Third-Party Rights

Question 1

Third-Party Beneficiaries & Enforcement of Rights

Answer 1

Generally, a party who is not in privity of contract with another party CANNOT assert a claim for breach of contract.
− HOWEVER, a third-party beneficiary has the same rights as those in privity, and can sue for breach of contract.

Question 2

Intended Third-Party Beneficiary

Answer 2

Not a party to the contract, but has rights because the contracting parties’ performance were intended to benefit the identified third- party.

Question 3

Incidental Third-Party Beneficiary

Answer 3

Someone who just happens to benefit from the contract, but has NO legal rights.

Question 4

Enforcement of Rights of Third-Parties

Answer 4

A third-party beneficiary may enforce rights under a contract ONLY IF the rights have vested.
− Vesting occurs when the third-party → (a) manifests assent to the promise in the contract; (b) detrimentally relied; OR (c) sues to enforce.
− Once vested, the contract CANNOT be changed or modified without consent of the third-party.

Question 5

Assignment of Rights

Answer 5

Rights and benefits may be transferred to a third-party if:

1) Assignor manifests his intent to transfer; AND
2) Assignee assents to the assignment.

Consideration is NOT required for an assignment.
− If consideration is given, the assignment is irrevocable.
− Gratuitous assignments may be revoked.

Question 6

Limitations – An assignment is valid UNLESS:

Answer 6

1. It materially alters what is expected by:
   
   1. changes the duty of obligor
   2. increases the burden/risk imposed on obligor
   3. materially impairs obligor’s chance of obtaining return performance, or
   4. materially reduces the value of return performance.
2. It’s prohibited by law or public policy; OR
3. It’s precluded by (k): prohibitions – the assignment is valid & assignor is liable for damages OR invalidations – the assignment is void.

Question 7

Rights of Assignee & Assignor:

Answer 7

• Assignee may sue obligor for non-performance.
• Any defense against assignor may be used against assignee.
• Assignee may sue assignor for wrongful revocation of an assignment or for breach of an implied warranty.

Question 8

Multiple Assignments:

Answer 8

• If Gratuitous Assignment→Last assignee prevails.
• If for Consideration→First assignee prevails UNLESS the later assignee (1) has no notice, and (2) is the first to obtain payment/indicia of ownership.

Question 9

Delegation of Duties

Answer 9

All contract duties are delegable UNLESS:

a) the contract prohibits delegation or assignment;
b) delegation is against public policy;
c) it’s a personal service contract the calls for

exercise of personal skill/discretion; OR

d) the delegation materially alters the expectancy

of the obligee.

• An assignment generally includes a delegation of unperformed duties.
• The delegating/assigning party remains liable for non- performance unless a novation occurs.