Rights and Duties of Third Parties

Question 1

Vesting of Third Party Beneficiary’s (TFB) Rights AND the effect on the original parties

Answer 1

Rule: Before a TFB’s rights have vested the parties can modify the contract. After the TFB’s rights have vested the no modification is allowed.

Three ways in which a TFB’s rights are may be vested:

1. TFB learns of contract and assents to it;
2. Reliance of TFB on the contract;
3. TFB sues to enforce the contract.

Question 2

Defendant’s Defenses as to Third Party

Answer 2

Rule: A defendant can raise any defense against a TFB that he could have raised against the original party.

Question 3

Creditor Beneficiaries vs. Donee Beneficiaries

Answer 3

A creditor beneficiary can sue the promisee on the existing obligation between them. Creditor can also sue the promisor, but is entitled to only one satisfaction.

A donee beneficiary has no right to sue promisee unless detrimental reliance.

Question 4

What rights can be assigned?

Answer 4

Rule: Generally all contractual obligations may be assigned except assignments:

• that would substntially change the obligor’s duty of risk;
• of future rights to arise from future contracts (not future rights in existing contracts); and
• and assignment prohibited by law.

Question 5

Express provisions against assignment

Answer 5

Clause prohibiting “the contract” from being assigned: Construed as barring only assignor’s duties.

Clause prohibiting “contractual duties” from being assigned: Does not bar assignments, but rather gives obligor right to sue for damages.

Clause providing any attempts to assign will be void: Prohibits all assigments.

Question 6

When is assignment effective?

Answer 6

Rule: Assignment is effective when assignor manifests an intent to immediatly and completely transfer his rights.

• No consideration needed.
• Writing is not usually required.

Question 7

Effect of Assignment

Answer 7

Rule: Assignment established privity between the obligor and the assignee while extinguishing privity between the obligor and teh assignor.

Question 8

Assignments for Value

Answer 8

Assignment for Value: An assignment that is done for consideration; or taken as security for a preexisting debt.

• Assignments for value are irrevocable.

Question 9

Gratitious Assignments

Answer 9

Rule: Assignments that are not for value are generally revocable.

Exceptions:

1. Obligor already performed;
2. a token chose is delivered (stock certificate);
3. Assignor taking performance directly from the obligor; or
4. Subsequent assignment of the same right by the assignor to another.

Effect of Revocation: The privity between the assignor and the obligor is restored, and the assignor is once again the real party in interest.

Question 10

Assignor vs. Obligor

Answer 10

Assignee can sue obligor, as assignee is the real party in interest.

Obligor cannot raise any defenses the assignor might have against the assignee.

Question 11

Assignee vs. Assignor

Answer 11

Rule: In every assignment for value, the assignor warrants that:

• he has not made a prior assignment of the same right;
• the right exists and is not subject to any undisclosed defenses; and
• he will do nothing to interfere with the assigned right.

Assignee may sure for any breach of these warrenties, but is not liable to assignee if obligor is incapable of performing.

Question 12

What duties may be delegated?

Answer 12

Rule: Any duty may be delegated, except:

• Duties involving personal judgment and skill;
• delegation would change the obligee’s expectancy;
• a special trust was reposed in the delegator by the other party to the contract; and
• there is a contractual restriction on delegation.