Third Parties and Contracts Flashcards
Assignment
An assignment is a transfer of a contractual right. A contractual right is an intangible property and is called a “chose in action.” When a valid assignment has been made, the person receiving the transfer (the assignee) steps into the shoes of the person making the transfer (the assignor) and is now the proper party to enforce the contract.
Delegation and Assumption of Duties
A delegation and assumption of duties is a transfer of a contractual obligation. It involves a situation in which the assignor transfers his or her duty of performance to another. The person transferring the duty of performance is known as the delegator and the person who assumes the duty is known as the delegatee.
Third Party Beneficiary Contract
A third party beneficiary contract is a contract wherein performance by one party, the promisor, will confer a benefit upon a third party beneficiary, that is, a person or entity other than the promisee.
Privity and Intent to Benefit
Under contract law, privity is required for a person to have standing to sue or enforce a contract. However, modernly, the privity requirement has been relaxed and a third party beneficiary can sue if he is an intended beneficiary.
Lawrence v. Fox
The landmark case of Lawrence v. Fox held that a third party beneficiary has the right to enforce the contract which will confer a benefit upon said third party.
Intended Beneficiary
An intended beneficiary is one in whose favor the original parties to the contract purposefully created an obligation. A third party must be an intended beneficiary in order to have standing to sue to enforce the provisions of the contract.
Creditor Beneficiary
A creditor beneficiary is an intended third party beneficiary who receives the benefit of a contract in satisfaction of an actual or supposed debt or obligation that existed between the third party beneficiary and the promisee to the contract. Modernly, a creditor beneficiary is typically called simply an “intended beneficiary.”
Donee Beneficiary
A donee beneficiary is an intended third party beneficiary who receives the benefit of a contract as a gift from the promisee. Modernly, a donee beneficiary is typically called simply an “intended beneficiary.”
Incidental Beneficiary
An incidental beneficiary is one who may receive the benefit of the performance of the contractual provisions only incidentally and was not intended to receive the performance as a gift nor in satisfaction of a debt. An incidental beneficiary does not have standing to sue to enforce the contract.
Distinguishing Between Donee and Creditor Beneficiary
The reason for distinguishing between donee and creditor beneficiary is related to the rules of vesting.
The First Restatement of Contracts held that the donee’s rights vest upon the making of the contract, and that the creditor’s rights vest when he brings suit or otherwise materially changes his position in reliance upon the third party beneficiary contract. However, the majority rule today is that the rights of both the donee and the creditor beneficiary vest upon the beneficiary’s learning of the third party beneficiary contract and manifesting assent thereto. A minority rule holds that the rights of both the donee and creditor beneficiary vest upon the beneficiary materially changing his or her position in reliance upon the contract.
Therefore, the original parties retain the power to defeat or alter the beneficiary’s rights up until the time that the beneficiary 1) materially changes his or her position including the bringing of a lawsuit or 2) manifests his or her assent to the contract after learning of its existence.
Rights Against the Promisee
A third party donee beneficiary has no rights against the promisee by reason of the promisor’s failure to perform the contract. The “creditor” beneficiary, however, can sue the promisee on the original obligation since it remains unaffected by the third party beneficiary contract.
Rights Against the Promisor
A third party intended beneficiary can sue the promisor for failure to perform the contract. The promisor can assert any defense against the third party beneficiary which could have been asserted against the promisee.
