Third-Party Beneficiaries Flashcards
What is the critical issue in third-party beneficiary law?
Whether the third-party beneficiary has standing to enforce the contract (can they sue)
When is there a creditor beneficiary?
When a promisee seeks a performance from the promisor that will satisfy an obligation owed to a third party
When is there a donee beneficiary?
When a promisee seeks a performance from the promisor in order to make a gift of it to the third party
When is there an incidental beneficiary?
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
When is there an intended beneficiary?
When a contracting party intends to benefit the third party
What are the incidental beneficiary’s rights under the the contract?
does not have any right to seek enforcement of the contract
What are the intended beneficiary’s right under a contract against the promisor?
He has a right to secure enforcement of an agreement from a breaching promisor (the performer)
What are the intended beneficiary’s right under a contract against the promisee?
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
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
the intended beneficiary’s rights under the contract have vested.
Vesting occurs with regard to an intended beneficiary when
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
Defenses available to promisor in third party actions
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.
Defenses unavailable to promisor in third party actions
The promisor may not assert defenses: based on separate transactions with the promisee
What is the promisee’s right against the promisor in third party beneficiary situations
Donee beneficiary?
Creditor Beneficiary?
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
An assignment is
a transfer of a right to receive a performance under a contract
To make an effective assignment of a contract right, the owner of that right must:
a. Manifest an intention to
b. Make a present transfer of an existing right
What rights are not assignable?
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- When the assignment would materially alter the risks or the obligations of the other party
- When the obligor has a personal interest in rendering the performance to the obligee and not a third party
- When it would violate applicable law or public policy
- When assignment is prohibited by contract
Most courts will treat an assignment in violation of contractual restriction against assignment as
a breach of contract by assignor but not a basis for nullifying obligee’s rights
Assignment for value legal effects
(1) Between the assignee and the obligor
(2) Between the assignor and the assignee
is valid against the obligor and cannot be revoked by the assignor
Gratuitous assignment legal effects
(1) Between the assignee and the obligor
(2) Between the assignor and the assignee:
(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
What are the rights of an assignee against the obligor?
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.
Obligor’s payment obligation in the event of assignment
The obligor’s payment to the assignor is a defense unless the obligor has been notified that the payments are now owed to assignee
one who assigns or purports to make an assignment for value impliedly warrants two things to the assignee.
(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
A delegation occurs when
a third party agrees to satisfy a performance obligation owed by one of the parties to a contract
Does a delegation relieve a delegator from his obligations?
Absent novation (all parties agree), a delegation does not relieve a delegator from his obligation (obligee can still sue delegator)
What is the liability of the delegatee (person delegated to)
- To the delegator?
- To the obligee?
- If the delegation was for consideration, then delegator has breach of contract action against the non-performing delegetee
- If the delegation was for consideration, then the obligee can sue the delegatee as a third party intended beneficiary
What duties are delegable?
The general rule: all contractual duties are delegable
What duties are not delegable?
- When the performance in question is personal services (unique to that person)
- When the contract prohibits delegation
Who is an intended beneficiary?
A creditor or donee, generally not anything else
