Third Parties

Question 1

What is a third-party beneficiary?

Answer 1

Two people enter into a contract intending to benefit a third party (intended beneficiary)

Ex. Joe (promisee) pays Cher (promisor) 25k to sing for his wife (intended beneficiary) on her birthday.

Question 2

What are the promisor’s rights to third-party beneficiary and promisee?

Answer 2

TPB (even though no privity) and/or Promisee can sue promisor under a breach of contract.

Incidental beneficiary (e.g. a guest at the birthday singing) cannot sue promisor.

Question 3

Can TPB rescind or modify the contract?

Answer 3

No (only promisor and promisee can) unless the rights of the TPB have vested BUT contract language controls

Question 4

What are delegation of duties?

Answer 4

contractual duties may be delegated without the consent of person to whom performance is owed

Exception: person hired for special skill or reputation

BUT contract language controls

Question 5

What are the rights of the obligee?

Answer 5

delegator (delegatee) remains liable to obligee; in contrast to novation

BUT, a delegatee who gets consideration is liable to obligee

Question 6

What are the assignment of rights?

Answer 6

two people make K. One transfers his rights to a third party.

• must have present transfer “I assign…” not “I promise to assign…”
• consideration not required

Question 7

What are limitations on assignment of rights?

Answer 7

• Contract language controls

(not assignable = assignment is valid, but liable for breach
“assignment is void” = no rights are transferred so assignment not valid)

• cannot substantially change duties of obligor
• other party must be aware of assignment

Question 8

What if there are multiple gift assignments? (order of priority)

Answer 8

Last gratuitous assignee prevails over other gratuitous assignees

BUT

the FIRST assignee for consideration prevails over everyone

BUT

later assignee for consideration prevails if he does not know of earlier assignments and is the first to get payment from/judgment against the obligor.

Question 9

When do the rights of a third party beneficiary vest?

Answer 9

1. TPB manifests assent
2. TPB brings suit to enforce promise; or
3. materially changes his position in reliance on the promise