Third-Party Issues

Question 1

Intended Third-party beneficiaries

Answer 1

An intended beneficiary can enforce a contract only after his rights have vested, which will occur when he (i) manifests assent to the promise in a manner invited or requested by the parties, (ii) brings suit to enforce the promise, or (iii) materially changes his position in justifiable reliance on the promise. Merely being informed does not cause vesting; justifiable reliance is required. A contract can be modified or canceled without the consent of the intended beneficiary if their rights have not yet vested. If the intended beneficiary’s rights have vested, the contracting parties cannot cancel or modify the contract unless the intended beneficiary agrees to it.

Question 2

Assignments - general rules

Answer 2

Although most contractual duties may be assigned - unless they are unique personal service contracts or long term requirements contracts - and the obligee must accept performance from the delegate, the delegating party (delegator) remains liable on his obligation. Thus, an assignment of a contract that includes a delegation of duties does not relieve the assignor from its duty to perform. To assign a contract, a party to the contract must manifest an intent to transfer his rights under the contract to an assignee.
Assignments can be done orally or in writing. Assignments can be gratuitous or for value. But, gratuitous assignments absent any evidence of reliance are revocable and assignments for value are generally irrevocable. Most contract duties may be assigned except when the contract forbids assignment, assignment is forbidden by law, or assignment would substantially change the obligor’s duty or risk.

Question 3

Revocable assignment exceptions

Answer 3

Gratuitous assignments are generally revocable. However, where the obligor has already performed, or where the assignor is estopped from revoking by virtue of the fact that he should reasonably foresee that the assignee will change his position in reliance on the assignment and such detrimental reliance occurs, the gratuitous assignment was not revocable.

Question 4

Assignee’s rights and obligations

Answer 4

Generally, an assignee has whatever rights his assignor would have against the obligor. Similarly, the assignee is subject to any contract-related defenses that the obligor has against the assignor.

Question 5

Incidental third-party beneficiary

Answer 5

Incidental third-party beneficiaries have no contract rights.

Question 6

Delegation of duties under a contract

Answer 6

An effective delegation of duties occurs when a party to a contract manifests a present intention to transfer duties under the contract to another party. When a party a contract delegates a duty, the delegator becomes secondarily liable, as a surety, for performance of the duty, if the delegate does not perform.