*** Chapter Outcome ***
Identify those situations in which a delegation of duties is not permitted.
B. DELEGATION OF DUTIES
Delegable Duties
Most contract duties may be delegated except when:
— the nature of the duties are personal in that the obligee has a substantial
interest in having only the delegator perform the contract;
— the performance is expressly made nondelegable; or
— the delegation is prohibited by statute or public policy.
CASE 16-4
PUBLIC SERVICE COMMISSION OF MARYLAND v.
PANDA-BRANDYWINE, L.P.
Court of Appeals of Maryland, 2003
375 Md. 185, 825 A.2d 462
http://scholar.google.com/scholar_case?case=14283409950595264869&q=825+a.2d+462&hl=en&as_sdt=2,34
Wilner, J.
PEPCO [Potomac Electric Power Company] is an electric utility serving the metropolitan
Washington, D.C. area. Panda [Panda-Brandywine, L.P.] is a “qualified facility” (QF) under
the Public Utility Regulatory Policies Act of 1978 [citation]. * * *
* * *
In August, 1991, PEPCO and Panda entered into a PPA [power purchase agreement]
calling for (1) the construction by Panda of a new 230-megawatt cogenerating power plant
in Prince George’s County, (2) connection of the facility to PEPCO’s high voltage
transmission system by transmission facilities to be built by Panda but later transferred
Section 19.1 of the PPA provided, with certain exceptions not relevant here, that “neither
this Agreement, nor any of the rights or obligations hereunder, may be assigned, transferred,
or delegated by either Party, without the express prior written consent of the other Party,
which consent shall not be unreasonably withheld ….” * * *
* * *
In 1999, the General Assembly passed the Electric Consumer Choice and Competition
Act of 1999 [citation], calling for the restructuring of the electric industry in an effort to
promote competition in the generation and delivery of electricity * * * PEPCO’s proposed
restructuring involved a complete divestiture of its electric generating assets and its various
PPAs, to be accomplished by an auction. * * *
[Under the APSA] the buyer was authorized to take all actions that PEPCO could
lawfully take under the PPA without further approval from PEPCO * * *.
* * *
* * * on June 7, 2000, SEI was declared the winning bidder. On September 27, 2000, the
PSC [Public Service Commission] entered an order (Order No. 76472) declaring, among
other things, that the provisions in the APSA did not constitute an assignment or transfer
within the meaning of §19.1 of the Panda PPA, that PEPCO was not assigning “significant
obligations and rights under the PPA,” that Panda would not be harmed by the transaction,
and that the APSA did not “fundamentally alter[]” the privity of contract between Panda and
PEPCO. It thus concluded that Panda’s consent to the proposed APSA was not required. * *
*
Panda sought judicial review in the Circuit Court for Montgomery County. That court
found that the APSA * * * effected an assignment of Panda’s PPA. It reversed the PSC order
* * *.
* * *
are often the subject of transfer, the law does distinguish between them, using the term
“assignment” to refer to the transfer of contractual rights and the term “delegation” to refer
to the transfer of contractual duties. * * *
Restatement §317 defines the assignment of a right as “a manifestation of the assignor’s
intention to transfer it by virtue of which the assignor’s right to performance by the obligor
is extinguished in whole or in part and the assignee acquires a right to such performance.”
Section 317(2) permits a contractual right to be assigned unless (a) “the substitution of a
right of the assignee for the right of the assignor would materially change the duty of the
obligor, or materially increase the burden or risk imposed on him by his contract, or
materially impair his chance of obtaining return performance, or materially reduce its value
Although using somewhat different language, we have adopted those principles. In
Macke Co. v. Pizza of Gaithersburg, [citation], we held that “in the absence of a contrary
provision … rights and duties under an executory bilateral contract may be assigned and
delegated, subject to the exception that duties under a contract to provide personal services
may never be delegated, nor rights be assigned under a contract where delectus personae
was an ingredient of the bargain.”
These general statements, both in §§317 and 318 and in Macke regarding the extent to
which rights may be assigned and duties of performance may be delegated are, as noted,
subject to any valid contractual provision prohibiting assignment or delegation. Section 19.1
* * *
* * * The APSA involves a great deal more than merely a resale of electricity purchased
from Panda and even more than the effective substitution of one customer for another. Much
of Panda’s control over its own facility and business was subject to the approval and
cooperation of PEPCO; indeed, to a large extent, the operation of the facility was, in many
important respects, almost a joint venture. In agreeing to that kind of arrangement, Panda
necessarily was relying on its perceptions of PEPCO’s competence and managerial style.
One does not ordinarily choose a business partner by auction or lottery, and there is no
Duties of the Parties
Delegatee — A delegation does not require performance by the delegator
until the delegatee agrees to assume the duty.
