Common Law Contracts

Question 1

UCC v Common Law Contract

Answer 1


Contracts are governed by the common law of contracts or the Uniform Commercial Code (UCC) (as codified in the Florida Statutes) if the contract relates to the sale of goods for $500 or more.

• If it is a hybrid contract, the court will apply the predominant purpose test to determine if the main purpose of the contract was to provide a good or a service.
• Alternatively, a court may apply the gravelman test and look to the subject matter of the dispute; if the dispute relates to a good, the court will look to the UCC to resolve the contract dispute.

Question 2

Valid Contract

Answer 2

A valid contract requires an offer, acceptance, and consideration.

Question 3

Valid Contract: Offer

Answer 3

• An offer is a manifestation of intent to enter a contract.
• It must have specific and definite terms.
• Under the UCC, a quantity term must be stated.

Question 4

Valid Contract: Acceptance

Answer 4

• Acceptance is mutual assent to the same bargain, at the same time, and to contract.
  
  • The terms of the offer control the method of acceptance.
  • There must be a meeting of the minds for mutual assent to occur. (Peerless).
  • Silence is generally not considered an acceptance.
  • Once an offer has been rejected, the offeree’s power of acceptance no longer exists.
• The offeror is the master of the offer and may specify any reasonable manner of acceptance.
  
  • If not specified in the offer, the offeree may accept by any reasonable method.
  • The offeror may also specify a time within which acceptance may occur.

Question 5

Partial Performance

Answer 5

In order for part performance to imply a promise to complete performance,

1. the offer must have been for an entire contract and not for a series of separate contracts;
2. performance that is started must be a part of the actual performance bargained for, and not mere preparation; and
3. the implied acceptance must be communicated to the offeror, even if it is by way of the offeror observing the part performance

Question 6

Valid Contract: Consideration

Answer 6

• Consideration is a bargained for exchange of promises to perform something the parties do not legally have to do or promises to refrain from doing something the parties have the legal right to do.
• In Florida, consideration can be in the form of either a legal benefit to one party or a legal detriment to the other.
• Under the doctrine of mutuality of obligation, both promises must be legally binding or the contract is void for lack of consideration.
• If the promise is wholly void for illegality or is illusory, it is non-detrimental and therefore, not valid consideration (i.e., promise not to take illegal drugs).
• Promissory estoppel can also serve as substitute consideration.

Question 7

Pre-Existing Duty Rule

Answer 7

Under the pre-existing duty rule, consideration may not be in the form of a pre-existing duty.

• It does not constitute legal detriment when a party performs an act that he is already legally obligated to do.
• Such a subsequent promise is unenforceable.
• The pre-existing duty rule does not apply to UCC contracts because modifications need only be made in good faith.

Question 8

Bilateral v. Unilateral Contract

Answer 8

• An offer to create a bilateral contract occurs when acceptance requires the return of a promise.
  
  • The mutual promises are given as the agreed bargained-for-exchange for each party.
  • Each party promises performance, so each party is both a promisor as to his own promise and a promisee as to the other’s promise.
• An offer to create a unilateral contract occurs when the acceptance can occur only by performing the requested act.
  
  • Under the majority/modern rule, once performance begins, the offer becomes irrevocable, and mere preparation, no matter how detrimental to the offeree, does not affect the offeror’s power of revocation.
  • The unilateral contract is formed when the requested act is performed.

Question 9

Divisible Contract

Answer 9

A divisible contract is one in which the parties have divided their respective performances into separate units, so that performance of an installment on one side entitles such party to the other’s performance of that installment.

• Employment contracts are considered divisible contracts for the purpose of permitting the employee to recover the agreed price for the number of months of service he provided to the employer.

Question 10

Implied Contract

Answer 10

• Quantum meruit is a restitutionary remedy that is awarded only when there is not an enforceable contract and the court needs to imply the existence of a contract at law to avoid unjust enrichment.
• The party is entitled to the reasonable value of the services performed.

Question 11

Statute of Frauds: Application

Answer 11

The Statute of Frauds (SOF) requires that certain contracts be in a writing that contains the essential terms, including quantity, and signed by the party against whom enforcement is sought. SOF applies to (MYLEGS)—

1. marriage contracts;
2. contracts that will take longer than a year to perform;
3. land sale contracts;
4. promises of estate executors to pay debts of the decedent;
5. contracts for the sale of goods that are $500 or more; and
6. suretyships / guarantors.

