Third Parties to Contracts

Question 1

Third parties to contracts

Answer 1

General rule - privity of contract

only those who are parties to a contract can have rights/obligations under it — pivit addresses the question of who has standing to sue whom for what

Question 2

A party wishing to enforce a contract:

Answer 2

must be either a party to that contract or a third party beneficiary

Question 3

Exceptions to Third party contract rule

Answer 3

1. Third-party beneficiary contracts
2. assignment of contractual rights (effectively a substitution of a new party for one of the original parties to the contract as to the right to receive performance of the contract —- your sublets right to occupy your apartment and receive the other benefits under the lease)
3. Delegation of contractual duties (effectively a substitution of a new party for one of the original parties to the contract as to the duty to perform the contractual obligations under the contract - — your sublets obligation to peform tenant’s duties under the lease)

Question 4

Third Party Beneficiary Contracts

Answer 4

Third party must be more than an incidental beneficiary (thereshold requirement) - test did the parties intend to confer on the beneficiary the right to bring suit to enfrorce the contract?

Question 5

The general rule is that only a party to a contract may recover for its breach (privity requirement): exception

Answer 5

When one person for valuable consideration engages with another by simple contract to do some act for the benefit of a third, the latter, who would enjoy the benefit of the act, may maintain an action for the breach of such engagement

Question 6

In order for a person to be declared a third-party beneficiary

Answer 6

The person must show that the contract was entered into “directly and primarily” for the person’s benefit

An indirect benefit, merely incidental to the contract is not sufficient

*The precise identify of the third-party beneficiary need not be ascertainable at the time of the agreement so long as the agreement specifies or identifies a group or class to whom the party must belong to benefit thereby

Question 7

Classification of enforceable third-party beneficiary contracts

Answer 7

Factors to consider is performance to be rendered to the third party

does third party have the right to control the details of performance

or is third party expressly designated as the beneficiary of the contract

Question 8

Third party credito beneficiary contract

Answer 8

Was one of the parties intending to discharge an obligation oweed to the third party?

Landlord, original tennant and sub-tenant

Question 9

third party donee beneficiary contract

Answer 9

Was one of the parties intending to confer a gift on the third party?

Spouse, insrance company, and person covered

Question 10

Rights are not enforceable by third party until:

Answer 10

they have vested (that is, become binding) - vesting occurs at different points in time depending on the jurisdiction

Question 11

Status of parties

Answer 11

1. Third party can sue (has “standing”)
2. Third party’s rights are subject to all defenses contracting parties could raise against each other (fraud, failure of consideration, misrepresentation, mistake, etc.)
3. Third party creditor beneficiary always has cause of action against original obligor (the collection action, for example, the landlord can always sue the orignal tennant)
4. Third party donee beneficiary has rights against promissor only (the insurance company)

Question 12

An assignment is:

Answer 12

a transfer of contractual rights

Question 13

Contract rights are:

Answer 13

property rights

Question 14

Persons who transfer contract rights are:

Answer 14

assignors, persons to whom they are transferred are assignees

Question 15

Assignments may be:

Answer 15

with or without supporting consideration (an assignment of a contractual right as a gift, for example)

Question 16

No particular formalities are required (assignment)

Answer 16

No “special” rules regarding how the assignment must be evienced

but will likely have to be in writing if the underlying contract must be in writing

Question 17

What contract rights are assignable?

Answer 17

Generally all (most common, right to receive money)

Question 18

Exception to the general rule tha all contract rights are assignable:

Answer 18

a. the assignment would materially increase risk or burden to obligor (casualty insurnace policy)
b. the assignment of highly personal contract rights (performance of personal service)
c. a contract prohibition against assignment

Question 19

Neither party shall assign its rights nor delegate its duties without:

Answer 19

express written consent of the other party

Question 20

From a typical sutdent apartment lease:

Answer 20

Tenant shall not assign this lease or sublet the premises or any part thereof without the express written consent of Landlord, which will not be unreasonably withheld

Question 21

Status of assignee

Answer 21

1. Assignee “stands in shoes” of assignor
2. Assignee has no greater rights than assignor had
3. Assignor does not guarantee perofmance by obligor

Question 22

Importance of notice of the assignment to the obligor

Answer 22

If obligor is not given notice of the assignment, the obligor will perform for the wrong party

eg. if baker is not advised of the Sals/Jackson assignment, he will pay Sals the purchase price

Question 23

Implied warranties

Answer 23

Given by assignor who receives value

(if breached, assignee can recover from assignor)

Question 24

Implied warranties

Answer 24

1. Assignor will do nothing to defeat or impair assignment
2. right actually exists
3. right isnot subject to defenses
4. any related writings are genuine
5. assignor has no knowledge of any fact that would impair value of the right

Question 25

Delgation of Duties

Answer 25

Authorizing another person to perofrm a contract duty (baker assigns his rights under the Sals/Baker contract to Jones and delegates to Jones the duty to take delivery of the car and pay Sal for it)

Delegant authorizes delegatee to perform

Question 26

What duties are delegable

Answer 26

1. Generallly all
2. excpetions
   - it performance reuires the obligor’s personal skill, judgment, discretion or supervision (this exception would not apply, for example, to Baker’s duty to take delivery of the car and pay for it)
   - There exists a contract prohibition against delegation - in a majority of jurisidictions, a dlegation in violation of such a rpvision is simply a breach of contract (but delegation is unaffected) - example of language
   - statutory/public policy prohibition

Question 27

Assignment/delegation generally simultaneous

Answer 27

Effect of certain language

Question 28

Effect of delegation

Answer 28

Obligee (sals) can sue delegatee because obligee is a third party beneficiary of the delegation and the obligee can also sue orignal obligor

Obligor not relieved of liability