Contracts - 3rd Party Rights

Question 1

What elements must be in place for a creditor beneficiary to exist?

Answer 1

1. A debtor-creditor relationship must exist;

2. The debtor must make a contract with the third party that benefits the creditor.

Question 2

List the various types of third-party beneficiaries.

Answer 2

1. Donee (Intended);
2. Creditor (Intended);
3. Incidental (Not Intended).

Question 3

Describe the liability of the assignor.

Answer 3

Unless released, assignor remains liable.

Question 4

List contractual assignment exceptions.

Answer 4

1. Terms Prohibit Assignment;
2. Statute Prohibits Assignment;
3. Personal Contracts;
4. Materially Increases Risks.

Question 5

Describe the rights of a donee beneficiary.

Answer 5

Can recover from party required to pay under the contract but not from the party who makes the arrangements for the payment (life insurance arrangement - beneficiary can recover from insurance company but not from the insured).

Question 6

Define “assignment.”

Answer 6

The transfer of the benefits under a contract to a third party (contractor assigns payment to lumber company).

Question 7

List the various types of third party contracts.

Answer 7

1. Assignments;
2. Delegations;
3. Third party beneficiary contracts.

Question 8

Describe the rights of a creditor beneficiary.

Answer 8

Can recover from original debtor who designated the creditor beneficiary or from party required to pay under contract with debtor (health insurance - hospital can recover from insured or insurer).

Question 9

When two assignee’s names are on the same contract, which assignment is valid?

Answer 9

1. U.S. Rule - first in time of assignment;

2. English Rule - first to give notice of assignment.

Question 10

Describe the rights of an incidental beneficiary.

Answer 10

Has no right of recover against either party to the original contract (resident of city cannot recover if contractor does build planned city park).

Question 11

Define “incidental beneficiary.”

Answer 11

A third party who receives an unintended benefit has no legal rights in a contract between two parties.

Question 12

Define “third party beneficiary contracts.”

Answer 12

Contract between two parties is set up with the purpose of providing benefits to a third party.

Question 13

List contractual delegation exceptions.

Answer 13

1. Terms prohibit delegation;
2. Personal Skill/Special trust;
3. Material variation.

Question 14

Define “delegation.”

Answer 14

The transfer of the detriment (duties) under a contract to a third party (Mr. Ice asks Ice Inc. to take over ice supply contract for Lobster, Inc.).

Question 15

When is an assignment binding on the parties to the original contract?

Answer 15

When the original parties receive notice of the assignment.