THIRD-PARTY PROBLEMS Flashcards
What kind of beneficiaries have K rights?
Only intended beneficiaries have contract law rights. Intent of the two parties to contract determines whether intended or incidental.
Two Types of Intended Beneficiaries
Creditor/donee:
Intended beneficiaries are either donees or creditors. Usually donees. Look at whether third-party beneficiary was a creditor of the promisee before the contract.
When has a beneficiary’s rights vested?
The test is whether the third party knows of and has relied on or assented as requested. If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.
Act of bringing suit to enforce K will vest it.
Signifigance of Vesting
Before vesting, promisor and promisee can modify terms including removing 3rd part beneficiary.
After vesting, cannot vary his rights w/o consent.
Who can sue whom in beneficiary area?
- Beneficiary can recover from promisor
- Promisee can recover from promisor
- General rule: Beneficiary cannot recover from promisee
When can beneficiary recover from promisee?
Creditor beneficiary can recover from promisee BUT ONLY on pre-existing debt
Defenses for benficiary situations
If the third-party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee.
What is an Assignment? and what are th steps
Assignment is a transfer of rights under a contract. Assignment involves two separate steps:
- contract between only two parties; and
- one of the parties later transfers rights under that contract to a third party.
Assignment Vocab
Assignor: Party to the contract who later transfers rights under the contract to another.
Assignee: Not a party to the contract. Able to enforce the contract because of the assignment.
Obligor: Other party to the contract.
What’s necessary for an effective assignment?
Assignor must manifest an intent to immedietly and comletely transfer her rights.
A writing is generally not required.
Right being assigned must be adequately described.
Not nexessary to use the word assign.
A gratuitous assignment is effective; no consideration required
If the fact pattern includes language of contract regarding
assignability, determine whether the contract…
Prohibits or Invalidates Assingments
Prohibition of Assignment
Language of prohibition takes away the right to
assign but not the power to assign, which means that the
assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the
assignment.
“rights hereunder are not assignable.”
Invalidation of Assignment
Language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.
“all assignments of rights under this contract are void.”
Even if a contract does not in any way limit the right to assign, common law bars an assignment that…
substantially changes the duties of the obligor.
(a) Assignment of right to payment (never substantial change)
(b) Assignment of right to contract performance other than right to payment (usually substantial change on bar):
Requirements for assignment:
General rule is that consideration is not required, but gratuitous assignments (and only gratuitous assignments) can be revoked.
Who can sue whom in Assignments?
- Assignee can recover from the obligor.
- Assignor for consideration cannot recover from obligor
- Obligor has same defenses against assignee as it would have against assignor
- Payment by obligor to assignor is effective until obligor knows of assignment. Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of the assignment.
In an assignment for consideration, the assignor warrants:
(1) the right assigned actually exists, and
(2) the right assigned is not subject to any then existing defenses by the obligor, and
(3) the assignor will do nothing after the assignment to impair the value of the assignment.
Assignor, however, does not warrant what the obligor will do after the assignment.
Multiple Gratuitous assignments
General rule: Last assignee generally wins
Multiple assignments for consideration:
General rule: First assignee for consideration wins
Very limited exception:
A subsequent assignee takes priority over an earlier
assignee for value only if he both:
- does not know of the earlier assignment and
- is the first to obtain
- payment,
- a judgment,
- a novation, OR
- indicia of ownership
What assignments are revokable, and which ones are irrevokable?
Assignments for value are generally irrevokable.
Gratuitous Assignments are generally revokable
An assignment for value is:
- done for consideration; or
- taken as a security deposit for a payment of preexisting debt
What delegation is:
Party to a contract transferring work under that contract to third party.
Relationship of assignment and delegation:
Assignment is the transfer by a party to a contract of his rights or benefits under the contract to a third party who was not a party to the contract.
Delegation is the transfer by a party to a contract of his duties or burdens under the contract to a third party who was not a party to the contract.
Often a contracting party makes both an assignment and a delegation of his rights and duties under the contract to a third party.
Often multistate examiners use the term “assignment” in a problem involving an assignment and a delegation and even in a problem involving only a delegation.
Which duties are delegable?
Generally, contractual duties are delegable. The limitations on delegation are very limited.
Delegations are permitted unless either
(1) contract prohibits delegations or prohibits assignments or
(2) “personal services contract” that calls for VERY SPECIAL skills.
What if, after delegation, the third-party delegatee does not perform?
- Delegating party always remains liable.
- Delegatee liable only if she receives consideration from delegating party.
Formalities for a Delegation?
None required
What is a novation?
A novation is an agreement between BOTH parties to an existing contract to the substitution of a new party, i.e., same performance, different party.
Who is liable after novation?
Novation excuses the contracted for performance of the party who is substituted for or replaced.
How is delegation different from novation?
Novation requires the agreement of BOTH parties to the original contract, and excuses the person replaced from any liability for nonperformance.
Delegation does not require the agreement of both parties and does not excuse.
