, all parties have to agree on it—The remaining contracting party must agree to accept the new party and to release the withdrawing party. The latter must consent to withdraw and to permit the new party to take his place, and the new party must agree to assume the duties of the withdrawing party.

Answer the following questions :
1. What is a third-party beneficiary contract?
2. What is an assignment?
3. What is a delegation?
4. Compare the beneficiary in a third-party beneficiary contract with the assignee. Do they have the same rights? Are their rights subject to the defenses of the contract debtor? Why is it necessary for the assignee to notify the contract debtor of the assignment? Why isn’t it necessary for the beneficiary to notify the contract debtor?
5. Compare the third-party beneficiary contract with the contract of delegation. In what sense can we say that the contract of delegation is also a third party beneficiary contract? 6. Compare novation with a contract of assignment. In what ways are they different?
7. What is the most important element in a third-party beneficiary contract?
8. What is important for a novation to be effective?

The power of creditors to make effective transfers of rights created by contract has developed late in American legal history, and the development has encountered many obstacles. Assignees, like third party beneficiaries, are strangers to the contract. Both have caused lawyers much strain and discomfort, as was almost bound to occur with strangers who arrived late at a supposedly well-organized {east. In theory, the claims of assignees might appear even more troublesome than the claims of third party beneficiaries, for with assignees one cannot use the ready explanation that both contracting parties agreed that the third party was to receive the benefit of the promised performance. The assignee will usually step in without the debtor’s consent，often against the debtor’s wish. To explain how this can occur requires some basic rethinking of postulates, and basic rethinking is apt to come only after social needs have been clearly demonstrated.