3rd Party Beneficiaries Flashcards
What is the critical issue in third-party beneficiary law?
Whether the third-party beneficiary has standing to enforce the contract (can they sue).
When is there a creditor beneficiary?
When a promisee seeks a performance from the promisor that will satisfy an obligation owed to a third party.
When is there a donee beneficiary?
When a promisee seeks a performance from the promisor in order to make a gift of it to the third party.
When is there an incidental beneficiary?
When a third parties will benefit from a party’s performance as a practical matter but are not: creditor, donee, nor intended beneficiaries.
When is there an intended beneficiary?
When a contracting party intends to benefit the third party.
What are the incidental beneficiary’s rights under the contract?
They do not have any rights to seek enforcement of the contract.
What are the intended beneficiary’s rights under a contract against the promisor?
He has a right to secure enforcement of an agreement from a breaching promisor (the performer).
What are the intended beneficiary’s rights under a contract against the promisee?
A third-party beneficiary will only have rights against the promisee based on: whether there is a prior obligation between the promisee and the third party beneficiary.
The parties to a contract may rescind a third-party beneficiary provision without the beneficiary’s consent; what is the exception?
The intended beneficiary’s rights under the contract have vested.
When does an intended beneficiary’s interest vest?
- The beneficiary brings suit on the matter
- The beneficiary changes his position in justifiable reliance on the contract
- The beneficiary manifests assent to the contract at the request of the promisor or promisee
- The rights of the beneficiary have vested under the express terms of the contract.
What defenses are available to promisors in third party actions?
Any valid defenses the promisor has against the promisee are also effective against the third party beneficiary.
What defenses are unavailable to promisors in third party actions?
The promisor may not assert defenses based upon separate transactions with the promisee.
What is the promisee’s right against the promisor in third party beneficiary situations?
If the beneficiary is a donee beneficiary?
If the beneficiary is a creditor beneficiary?
- When the promisor does not perform, the promisee has a claim for breach of contract against the promisor
- if the promisor’s performance is intended to benefit a donee beneficiary: then the promisee has suffered no economic loss and cannot obtain damages but specific performance may be appropriate
- If the promisor’s performance is intended to benefit a creditor beneficiary: The promisee may seek enforcement of the promisor’s obligation.
What is an assignment?
A transfer of a right to receive a performance under a contract.
What is required to make an effective assignment of a contract right?
- Owner of right manifest an intention to transfer
And
- The owner makes a present transfer of an existing right.
What contract rights are not assignable?
- When the assignment would materially alter the risks or the obligations of the other party
- When the obligor has a personal interest in rendering the performance to the obligee and not a third party
- When it would violate applicable law or public policy
- When assignment is prohibited by contract.
What happens when an anti-assignment clause is breached?
There is a breach of contract by assignor but it is not a basis for nullifying obligee’s rights.
What are the legal effects of assignment of value:
- Between the assignee and the obligor?
- Between the assignor and the assignee?
- The assignment is valid against the obligor
- Cannot be revoked by the assignor.
What are the effects of gratuitous assignment?
- Between the assignee and the obligor?
- Between the assignor and the assignee?
- The assignment valid against the obligor who cannot claim lack of consideration as a defense
And
- Under the law of gifts an executory gift is revocable but an executed gift is not.
What are the rights of an assignee against the obligor?
The assignee has whatever rights to the contract his assignor had: the assignee steps into the shoes of assignor and is subject to whatever defenses obligor has against assignor.
What is the obligor’s payment obligation in the event of assignment?
The obligor’s payment to the assignor is a defense unless the obligor has been notified that the payments are now owed to assignee.
An assignor who assigns or purports to make an assignment for value impliedly warrants what two things to the assignee?
- He will do nothing to defeat the value of the assignment and has no knowledge of any fact that would do so
And
- That his right to assign actually exists and is subject to no defenses.
When does a delegation occur?
When a third party agrees to satisfy a performance obligation owed by one of the parties to a contract.
Does a delegation relieve a delegator from his obligations?
Absent novation (all parties agree), a delegation does not relieve a delegator from his obligation (obligee can still sue delegator).
