Third Party Issues

Question 1

Third-Party Beneficiaries Definitions

Answer 1

If two parties contract with some intent of benefitting a third party, that third party is a third-party beneficiary.

Question 2

Third Party Beneficiaries Characteristics

Answer 2

• Not parties to the contract; TPB are merely beneficiaries
  
  • However, intended TPBs have right under the contract.

Question 3

Creditor TPB v. Donee TPBs

Answer 3

• Creditor TBP’s benefit is conferred based on a debt owed by the promise to the contract
• Donee TPB’s benefit is conferred gratutously

Question 4

Determining TPB status

Answer 4

One becomes an intended TPB to a contract if they are either:

• Expressly designated in the contract
• Directly benefit from some perfromance under the contract, or
• Stand in such a relationship to the promisee under the contract that an intent to benefit the third party can be inferred.

Question 5

Incidental Beneficiary

Answer 5

If a third party does not meet the requirment, she is an incidental beneficiary and does not have any rights under the contract.

Question 6

Rights of Third-Party Beneficiaries

Vesting of Rights Elements

Answer 6

To enforce rights under a contract, a TPB’s right must vest.

Vesting Rights occurs when either:

• The TPB assents to the promise in a manner requested by the parties to the contract
• The TPB brings suit to enforce the promise
• The TPB materially changes position in justifiable reliance on the promise.

Question 7

Rights of Third-Party Beneficiaries

Enforcing the Contract

Answer 7

• TPB can sue promisor
  
  • Promisor can assert any of his own defenses
• Promisee can sue promisor at law and in equity for specific performance
• TPB can only sue promisee if TPB is a creditor beneficiary

Question 8

Assignment Definition

Answer 8

A transfer of rights to a third party after a contract is formed. Consideration is not required.

Question 9

Common Law Limitations on Assignment

Answer 9

Common law bars assignment that substantially change the duties of the obligor.

• Assignment of payment is not a substantial change
• Assignment of rights to perfromance is a substantial change

Question 10

Contractual Limitations on Rights of Assignment

Answer 10

• Contract provisions prohibiting assignment
  
  • Take away the right to assign but not the pwoer to assign
    
    • I.e. an assignee can still enforece the assignmnet if the was unaware of the provision.
• Contract provisions invalidating assignmnets
  
  • Take away both the right and the power to assign
    
    • I.e. any assignment is invalid and unenforceable.

Question 11

Revocability

Assignment for Considerations

Answer 11

Irrevocable

Question 12

Revocability

Gratuitous Assignmnets

Answer 12

Revocable, unless:

1. Death or bankruptcy of assignor
2. Notice of revocation by assignor
3. Taking of Perfromance by assignor, or
4. Later assignmnet to another.

Question 13

Revocability of Assignmeents

Enforcement & Recovery

Answer 13

• An assignee can recover from the obligor
• An assignor for consideration cannot recover from the obligor
• Payment by obligor to assignor is effective until obligor knows of the assignment.

Question 14

Delegation Definition

Answer 14

Generally, all duties may be delegated, subject to exceptions

• Obligee must generally accept perfromance for delegee
• Only duties may be delegated, whereas rights may be transferred to a third-party via assigment

Question 15

Delegation Liability

Answer 15

Delegator remains liable for delagee’s perfromance

Obligee may sue delegator for non-perfromance by delegee

Obligee may only sue delegee if the delegee has assumed duties of the entire contract.

Question 16

Delegation Exceptions

Answer 16

Duties are non-delegable if:

1. Duties involve personal judgement and skill
2. Delegation changes the expectance in a requirement or output contract
3. A party has placed special trust in the delegator, or
4. A contractual provision restricts delegation