5. Third-Party Problems Flashcards
Third-party beneficiary
Not a party to the contract. Able to enforce contract others made for her benefit.
Promisor
Look for person who is making the promise that benefits the third party.
Promisee
Look for person who obtains the promise that benefits the third party.
Do incidental beneficiaries have contract law rights?
No, only intended beneficiaries do.
When may a contract for a third party beneficiary be cancelled or modified?
The test is whether the third party knows of and has relied on or assented as requested. If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.
Who can recover from a promisor?
Either the Promisee or the Third Party beneficiary
When is the only time a beneficiary may recover from a promisee?
Creditor beneficiary can recover from
promisee BUT ONLY on pre-existing debt
What an assignment is:
Assignment is a transfer of rights under a contract.
Assignment involves two separate steps:
- Contract between only two parties; and
2. One of the parties later transfers rights under that contract to a third party.
Can you assign an offer?
No
Assignor:
Party to the contract who later transfers rights under the contract to another.
Assignee:
Not a party to the contract. Able to enforce the contract because of the assignment.
Obligor:
Other party to the contract.
If there is a contract provision regarding assignment:
If the fact pattern includes language of contract regarding assignability, determine whether the contract (a) prohibits assignments or (b) invalidates assignments.
Prohibition of Assignments:
Language of prohibition takes away the right to assign but not the power to assign, which means that the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment.
Batman-Gotham contract provides “rights hereunder are not assignable.”
Notwithstanding this contract provision, Batman assigns the right to the $300,000 payment to Robin who does not know about the contract provision. Can Robin collect from Gotham?
Yes
Invalidation of Assignments:
Language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.
Batman-Gotham contract provides “all assignments of rights under this contract are void.” Notwithstanding this contract provision, Batman assigns the right to the $300,000 payment to Robin, who does not know about the contract provision. Can Robin collect from Gotham?
No
If there is nothing in fact pattern about contract language regarding assignability:
Even if a contract does not in any way limit the right to assign, common law bars an assignment that substantially changes the duties of the obligor.
Batman assigns his rights to payment under the contract with Gotham to Robin, i.e., Gotham is to pay Robin, not Batman. Does this substantially change the duty of the obligor so that the assignment is not enforceable?
No, there is not a substantial change
Gotham assigns its rights to security services under the contract with Batman to
Metropolis, i.e. Batman is to defend Metropolis, not Gotham. Does this substantially change the duty of the obligor so that the assignment is not enforceable?
Yes, there is a substantial change
Who can sue whom if there has been an assignment?
Assignee can recover from the obligor.
When is it permissible for an obligor to pay an assignor?
Payment by obligor to assignor is effective until obligor knows of assignment.
Implied warranties of assignor in an assignment for consideration:
In an assignment for consideration, the assignor warrants
(1) the right assigned actually exists, and
(2) the right assigned is not subject to any then existing defenses by the obligor, and
(3) the assignor will do nothing after the assignment to impair the value of the assignment.
X signs a contract promising to pay Y $1,000. Y assigns the contract to Z for $800. X was an infant when he signed the contract with Y and refuses to pay Z. Can assignee Z recover from assignor Y?
Yes, because the right assigned was subject to an existing defense
Epstein assigns the right to royalties from his splendid West contracts casebook to Sharon Stone for $1,000. Later Epstein writes West and releases it from any obligation to pay royalties. West does not pay Ms. Stone. Can Ms. Stone collect from Epstein for breach of implied warranty of assignment?
Yes, because the assignor did something after the assignment to impair the value of the assignment
Epstein assigns the right to royalties from his splendid West contracts casebook to Sharon Stone for $1,000. Later, West files for bankruptcy and receives a discharge. Can Ms. Stone collect from Epstein for breach of implied warranty of assignment?
No, Epstein did nothing wrong
Batman gives the right to the $300,000 payment from Gotham to the University of
Richmond Law School on January 15. On April 5, Batman makes a gift of the same payment right to the UJA. Which assignee has greater rights?
UJA
Although, in N.Y., gratuitous assignments in writing are irrevocable.
What is the general rule for determining who has greater rights when there are multiple gratuitous assignments?
Last assignee generally wins
What is the general rule for determining who has greater rights when there are multiple assignments for consideration?
First assignee for consideration wins
On February 2, Batman assigns his rights under the contract with Gotham to Robin for $1. On March 3, Batman assigns his rights under the same contract with Gotham to Conviser for $250,000. Whom should Gotham pay?
Robin, because he was first
Batman assigns to Robin for consideration and then assigns to Conviser for consideration. Conviser does not know of the assignment to Robin and Conviser is the first to notify Gotham that he is an assignee. Gotham learns of the earlier assignment to Robin before it pays Conviser. To whom should Gotham make the payment?
Being first to notify is irrelevant, so the payment is to be made to Robin
Delegation
Party to a contract transferring work under that contract to third party. For example, P contracts to paint O’s house for $1,000. P (delegating party) and X (delegatee) agree that X will paint O’s (obligee) house.
P contracts with O to paint O’s house for $1,000. P and X agree that X will do the painting and collect the $1,000 from O. Is this an assignment, a delegation or both an assignment and a delegation?
Both
Which duties are delegable?
Generally, contractual duties are delegable. The limitations on delegation are very limited.
Delegations are permitted unless either
(1) contract prohibits delegations or prohibits assignments or
(2) “personal services contract” that calls for VERY SPECIAL skills.
What if, after delegation, the third-party delegatee does not perform?
- Delegating party always remains liable.
2. Delegatee liable only if she receives consideration from delegating party.
P contracts to paint O’s house for $1,000. X then agrees with P that she (X) will do the painting for P, because P is a good friend. X does not do the work. Can O recover from P?
Yes, because P did not receive consideration
P contracts to paint O’s house for $1,000. X then agrees with P that she (X) will do the painting for P, because P is a good friend. X does not do the work.
Can P recover from X?
No, the delegatee was not liable because he did not receive consideration
P contracts to paint O’s house for $1,000. X then agrees with P that she (X) will do the painting for P, because P is a good friend. X does not do the work.
Can O recover from X?
No
P contracts to paint O’s house for $1,000. P and X then agree that X will do the work and P will pay X $900. X does not do the work. Can O recover from P?
Yes, because the delegating party is always liable
P contracts to paint O’s house for $1,000. P and X then agree that X will do the work and P will pay X $900. X does not do the work. Can P recover from X?
Yes
P contracts to paint O’s house for $1,000. P and X then agree that X will do the work and P will pay X $900. X does not do the work. Can O recover from X?
Yes, because X received consideration