Delegator — The delegator is still liable (along with the delegatee) to the
obligee for proper performance of the original contractual duty.
In a novation, a new contract is formed by which the delegator is
discharged of the duty and the delegatee becomes directly bound to the
obligee.
*** Chapter Outcomes ***
Distinguish between an intended bene%ciary and an incidental bene%ciary.
Explain when the rights of an intended bene%ciary vest.
C. THIRD-PARTY BENEFICIARY CONTRACTS
Intended Beneficiary
A third party intended by the two parties to the contract to receive a benefit
from the performance of their agreement:
Donee Bene)ciary — A third party is an intended donee bene%ciary if the
promisee’s purpose in the agreement is to make a gift to the bene%ciary.
CASE 16-5
STINE v. STEWART
Supreme Court of Texas, 2002
80 S.W.3d 586, rehearing denied, 2002
http://scholar.google.com/scholar_case?
q=80+S.W.3D+586&hl=en&as_sdt=2,34&case=11787409436171520113&scilh=0
Per Curiam
On April 26, 1984, [Mary] Stine loaned her daughter [Mary Ellen Stewart] and son-in-law
[William] Stewart $100,000 to purchase a home. In return, the Stewarts jointly executed a
promissory note for $100,000, payable on demand to Stine. The note required interest
payments at a floating rate adjusted every six months to one percent below the prime rate. It
also required the Stewarts to pay the interest on the first of each month as it accrued on the
unpaid principal. The Stewarts did not give a security interest or mortgage to secure the
note. The Stewarts eventually paid $50,000 on the note, leaving $50,000, together with
unpaid accrued interest, due.
The Stewarts divorced on October 2, 1992. The couple executed an Agreement Incident
to Divorce * * * which disposed of marital property, including the home the agreement
identifies as the Lago Vista property. The agreement provides that Stewart could lease the
house, but if Stewart sold it, he agreed that “any monies owing to [Stine] are to be paid in
the current principal sum of $50,000.00.” The agreement further states:
The parties agree that with regard to the note to Mary Nelle Stine, after application of the
proceeds of the [Lago Vista property], if there are any amounts owing to [Stine] the
beneficiary of the agreement. [Citation.] Additionally, the court of appeals concluded that
Stine was not an intended third-party creditor beneficiary of the agreement. [Citation.] * * *
A third party may recover on a contract made between other parties only if the parties
intended to secure a benefit to that third party, and only if the contracting parties entered into
the contract directly for the third party’s benefit. [Citation.] A third party does not have a
right to enforce the contract if she received only an incidental benefit. [Citation.] “A court
will not create a third-party beneficiary contract by implication.” [Citation.] Rather, an
agreement must clearly and fully express an intent to confer a direct benefit to the third
party. [Citation.] To determine the parties’ intent, courts must examine the entire agreement
when interpreting a contract and give effect to all the contract’s provisions so that none are
rendered meaningless. [Citation.]
Stine contends that she has standing to sue for breach of the agreement as a third-party
beneficiary, because the Stewarts intended to secure a benefit to her—that is, the payment of
the remaining balance under the note. Stine also argues that whether or not limitations
expired on enforcing the note, she was still a third-party creditor beneficiary because the
debt remained an existing, legal obligation. Moreover, Stine contends, the agreement
“acknowledges” the$50,000 debt owed to her because it recognizes that the note exists and
requires the Stewarts to pay any amounts due under the note when Stewart sells the Lago
Vista property. * * *
Then, the agreement states that Stewart agreed to pay the property sale net proceeds “with
regard to the note” to Stine. The agreement further provides that, if the property sale net
proceeds did not cover the amount owed to Stine, the remainder would be immediately due
and payable from the Stewarts, with each owing one half. Thus, the agreement expressly
requires the Stewarts to satisfy their existing obligation to pay Stine. [Citation.]
* * *
Furthermore, contrary to Stewart’s argument, a third-party beneficiary does not have to
show that the signatories executed the contract solely to benefit her as a non-contracting
party. Rather, the focus is on whether the contracting parties intended, at least in part, to
discharge an obligation owed to the third party. [Citation.] Here, the entire agreement is
Rights of Intended Bene)ciary — An intended donee bene%ciary may
take action against the promisor only, but an intended creditor bene%ciary
may sue either the promisor or the promisee.
Vesting of Rights — Even though the states vary considerably, the
Restatement states that if the contract provides that its terms may not be
varied without the consent of the bene%ciary, such a provision will be
upheld.
Defenses Against Bene)ciary— In an action by the intended bene%ciary
of a third-party contract to enforce the promise, the promisor may assert any
defense that would be available to her if the action had been brought by the
Incidental Beneficiary