Question 12

Statute of Frauds: Satisfaction

Answer 12

The SOF may be satisfied by a—

1. signed writing;
2. merchant’s confirmation;
3. in-court admission;
4. partial or full performance;
5. substantial reliance by the seller of specially manufactured goods; or
6. part or full performance.

• Part performance can satisfy the SOF for oral land contracts if at least two of the following are met:
  
  1. taking possession;
  2. making improvements on the land; and/or
  3. paying at least part of the purchase price.

Question 13

Main Purpose Rule

Answer 13

Under the main purpose rule, a guarantor’s oral promise to pay the debt of another is enforceable where the party making the promise does so to further his own economic advantage.

• A re-affirmation of a debt that is no longer enforceable due to a lapse of the statute of limitations must also comply with the SOF by being evidenced by a writing.

Question 14

Statute of Frauds: Real Property Contracts

Answer 14

Real property contracts must

1. be in writing;
2. sufficiently identify the land and parties involved;
3. be signed by the parties; and
4. be witnessed by two subscribing witnesses.

Question 15

Statute of Frauds: Modifications

Answer 15

Whether modification must be in writing to meet the SOFs is dependent upon whether the contract, as modified, would have to meet the SOF.

• Under the UCC, modifications need only be in good faith and additional consideration is not necessary.

Question 16

Merchants

Answer 16

A merchant is one who regularly deals in the goods of the kind sold.

• When a contract is between merchants, if one merchant, within a reasonable time, sends a writing that is sufficient against the sender confirming the contract, and the other merchant receives it, has reason to know of its contents but fails to object to it within 10 days after receipt, the confirmation is deemed to satisfy the SOF.

Question 17

Rejection

Answer 17

• A rejection must be communicated to the offeror and is the offeree’s refusal to accept the offer as made.
• Merely talking to another seller about the possible purchase of the item is not a rejection or a clear indication that the offeree intended to reject the offeror’s offer.

Question 18

Counteroffer

Answer 18

• A counteroffer is considered a rejection of the original offer and the making of a new offer.
  
  • By making a counteroffer, the offeree is effectively rejecting the original offer.
  • A counteroffer occurs when, instead of accepting the terms offered, different or additional terms are included in the response to the offer.
• The rule for merchant counteroffers is that when the parties to a contract are both merchants, additional or different terms contained in an acceptance will become part of the contract unless—
  
  1. the offer is expressly limited to acceptance on its own terms,
  2. the offeror objects to the additional or different terms within a reasonable time after receiving notice of the changes, but no later than 10 days after receipt, or
  3. the additional or different terms materially alter the contract.

Question 19

Revocation by Offeror

Answer 19

There are five ways to revoke an offer:

1. time for acceptance has lapsed;
2. death or incapacity of either party;
3. express revocation by the offeror which only takes effect when communicated to the offeree;
4. rejection by the offeree; and
5. offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect (i.e., learn from reliable source that offeror sold to another party before offeree’s acceptance).

Question 20

Advertisements

Answer 20

As a general rule, advertisements for the sale of goods, circular letters, price lists, and articles on a shelf with a price tag are considered preliminary proposals inviting offers.

• In certain situations, an advertisement for the sale of goods may constitute an offer (e.g., newspaper ad “First Come, First Served,” is an offer because the language of the ad indicates a promise to sell and indicates a quantity of one).

Question 21

Reward Offers

Answer 21

• Reward offers are considered an offer to enter into a unilateral contract.
• Reward offers are offers made to the public and can only be accepted by performing.
  
  • A unilateral contract is formed when the requested act is performed.
  • If the person performing was unaware of the reward offer at the time of performance, there is no valid contract because as a general rule, a contract can only be formed if the offeree knew of the existence of the offer at the time of the alleged acceptance.

Question 22

Construction Contracts – Contractor Bids

Answer 22

• A contractor’s request for bids is a mere invitation to submit offers, and any bids submitted by subcontractors are offers.
• The contractor has not accepted the subcontractor bid/offer until he wins the bid on the project.
• When a general contractor, about to submit a bid on a construction project, secures a bid from a subcontractor for a definite part of the proposed work, it becomes a valid enforceable contract at the time the general contractor wins the bid to determine that part of his cost.
  
  • Such contract can be enforced under the doctrine of promissory estoppel, because the promisor/subcontractor induced a substantial change of position by the promisee/general contractor in reliance on the promise.
    
    • Thus, the subcontractor is estopped from denying its enforceability based on a lack of consideration.
  • There is an exception if subcontractor made a mistake in the bid, and the contractor knew or should have reasonably known that the bid contained a mistake. In such case, the subcontractor is not bound by the bid.

