Rights and Duties of Third Parties to the Contract Flashcards
What are the two broad types of beneficiaries?
Intended – can be identified in the contract, receive performance directly or have a relationship with the promisee demonstrating intent to benefit/has contractual rights
Incidental – benefits from contract but that’s not the purpose/does not have contractual rights
What are the two types of intended beneficiary?
Creditor: a person to whom a debt is owed by the promisee
Donee: A person whom the promisee intends to benefit gratuitously
When can an intended beneficiary enforce a contract?
Only when their rights have vested, which occurs when (1) they manifest assent to a promise in a manner requested by the parties to the K; (2) they sue to enforce the promise; (3) they materially change position in justifiable reliance on the promise
What are a third party beneficiary’s rights against the promisor?
May sue on K; promisor may raise any rights against them that they would have against the promisee.
If the promisor made an absolute promise to pay, they cannot assert the promisee’s defenses against the third party. If they only promised to pay what the promisee owed the beneficiary, then they may assert the promisee’s defenses.
What are a third party beneficiary’s rights against the promisee and promisor?
A creditor beneficiary may sue the promisee on the existing obligation as well as the promisor. They may only obtain one satisfaction.
A donee beneficiary cannot sue the promisee unless there is a detrimental reliance .
What are the promisee’s rights against the promisor?
May sue at law. May sue for specific performance only if the promisor not performing for the third person.
What is an assignment?
Generally: All contractual rights may be assigned (X contracts with Y and Y assigns right to X’s performance to Z).
Exceptions:
(1) assignment substantially changing the obligor’s duty or risk (like personal service contracts where the service is unique)
(2) an assignment of future rights arising from future contracts
(3) an assignment prohibited by law
What is the effect of a clause prohibiting contractual assignment?
Usually construed only as barring delegation – generally does not bar assignment but allows the obligor the right to sue for damages. If the contract provides that assignments are void, then they are barred, and assignment is barred where the assignee has notice of a nonassignment clause
What is the effect of an assignment?
Establish privity between obligor and assignee/extinguish privity between obligor and assignor
What is necessary for an effective assignment?
Manifestation of an intent to immediately and completely transfer rights (usually doesn’t have to be in writing)
The right must be adequately described but any words of transfer will do
Consideration is not required
Are assignments revocable?
Assignments for value (done for consideration or taken as security for or payment of a preexisting debt) are irrevocable
Gratuitous assignments are revocable unless the obligor has already performed; a token chose (tangible claim like a stock certificate) is delivered; an assignment of a simple chose (intangible claim like a contract right) is put in writing; detrimental reliance/estoppel.
How may gratuitous assignments be revoked?
May be terminated by death/bankruptcy of assignor; notice of revocation to either by the assignor; assignor taking performance form obligor; subsequent assignment of the same right
What assignments prevail in successive assignment situations?
The first assignment for value will usually prevail over any subsequent assignments or any previous gratuitous assignments. The last gratuitous assignment will prevail over previous gratuitous assignments
Exception – a later assignee for value is unaware of the previous assignment and secures a judgment against the obligor
What are the assignee’s rights against the obligor?
May sue/is the real party in interest
What are the assignee’s rights against the assignor?
may sue assignor for value for breach of the warranty that (1) there were no prior assignments of the right (2) right existed and was not subject to defenses (3) noninterference w/right
