3rd party beneficiaries and Assignment Flashcards
Types of 3PB
Intended or Incidental*
*“Incidental” beneficiaries ARE NOT BENEFICIARES!!!! They have no rights.
Intended beneficiaries
Determined by the INTENT of the promisee to give benefits to the 3PB!
**Must be able to clearly IDENTIFY the person in order for them to have 3PB status (also, who has the more DIRECT interest in the benefit, the promisee or alleged 3PB?)
Restatement Tests: An intended beneficiary exists if:
Duty owed test: (1) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary (creditor beneficiary) think the 3PB was owed MONEY/ETC
Intent to benefit test (2) the promisee intends to give the beneficiary the benefit of the promised performance (donee beneficiary—giving a gift!) think the 3PB was LIKED by promisor
**So if (1) or (2) is not the case, then the third party is an “incidental” AKA NOT a beneficiary.
REMEMBER: Unless the contract EXPLICITY STATES that a subcontractor/owner is a 3PB, in owner/contractor/subcontractor cases, NO ONE is the 3PB.
Vesting of Third Party Rights
When can the 3PB say that promisor and promisee CANNOT modify the agreement without 3PB’s consent:
(1) Parties can agree to whatever they want
(2) Absent a specific provision, the parties have the right to modify an agreement
(3) BUT: parties are limited in modifying the agreement IF the 3PB:
a. MATERIALLY CHANGES HIS POSITION in justifiable reliance on the promise before he is notified of it
b. brings suit on it
c. manifests assent to it at the request of the promisor/promisee
(4) So if any of those three happen, then the 3PB can object to the modification and the court will uphold that objection.
Promisor’s Ability (or Inability) to Raise Defenses Against the 3PB
(This occurs when the 3PB attempts to sue promisor. What defenses does promisor have against 3PB?)
Restatement: The PROMISOR can raise as a defense those claims against the promisee in defending against the 3PB.
BUT: the promisor can ONLY raise claims in the ORIGINAL TRANSACTION (promisor CANNOT use defenses from a separate contract he has with the promisee against the 3PB—in which the 3PB is not involved) so the world of suits is smaller for a 3PB than for an assignee
• Also, the beneficiary may CONCEDE to the promisee the right to sue!
3PB under the UCC
Everything is the same except warranties
When do warranties create a 3PB under the UCC
(A) actual person in your house (including guests) expected to use the article that is physically injured by breach of warranty
(B) any natural person that is physically injured by breach of warranty
(C) any person natural or unnatural and was injured (not necessarily physically) by breach of warranty
Note: majority rule is (A)
2 types of assignments
Gratuitous and Non-gratuitous
Gratuitous Assignments
Revocable by Assignor (no consideration)
Non-gratuitous
Irrevocable if consideration was paid; this is the “buying the business” example
What if no assignment clause in contract?
Default is they are assignable
When can’t you assign?
When substitution would “materially change the duty” like increasing the duty or decreasing the value (or it says in contract) or increasing the burden or risk or materially reduce its value to promisor
Delegation of duties
typically assignment also means the duties of promisor is assigned to assignee
Exceptions to Delegation – When performance is by a specific person was the heart of the deal (famous artist cannot assign portrait to his student for ex)
Does assignment clear liability
You are liable for any debt if the assignee is insolvent UNLESS you get a signed release
What if wrongful assignment?
it is treated like a breach, not a void of the contract - sue for damages