Question 23

Building Contracts

Answer 23

• If a natural disaster destroys part of the contractor’s work before it is completed, the contractor is not entitled to partial payment.
• Generally, a builder in promising the result has accepted the attendant risks inherently involved.

Question 24

Employment Contracts

Answer 24

“At will” employment contracts may be terminated at any time. However, an employment manual could change the “at will” employment to an ongoing contractual obligation. But if the manual specifically states that it does not create an ongoing contractual obligation, then the employment is at will.

Question 25

Lost Volume Seller Doctrine

Answer 25

• A volume seller is one whose willingness and ability to supply a product is unlimited in comparison to demand. He can sell as many of a product as he chooses.
• Under the lost volume seller doctrine, if a buyer breaches a contract with a volume seller, the seller is entitled to the full amount of the profit he would have earned under the contract with the buyer, together with any incidental costs incurred, even if the product was resold to another buyer for the same price.
• Because the seller has an unlimited number of buyers, he is entitled to the profit payment because “but for” the buyer’s breach, he would have earned the profit from another buyer.

Question 26

Auctions

Answer 26

An auction is deemed to be with reserve unless specifically stated to be without reserve.

• When the goods are sold with reserve, the goods can be withdrawn from the sale at any time prior to the announced completion of the sale.
• When goods are at auction without reserve, the auctioneer makes an offer to sell at any price bid by the highest bidder, and after the auctioneer calls for bids, the goods cannot be withheld unless no bids are made within a reasonable time.

Question 27

Gratuitous Promises

Answer 27

Generally, gratuitous/donative promises are unenforceable unless supported by consideration or a consideration substitute (like promissory estoppel).

• If the promise is based on past consideration (such as work performed in the past), it is not considered good consideration, and the promise is unenforceable.
• Detrimental action or forbearance by the promisee in reliance on a gratuitous promise, within limits, constitutes a substitute for consideration, or a sufficient reason for enforcement of the promise without consideration, under the doctrine of promissory estoppel.
• To avoid unjust enrichment, the promisor who induces substantial change in position by the promisee in reliance on the promise is estopped to deny its enforceability based on a lack of consideration.

Question 28

Mailbox Rule

Answer 28

• Under the mailbox rule (which only applies to common law contracts, and not UCC contracts), unless otherwise specified in the offer, acceptance is valid upon placing it in the mail.
  
  • There is an exception, however, if the offeree rejects the offer before accepting.
• Rejection is effective at the time it is communicated to the offeror.
  
  • The exception to this rule is if the offeree mails a rejection prior to mailing an acceptance, the rejection is valid regardless of which is received first by the offeror.
• An offeror’s revocation is only effective when it is communicated to the offeree or the offeree has reliable information that the offeror has acted in a manner inconsistent with the offer.

Question 29

Mirror Image Rule

Answer 29

The mirror image rule provides that the terms of an acceptance must be identical to those of the offer. This does not apply to contracts under the UCC.

Question 30

Promise to Keep Offer Open

Answer 30

• The general rule is that the offeror may, at any time before acceptance, terminate his offer by revoking it, even if the offeror promised not to revoke for a stated time, unless—

1. the offer was made under seal,
2. the offer was made in exchange for consideration, or
3. the offer was made by a merchant.

Question 31

Option Contracts

Answer 31

• A promise to keep an offer open for a specified period of time is considered an option contract and is only enforceable if valid consideration exists for the option.
• The option contract is not invalid simply because the recited acknowledgement of receipt of consideration is shown to be untrue.

Question 32

Termination of Offer

Answer 32

• Offers generally create the power of acceptance in the person to whom the offer was made.
• An offer cannot be accepted if it has terminated.
• The death or incapacity of either party after the offer, but before acceptance terminates the offer.
• This rule does not apply to irrevocable offers.

Question 33

Parol Evidence Rule

Answer 33

• In Florida, the parol evidence rules require the judge to determine as a question of fact, whether the agreement was intended by the parties to be a final and complete integration of all of the agreements between them.
  
  • If it was, any other expressions made prior to or contemporaneous with the writing are inadmissible to vary the terms of the writing, and contradictory or supplemental evidence will be excluded.
  • If it was only a partial integration, the writing cannot be contradicted, but may be supplemented by evidence of consistent additional terms.
• Parol evidence is always admissible to explain a term of the contract.

