Third-Party Beneficiaries

Question 1

What is the critical issue in third-party beneficiary law?

Answer 1

Whether the third-party beneficiary has standing to enforce the contract (can they sue)

Question 2

When is there a creditor beneficiary?

Answer 2

When a promisee seeks a performance from the promisor that will satisfy an obligation owed to a third party

Question 3

When is there a donee beneficiary?

Answer 3

When a promisee seeks a performance from the promisor in order to make a gift of it to the third party

Question 4

When is there an incidental beneficiary?

Answer 4

when a third parties will benefit from a party’s performance as a practical matter but are not creditor nor donee beneficiaries nor intended beneficiaries

Question 5

When is there an intended beneficiary?

Answer 5

When a contracting party intends to benefit the third party

Question 6

What are the incidental beneficiary’s rights under the the contract?

Answer 6

does not have any right to seek enforcement of the contract

Question 7

What are the intended beneficiary’s right under a contract against the promisor?

Answer 7

He has a right to secure enforcement of an agreement from a breaching promisor (the performer)

Question 8

What are the intended beneficiary’s right under a contract against the promisee?

Answer 8

a third-party beneficiary will only have rights against the promisee based on: whether there is a prior obligation between the promissee and the third party beneficiary

Question 9

The parties to a contract are free to modify or rescind it by mutual consent, and they may modify or rescind a third-party beneficiary provision without the beneficiary’s consent; unless

Answer 9

the intended beneficiary’s rights under the contract have vested.

Question 10

Vesting occurs with regard to an intended beneficiary when

Answer 10

Situation #1: The beneficiary brings suit on the matter
Situation #2: The beneficiary changes his position in justifiable reliance on the contract
Situation #3: The beneficiary manifests assent to the contract at the request of the promisor or promisee
Situation #4: The rights of the beneficiary have vested under the express terms of the contract

Question 11

Defenses available to promisor in third party actions

Answer 11

any valid defenses the promisor has against the promisee are also effective against the third party beneficiary. Defenses to the validity of the current deal.

Question 12

Defenses unavailable to promisor in third party actions

Answer 12

The promisor may not assert defenses: based on separate transactions with the promisee

Question 13

What is the promisee’s right against the promisor in third party beneficiary situations

Donee beneficiary?
Creditor Beneficiary?

Answer 13

When the promisor does not perform, the promisee has a claim for breach of contract against the promisor;

But if the promisor’s performance is intended to benefit a donee beneficiary: then the promisee has suffered no economic loss and cannot obtain damages but specific performance may be appropriate

If the promisor’s performance is intended to benefit a creditor beneficiary: The promisee may seek enforcement of the promisor’s obligation

Question 14

An assignment is

Answer 14

a transfer of a right to receive a performance under a contract

Question 15

To make an effective assignment of a contract right, the owner of that right must:

Answer 15

a. Manifest an intention to

b. Make a present transfer of an existing right

Question 16

What rights are not assignable?

4

Answer 16

1. When the assignment would materially alter the risks or the obligations of the other party
2. When the obligor has a personal interest in rendering the performance to the obligee and not a third party
3. When it would violate applicable law or public policy
4. When assignment is prohibited by contract

Question 17

Most courts will treat an assignment in violation of contractual restriction against assignment as

Answer 17

a breach of contract by assignor but not a basis for nullifying obligee’s rights

Question 18

Assignment for value legal effects

(1) Between the assignee and the obligor
(2) Between the assignor and the assignee

Answer 18

is valid against the obligor and cannot be revoked by the assignor

Question 19

Gratuitous assignment legal effects

(1) Between the assignee and the obligor
(2) Between the assignor and the assignee:

Answer 19

(1) is valid against the obligor who cannot claim lack of consideration as a defense
(2) under the law of gifts an executory gift is revocable but an executed gift is not

Question 20

What are the rights of an assignee against the obligor?

Answer 20

the assignee gets whatever rights to the contract his assignor had –> steps into the shoes of assignor and is subject to whatever defenses obligor has against assignor.

Question 21

Obligor’s payment obligation in the event of assignment

Answer 21

The obligor’s payment to the assignor is a defense unless the obligor has been notified that the payments are now owed to assignee

Question 22

one who assigns or purports to make an assignment for value impliedly warrants two things to the assignee.

Answer 22

(a) He will do nothing to defeat the value of the assignment and has no knowledge of any fact that would do so
(b) Right to assign actually exists and is subject to no defenses

Question 23

A delegation occurs when

Answer 23

a third party agrees to satisfy a performance obligation owed by one of the parties to a contract

Question 24

Does a delegation relieve a delegator from his obligations?

Answer 24

Absent novation (all parties agree), a delegation does not relieve a delegator from his obligation (obligee can still sue delegator)

Question 25

What is the liability of the delegatee (person delegated to)

1. To the delegator?
2. To the obligee?

Answer 25

1. If the delegation was for consideration, then delegator has breach of contract action against the non-performing delegetee
2. If the delegation was for consideration, then the obligee can sue the delegatee as a third party intended beneficiary

Question 26

What duties are delegable?

Answer 26

The general rule: all contractual duties are delegable

Question 27

What duties are not delegable?

Answer 27

1. When the performance in question is personal services (unique to that person)
2. When the contract prohibits delegation

Question 28

Who is an intended beneficiary?

Answer 28

A creditor or donee, generally not anything else