Contract Law- Third party beneficiaries Flashcards
What is the third party beneficiary contract doctrine?
- Whether a third party can sue to enforce a contract made by two other people
What are the parties in a third party contract?
o Promisor—the person making the promise that the outsider is trying to enforce
o Promisee—a contractual counterparty to that promise; this person could presumably enforce the contract, but is not doing so.
o Third-party beneficiary—the outsider suing the promisor for the breach
Can all third parties sue?
No
Intended beneficiaries have the right to sue. The initial parties intended to convey enforcement rights to the third party in case of a breach.
Incidental beneficiaries can’t sue.
What is a creditor beneficiary
A creditor beneficiary arises when the promisee
strikes a deal with the promisor in order to repay some earlier debt to the third party.
what is a donee beneficiary?
o A donee beneficiary arises when there is no preexisting obligation, but the promisee clearly
intends to confer a gift of enforcement on a third party.
Can the parties revoke the benefits to a third-party beneficiary and when?
Yes.
o The initial counterparties might try to revoke or modify the third-party’s right to enforce the contract.
o Ask whether the third party knows about the promise and has changed position in reasonable reliance on the promise.
If so, the third party may be able to make out a claim under promissory estoppel.
When will the third party will NOT lose enforcement rights?
A third party will not lose enforcement rights if any of the following facts is true, as these
facts cause the right to vest:
The beneficiary detrimentally relied on the rights (similar to promissory estoppel);
The beneficiary manifest assent to the contract; or
The beneficiary has filed a lawsuit to enforce
the contract.
Only one of the above needs to happen to claim that the rights have vested and the counterparties cannot take those rights away.
What are the rights of the promissor against a third-party beneficiary?
o The promisor can assert any contract defense against the third party that he would be entitled to assert against the promisee.
What is the difference between assignments and delegations in the context of contracts?
Assignment—the transfer of rights under a contract
* Delegation—the transfer of duties under a contract
What is the difference between assignment and third party beneficiary?
You can distinguish an assignment from a third-party beneficiary contract because you will typically see two steps in an assignment:
1) The formation of a contract; and
2) The transfer of the benefits of the contract from an original counterparty to some third party
Can I assign my rights in a contract?
Almost all contract benefits can be assigned in whole or in part, unless the contract explicitly prohibits or invalidates assignments
What happens if I assign rights in a contract that does not allow assignment?
If the contract states that rights are not assignable, you must determine whether the contract
prohibits assignments or invalidates assignments.
o The contract prohibits assignments—the assigning party has breached when he makes the assignment, but the third party can still recover from the guarantor.
The power to assign persists, even if the right to assign does not.
If the contract invalidates assignments—the third party cannot recover because there is no power or right to assign.
- What happens if someone assigns the same rights twice?
It depends on whether the assignee has paid consideration for the rights:
o If the rights are assigned without consideration, the assignment is generally revocable, and the last assignment controls.
o If the rights are assigned for consideration, then the first assignment for consideration is typically irrevocable and will hold.
Limited exception: A later assignment will take priority if the second assignee does not know of the initial assignment and is first to obtain payment or a judgment (i.e., a bonafide purchaser for value without notice).
What are gratuitous assignments?
Editor’s Note 8: Assignments without consideration (i.e. gratuitous
assignments) are generally revocable. However, a gratuitous assignment cannot be revoked if (i) the obligor has already performed, (ii) promissory estoppel applies, or (iii) a document evidencing the assigned right or a written assignment signed by the assignor was delivered to the assignee.
What is delegation and when is it acceptable in a contract?
- A delegation occurs when a party to a contract “outsources” her duties under the contract.
- This is generally acceptable as long as the contract does not prohibit delegation and as long as the other party does not have some special interest in having a specific individual perform.
- A delegatee is generally not liable for breach unless she receives consideration from the delegating party.