Question 34

Conditions

Answer 34

• A condition is an event other than the passage of time that must occur or fail to occur, unless excused, before performance becomes due (condition precedent) or that will release a party from an existing duty to perform (condition subsequent).
• Conditions can also be concurrent.
• A promissory condition is where a contract performance is conditioned on the occurrence of the promised performance by the other party.
• Pure conditions are typically where contract performance is conditioned on the occurrence of events beyond the parties control.
• Where a party’s performance is subject to an express condition, the failure of that condition will discharge the party’s obligation to perform.

Question 35

Breach of Contract

Answer 35

• To prove a breach of contract, the party must prove that the other party has an absolute obligation to perform and has failed to do so.
• A material breach discharges the non-breaching party’s duty to perform, whereas a minor breach does not.

Question 36

Minor Breach

Answer 36

• The non-breaching party received the substantial benefit of the bargain or substantial performance of the condition.
• The non-breaching party is not discharged, but he can recover or deduct damages for the breach.
• The breaching party may recover the amount of the reasonable value of the benefit conferred to the non-breaching party.

Question 37

Material Breach

Answer 37

• A material breach can be either treated as a total or partial breach.
• A claim for damages of total breach is one for damages based on all of the injured party’s remaining rights to performance.
• A claim for partial breach is one for damages based on only part of the injured party’s remaining rights to performance.

Question 38

Common Law Breach

Answer 38

Under common law, whether a party was excused from performance depended on whether the breach was minor or material.

• If material, then the party is excused from performance.
• If minor, then the non-breaching party must complete performance, but may recover damages for the minor breach.

Question 39

Anticipatory Repudiation

Answer 39

An anticipatory repudiation occurs when—

1. both parties still have obligations left under the contract, and
2. one party unequivocally communicates to the other party that it is not going to perform.

• If there is an anticipatory repudiation, then the non-breaching party at his option may:

1. consider it as an offer to rescind the contract and excuse his performance,
2. sue on the contract immediately,
3. ignore the anticipatory repudiation and continue to encourage the non-breaching party to perform, or
4. wait until the contract is actually breached and sue.

Question 40

Right to Assurances

Answer 40

• If one party reasonably believes that a party will not be able to perform, but has not received complete anticipatory repudiation, then the party is entitled to seek assurances from the other party.
• If the other potentially breaching party does not respond or give assurances within 30 days, then the other party may be entitled to continue under anticipatory repudiation as if the contract was breached.

Question 41

Promissory Estoppel

Answer 41

• If the court finds that there is no contract, it may grant the party relief under a theory of promissory estoppel or detrimental reliance.
• The elements of promissory estoppel are that—

1. there was a promise,
2. the reliance was reasonable, detrimental, and foreseeable, and
3. enforcement is necessary to avoid unjust enrichment.

• Promissory estoppel may be used to defeat a SOF defense.

Question 42

Minority

Answer 42

• A minor under the age of 18 lacks the capacity to contract.
• A contract entered into between a minor and adult is voidable at the minor’s option.
  
  • It is fully enforceable against the adult if the minor is emancipated or if the contract is ratified after the minor turns 18, then lack of capacity is no defense.
  • An adult may be able to enforce a contract for necessities like shelter and food.
  • A minor may be estopped from asserting lack of legal capacity if the minor induced the other party to enter into a contract by fraudulently misrepresenting that he had reached the age of majority.
  • Minors in Florida can enter into a legally binding contract if they are married, if they are 16 and contracting for higher education loads, or if they are pregnant and contract for health care.

Question 43

Capacity

Answer 43

• An infant under 18, mental incompetents that lack the ability to understand the agreement, or intoxicated people if the other party has a reason to know, do not have the capacity to enter into a contract.
• The person without capacity is the only party with the right to disaffirm.
• An agreement made by a person without capacity, who has now gained capacity and continues to retain the subject matter without complaint can be held liable.
• A person who does not have capacity is legally obligated to pay for things that are a necessity based on quasi-contract law.

Question 44

Misrepresentation

Answer 44

• Fraudulent misrepresentation is untrue statements or assertions that relate to a material fact.
• This can be a defense to enforcement of the contract or a sword for affirmative relief.

Question 45

Impossibility

Answer 45

• A party may be excused from performance if their performance is impossible.
• Impossibility is a higher standard to meet than impracticability.
• It is an objective standard in that no one could perform according to the terms of the contract under the circumstances.
• The impossibility must arise after the contract was entered into, such as the physical impossibility of the person necessary to perform or a subsequently enacted law rendering the contract illegal.

