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.
