Third-Party Problems in K Law

Question 1

3 kinds of 3rd party K problems

Answer 1

1. third-party beneficiaries,
2. assignments of contract rights, and
3. delegations of contract duties.

Question 2

5 steps to 3rd party beneficiary problems

Answer 2

(1) identify a problem as a third-party beneficiary problem,
(2) use the vocabulary of third-party beneficiary law,
(3) deal with efforts to cancel or modify a third-party beneficiary contract, (
4) figure out who can sue whom, and (
5) assert any available defenses.

Question 3

3rd P beneficiary problems have two K’ing parties…

Answer 3

K’ing w/ common intent to benefit 3rd P, e.g., life insurance.

Question 4

Can third-party beneficiary enforce K made for her benefit?

Answer 4

Yes

Question 5

Three parties in 3rd party beneficiary Ks?

Answer 5

3rd party beneficiary
promisor (who promises benefit to 3rd P)
promisee (who obtains promise for 3rd P)

Question 6

Can incidental 3rd P beneficiaries enforce K rights?

Answer 6

No, only INTENDED BENEFICIARIES HAVE K RIGHTS. Intended beneficiary will always be named in bar exam K.

Question 7

Diff b/t creditor vs donee 3rd P beneficiaries? Are 3rd P beneficiaries usually donees or creditors?

Answer 7

Usually 3rd P beneficiaries are donees. Look at whether third-party beneficiary was a creditor of the promisee before the contract; if so, then they’re a 3rd p beneficiary creditor.

Question 8

Test to permit modification of 3rd P beneficiary Ks?

Answer 8

The test is whether the third party knows of and has relied on or assented as requested to being the 3rd P beneficiary. If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.

Question 9

Who can recover for promisors breach of K in 3rd P beneficiary Ks?

Answer 9

Either the beneficiary or the promisee can recover from promisor for breach of K – EITHER CAN RECOVER, BUT NOT BOTH CAN RECOVER.

Question 10

Can 3rd P beneficiary recover from promisee? EXCEPTION?

Answer 10

Generally, beneficiary cannot recover from promisee (who K’ed for benefit from promisor). EXCEPTION: A CREDITOR BENEFICIARY CAN RECOVER FROM PROMISEE FOR THE PRE-EXISTING DEBT.

Question 11

Defenses promisor can assert against 3rd P beneficiary?

Answer 11

Any defense that promisor would have had if sued by promisee.

Question 12

Definition of assignment in K law?

Answer 12

Assignment is a transfer of rights UNDER A CONTRACT. You cannot assign an offer b/c it’s not a K. You can only assign contracts.

Question 13

Two steps to assignment? Diff b/t assignment and 3rd P beneficiary?

Answer 13

1. first step – contract between only two parties; and second step – one of the parties later transfers rights under that contract to a third party.
2. Diff b/t assignment and 3rd P services is that 3rd P is NAMED in the K for 3rd P beneficiary K. Assignment doesn’t mention 3rd P beneficiary.

Question 14

Parties in assignment of Ks

Answer 14

Assignor = original K party who transfers rights to another
Assignee = not party to K who can enforce K due to assignment
Obligor = obligated to assignor and then assignee

Question 15

Two limits on assignment in Ks when? Effects of assignment in these cases?

Answer 15

1. PROHIBITION: If the K says “RIGHTS HEREUNDER ARE NOT ASSIGNABLE”, then ASSIGNEE WHO DOESN’T KNOW OF PROHIBITION CAN STILL ENFORCE K, BUT ASSIGNOR IS LIABLE TO OBLIGOR FOR BREACH.
2. INVALIDATION = If the K says “ALL ASSIGNMENTS UNDER THIS K ARE VOID”, then assignment is a breach AND NO RIGHTS GO TO THE ASSIGNEE.

Question 16

Judge-made rule re assignment where K says nothing re assignment is…
Permitted/prohibited?

Answer 16

you cannot make assignment that SUBSTANTIALLY CHANGES DUTIES OF OBLIGOR.
PERMITTED: can always assign right of payment.
PROHIBITED: Assignment of right to K performance other than payment (e.g., services).

Question 17

General reqs for assignment? Is consideration required?

Answer 17

General rule is that consideration is not required, but gratuitous assignments (and only gratuitous assignments) can be revoked. Assignor can revoke gratuitious assignment before obligor performs for assignee.

Question 18

Can assignee recover from obligor for breach?

Answer 18

Yes, same as assignor could’ve.

Question 19

Can an assignor for consideration recover from obligor?

Answer 19

No. If Batman assigns K payment to Robin in exchange for cocaine, Batman can’t collect from Gotham for K services.

Question 20

What defenses does obligor have against assignee?

Answer 20

Exact same defenses as obligor would have against assignor.

Question 21

If obligor didn’t know about assignment, does it have to perform to assignee even if it performed for assignor already?

Answer 21

IF OBLIGOR DOESN’T KNOW OF ASSIGNMENT, HIS ACTIONS ARE EFFECTIVE W/ AND B/T HIM AND 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.

Question 22

First question w/ assignment questions is…

Answer 22

Was it gratuitous assignment or assignment for consideration.

Question 23

When are there implied warranties with an assignment?

Answer 23

When it’s an assignment for consideration.

Question 24

When assignment for consideration, what are the three assignor implied warranties? What is NOT warranted?

Answer 24

(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.

Question 25

When there are multiple assignees and all are gratuitous assignments, which assignee is legit?

Answer 25

Last in time assignee wins. Gift assignments can be freely revoked, so subsequent assignments revoke prior assignments.

Question 26

When there are multiple assignees and all are assignments for consideration, which assignee is legit? EXCEPTION - FOUR HORSEMAN?

Answer 26

The first in time assignee wins b/c the first assignee paid, so he has legit first in time status.
EXCEPTION V. RARE: ONLY WHEN SUBSEQUENT ASSIGNEE DIDN’T KNOW OF EARLIER ASSIGNMENT AND IS FIRST TO OBTAIN 1. PAYMENT, 2. A JUDGMENT, 3. A NOVATION, OR 4. INDICIA OF OF OWNERSHIP.

Question 27

Def of delegation?

Answer 27

Party to a contract transferring work under that contract to third party. For example, P contracts to paint O’s house for $1,000. P (delegating party) and X (delegatee) agree that X will paint O’s (obligee) house.

Question 28

Diff b/t assignment vs delegation?

Answer 28

Assignment is delegation of rights. Delegation is transfer of duties.

Question 29

Are contract duties delegable? LIMITATIONS?

Answer 29

Generally, yes, K duties are delegable.
Non-delegable duties when:
1. K prohibits delegations OR PROHIBITS ASSIGNMENTS; or
2. personal services K that calls for special skills.

Question 30

What if, after valid delegation, the third-party delegatee does not perform? Who’s liable? Role of delegation for consideration?

Answer 30

1. Delegating party always remains liable.
2. Delegatee liable only if she receives consideration from delegating party (liable to both delegating party and obligee).