Question 46

Impracticability

Answer 46

• A party may be excused from performance if their performance is impractical.
• It is impractical when performance would be—

1. extreme and unreasonably difficult or expensive,
2. the event was unanticipated at the time of the contract,
3. the event occurs after the contract is executed, or
4. is the result of a strike or embargo.

• Impracticability is a subjective test determined by whether it would be impractical to this defendant.
• Mere change in the difficulty or expense due to normal risks that could have been anticipated is not enough.

Question 47

Unconscionability

Answer 47

• Unconscionability is tested at the time the contract was made.
• The basic test is whether, in light of the general commercial background and needs of the particular parties, the clauses involved are so one sided as to be unconscionable under circumstances existing at formation.
• This defense is often applied where one party has substantially superior bargaining power.

Question 48

Mutual Mistake

Answer 48

• Mutual mistake is a defense when both parties who enter into a contract are mistaken about the facts relating to the agreement.
• The contract may be voidable (rescinded) by the adversely affected if—

1. the mistake concerns a basic assumption on which the contract was made,
2. the mistake has a materially adverse affect on the agreed upon exchange, and
3. the adversely affected party did not assume the risk of the mistake.

• If the parties of a contract make assumptions as to the value of the subject matter, mistakes in those assumptions will generally not warrant rescission, because both parties assume the risk that they were mistaken.

Question 49

Unilateral Mistake

Answer 49

• Unilateral mistake is not grounds for rescission unless the non-mistaken party knew or should have known of the mistake.
• When there is an ambiguity, if neither party is aware or both parties are aware, no contract is formed unless both parties intended the same meaning.
• If only one party is aware, a binding contract is based on what the ignorant party believed the word to mean.

Question 50

Frustration of Purpose

Answer 50

• Frustration of purpose requires—

1. a supervening event;
2. that wasn’t reasonably foreseeable at the time of entering into the contract;
3. that completely or almost completely destroys the purpose of the contract; and
4. the purpose was understood by both parties.

• It is not an argument that performance is impossible; rather it is an argument that performance is pointless.

Question 51

Accord & Satisfaction

Answer 51

• Discharge by substituted contract occurs where the parties to a contract enter into a second contract that immediately revokes the first contract.
  
  • The second contract may revoke the first contract either expressly or impliedly.
  • The first contract will be impliedly revoked if the second contract’s terms are inconsistent with the terms of the first contract.
• Whether a second contract will constitute a substituted contract depends on whether the parties intend an immediate discharge or discharge only after performance of the second contract.
• If immediate discharge is intended, there is a substituted contract.

Question 52

Rescission

Answer 52

• Rescission voids the contract and leaves the parties as though the contract had never been made.
  
  • Grounds for rescission must have occurred either before or at the time the contract was entered into.
• Unilateral rescission is an option where only one of the parties to the contract desires to discharge its contractual duties.
  
  • For unilateral rescission to be granted, the party desiring rescission must have grounds of mistake, misrepresentation, duress, or failure of consideration.

Question 53

Damages

Answer 53

• There is a duty to mitigate when one party breaches a contract.
• The various money damages rules in Florida are designed to compensate the plaintiff, and not to punish the defendant.
• This is accomplished by protecting the expectation interest of the plaintiff.
• Expectation means that you do not expect the other party to breach.
• The goal of damages is to place the plaintiff in the same dollar position as if there was not a breach.

Question 54

Expectation Damages

Answer 54

• The default rule for proper measure of damages in breach of contract cases is the expectation interest of the aggrieved party.
• Money damages are designed to protect the non-breaching party’s expectation interest as to put the non-breaching party in the position they would’ve been had the contract been fully performed.

Question 55

Consequential Damages

Answer 55

• These are any damages that are a reasonably foreseeable result of the breach.
• Consequential damages are recoverable only if they are—

1. reasonably foreseeable by the parties when the contract was made;
2. unavoidable through reasonable efforts; and
3. provable with reasonable certainty.

Question 56

Restitutionary Damages

Answer 56

• Restitution may be awarded when the non-breacher has transferred a benefit to the breaching party in an attempt to perform.
• The aggrieved party may recover the value of the benefit conferred on the breaching party by the aggrieved party during the course of the contract.
• The aggrieved party may select either expectation damages or restitutionary damages—but not both.

Question 57

Liquidated Damages Clause

Answer 57

For a liquidated damages clause to be enforceable—

1. damages for breach must have been difficult to ascertain or establish at the time the contract was formed; and
2. the amount agreed upon must have been a reasonable forecast of compensatory damages in the event of breach.

