8. Third Party Issues Flashcards
THIRD PARTY BENEFICIARIES:
Third party that benefits from contract entered into between other parties
♣ Intended Third Party Beneficiary: parties to contract intend for TPB to benefit from contract. TPB has rights under contract.
♣ Incidental Third Party Beneficiary: stands to benefit from contract although not intended by parties to the contract; has no rights under contract.
THIRD PARTY BENEFICIARIES:
Characteristics
♣ Not parties to the contract, merely beneficiaries
♣ Intended TPB have right to sue for breach of contract even though they are not parties to the contract
THIRD PARTY BENEFICIARIES:
Determining TPB status
♣ Whether TPB is an intended beneficiary is a question of fact. Look at factors for intended TPB –>
• 1. Does TPB have rights under the contract
• 2. Is TPB expressly designated in the contract
• 3. Can you infer?
Rights of Third-Party Beneficiaries
In order to enforce rights under a contract, a TPB’s rights must vest
♣ Vesting of Rights: occurs when the TBP either:
• 1. Accepts benefits
• 2. Sues to enforce
• 3. Detrimental reliance
♣ Enforcing the Contract
• TPB can sue promisor
• Promisee can sue promisor at law and in equity for specific performance
• TPB can only sue promisee if TPB is a creditor beneficiary
ASSIGNMENT:
An assignment is a transfer of rights under a contract to a third party after the contract is formed
♣ Consideration: not required, but assignment without consideration is considered gratuitous
ASSIGNMENT:
Common law limitations
♣ Common law bars any assignment that substantially changes the duties of the obligor
• Assignment of payment is not a substantial change
• Assignment of rights to performance is a substantial change
ASSIGNMENT:
Limitation Clause
♣ Contract may contain clause that either prohibits or invalidates assignment of rights:
• Prohibiting Assignment: takes away the right to assign, but not the power to assign
o An assignee can still enforce the assignment if he was unaware of the provision
• Invalidating Assignment: takes away both the right and the power to assign
o Any assignment is invalid and unenforceable
Revocability
♣ Gratuitous assignments may be revocable, however assignments made for consideration are irrevocable
Exception:
♣ 1. Obligor has already performed
♣ 2. Assignee has received written claim or tangible object signifying right to collect (e.g. stock certificate)
♣ 3. Detrimental reliance by assignee
Assignee right to sue: (assignee can sue)
♣ 1. Obligor: for nonperformance
♣ 2. Assignor: for wrongful revocation of assignment or breach of an implied warranty
DELEGATION: Liability
Delegator remains liable for delegatee’s performance.
- Obligee may sue delegator for non-performance by delegatee
- Obligee may only sue delegatee if delegatee assumed duties of entire contract.
DELEGATION:
Occurs when one party to a contract (delegator) delegates the duties she owes to another party to the contract (obligee) to a third party (delegatee).
♣ Obligee must generally accept performance from delegatee
♣ Only duties may be delegated whereas rights may be transferred to a third-party via assignment
DELEGATION: Exceptions
♣ Duties are not delegable if:
• Duties involve personal judgment and skill
• Delegation materially changes the obligee’s expectancy under the contract
• A party has placed special trust in the delegator or
• A contractual provision restricts delegation
Delegation vs. Novation
♣ You get novations when both parties agree that a substitute person will take over the duties under the contract, whereas a delegation occurs when one party independently decides to delegate duties to a 3rd party
