Third-Party Beneficiaries

Question 1

An intended third-party beneficiary is NOT

Answer 1

a party to the contract, but has rights under the contract because the two contracting parties are aware that their respective performances are intended to benefit the identified third-party.

Question 2

An intended beneficiary HAS the right

Answer 2

to sue for breach of contract.

Question 3

EG of intended 3p Beneficiary

Answer 3

E.g., Tom agrees to pay Mechanic $200 if Mechanic fixes Gisele’s truck. Gisele is an intended third-party beneficiary; thus, she has the right to sue Mechanic if he breaches. However, Mechanic could assert any contract defense against Gisele that he would be entitled to assert against Tom (e.g., incapacity, duress, etc.).

Question 4

An incidental third-party beneficiary is

Answer 4

NOT a party to the contract, but just so happens to benefit from the contract. An incidental beneficiary has NO legal rights because the purpose of the contract was NOT intended to benefit them.

An incidental beneficiary does NOT have the right to sue for breach of contract.

Question 5

EG of incidental 3p beneficiary

Answer 5

E.g., Gisele is an international supermodel who uses her truck to get to and from photo-shoots. Photographer incurs a $1,000 loss because Gisele could not get to her shoot as Mechanic failed to fix her truck. Photographer is an incidental beneficiary; thus he has no right to sue Mechanic for breach of contract.

Question 6

The original parties can revoke or modify away the third-party beneficiary’s right to enforce the contract up until

Answer 6

the rights vest.

Rights vest when the third-party beneficiary has:

Detrimentally relied on the contract;

Accepted the benefit under the contract;

OR

Brought suit to enforce the contract.

Question 7

Assignment

Answer 7

Generally, a party can assign rights and benefits, in whole or in part, under a contract to a third party UNLESS the contract explicitly prohibits or invalidates assignments.

Question 8

If the contract prohibits assignments,

Answer 8

then the assignor has breached the deal when he makes the assignment and is liable for damages; however, the assignment is still valid and enforceable by the assignee.

Question 9

If the contract invalidates assignments,

Answer 9

then the assignment is void and the assignee cannot enforce the assignment or recover.

Question 10

An assignee has the right to sue:

Answer 10

The obligor for non-performance;
However, any defense to enforcement that could be used against the assignor may also be used against the assignee.

AND

The assignor for wrongful revocation of assignment OR breach of an implied warranty.

Question 11

An assignor may sue an obligor only if

Answer 11

the assignor did not receive consideration for the assignment.

Question 12

Is consideration required for an assignment?

Answer 12

Consideration is NOT required for an assignment, but if consideration is provided, the assignment becomes irrevocable.

Question 13

If an assignor assigns the same rights multiple times to separate parties, then

Answer 13

the first assignment for consideration will typically control.

If the rights are assigned without consideration, then the last assignment controls.

Question 14

A delegation of duties occurs when

Answer 14

a party “outsources” her duties under a contract to a third party.

Question 15

Delegation is generally acceptable provided that:

Answer 15

The contract does not prohibit delegation;

AND

The other party does not have some special interest in having a specific individual perform (e.g., an artist to paint a portrait).

Question 16

Generally, a delegatee is NOT liable for breach unless

Answer 16

she receives consideration from the delegating party (i.e., the delegating party is NOT excused and remains liable for non-performance unless there is consideration).

Question 17

Delegation v Novation

Answer 17

A delegation differs from a novation as a novation arises when BOTH parties agree that a substitute person will take over the contractual obligations. A delegation arises when ONE party independently decides to delegate duties to a third party.