• If the liquidated damages figure is unreasonable, the court will construe it as a penalty and not enforce the provision.
• If one or both the requirements are not met, the plaintiff may only recover the damages they can prove.

Question 58

Specific Performance

Answer 58

To obtain specific performance, the plaintiff must prove that—

1. a contract exists;
2. all contractual conditions have been fulfilled;
3. the legal remedy is inadequate;
4. the enforcement is feasible;
5. mutuality of remedy exists; and
6. there are no defenses available to the defendant.

• The legal remedy is adequate where the subject matter of the contract is unique.
• Land is always unique, whereas, personal property generally is not.
  
  • Personal property may be considered unique where it is—

1. unique in kind;
2. of personal significance to the buyer; or
3. in short supply.

Question 59

Quasi-Contract

Answer 59

• Quasi-contractual relief is appropriate if a failed contract resulted in unjust enrichment of one of the parties.
• The party must show—
  
  1. that it conferred a benefit on other party;
  2. that it had a reasonable expectation of being adequately compensated; and
  3. that the other party would be unjustly enriched if not required to compensate.

Question 60

Assignment and Delegation

Answer 60

Any contractual right may be assigned and any contractual duty may be delegated unless—

1. the duty involves personal judgment or skill, or
2. the contract prohibits delegations or assignments.

Question 61

Assignment

Answer 61

• Generally, all contractual rights may be assigned unless—

1. an assignment would substantially change the obligor’s duty or risk,
2. an assignment is of future rights to arise from a future contract, or
3. an assignment prohibited by law.

• To make an effective assignment, the assignor must manifest intention to make a present transfer of the right without further action by the owner or the obligor.
• The basic rule is that an assignee gets whatever rights to the contract the assignor had, and the assignee takes subject to whatever defenses the obligor could have raised against the assignor.
• A clause prohibiting assignment of the contract will be construed as barring only delegation of the assignor’s duties.
  
  • If the contract provides that attempts to assignee will be void, the parties can bar assignment.
  • If the assignee has notice of the non-assignment clause, an assignment will be ineffective.
• Gratuitous assignments can be revoked, whereas, assignments for consideration are irrevocable.
  
  • A gratuitous assignment becomes irrevocable if the obligor has already performed.

Question 62

Delegation

Answer 62

• This is when a 3rd party agrees to satisfy a performance obligation owed by one of the parties to the contract.
• A delegation does not relieve the delegator from his obligations under the contract.
• The delegatee who has agreed to perform the delegator’s contract obligations and fails to do is will be liable to the delegator.
• The delegatee is also liable to the obligee because the obligee is an intended beneficiary of the promise made to the delegator.
• Contract provisions barring delegation are fully enforceable.

Question 63

Novation

Answer 63

• A novation occurs when a new contract substitutes a new party to receive benefits and assume duties of one of the original parties.
• There must be—

1. a previously valid contract;
2. an agreement among ALL the parties, including the new party;
3. immediate extinguishment of duties between the original parties; and
4. a valid new contract.

Question 64

Third Party Beneficiary

Answer 64

• A 3rd party beneficiary is person who isn’t a party to the bargain and who gives no consideration to support it, but who will benefit by the contract performance.
• There are three types of 3rd party beneficiaries:

1. creditor beneficiaries;
2. done beneficiaries; and
3. incidental beneficiaries.

• A person is a creditor beneficiary is the promisee’s primary intent is to discharge an obligation owed to the fiduciary.
• A person is a donee beneficiary if the promisee’s primary intent was to make a gift to the beneficiary.
• Other beneficiaries—persons who benefit but whom the done didn’t specifically intend to benefit—are incidental beneficiaries.
• Generally, a creditor or donee beneficiary—but not an incidental beneficiary—can enforce the contract against the promisor directly, but is subject to any defense that the promisor could have raised against the promisee.
• The promisor and the promisee are free to change the terms of the contract until the third party beneficiary’s rights vest.
  
  • The rights of a creditor or donee beneficiary will vest when the beneficiary—
  1. assents to the contract;
  2. brings suit to enforce the contract; or
  3. materially changes position in justifiable reliance on the contract.
  • If the promisee doesn’t perform, a third party creditor beneficiary generally can sue the promisee on the obligation that was supposed to have been discharged by the promisor’s performance, but a third party donee beneficiary generally cannot sue the promisee, because as between the promisee and the third party beneficiary, all that exists is a failed gift.