Third-Party Rights

Question 1

3P beneficiaries

Answer 1

generally, a party who is NOT in privity of K with another party CANNOT assert a claim for breach of contract
- HOWEVER, an intended 3P beneficiary has the same rights as those in privity, and can sue for breach of contract

Question 2

intended v. incidental 3P beneficiaries

Answer 2

• Intended 3P beneficiary: NOT a party to the K, BUT has rights becausae the contracting parties’ performance was intended to benefit the identified 3P
• Incidental 3P beneficiary: someone who just happens to benefit from the contract but has NO legal right

Question 3

enforcement of rights

Answer 3

a 3P beneficiary may enforce rights under a contract ONLY IF the rights have vested
- Vesting: occurs when the 3P:
1. manifests assent to the K @ request of a contracting party,
2. detrimentally relied, OR
3. sues to enforce

NOTE: once vested, the contract CANNOT be changed or modified WITHOUT consent of 3P

Question 4

assignment

Answer 4

rights AND benefits may be transfered (assigned) to a 3P if:
1. assignor manifests his intent to transfer, AND
2. assignee assents to the assignment

Question 5

limitations on assignment

Answer 5

an assignment is valid UNLESS:
1. it materially alters what is expected: (i) changes the duty of obligor, (ii) increases the burden/risk imposed on obligor, (iii) materially impairs obligor’s chance of obtaiing return performance, or (iv) materially reduces the value of return performance
2. it’s prohibited by law or public policy, OR
3. it’s precluded by K:
- (i) prohibitions = assignment is VALID and assignor is liable for damages,
- (ii) invalidations = assignment is VOID

Question 6

assignment and consideration

Answer 6

consideration is NOT required for an assignment
- if consideration is given: assignment is IRREVOCABLE
- gratuitous assignment (no consideration) may typically be revoked

Question 7

exceptions when gratuitous assignment is IRREVOCABLE

Answer 7

1. delivery of a symbolic document: document is delivered to assignee symbolizing the right assigned (eg, stock shares, insurance policy)
2. detrimental reliance: assignee reasonably and foreseeably relies on the assignment to their detriment
3. by obligor’s performance: if obligor performs/pays the assignee, that right to performance/payment is irrevocable, OR
4. writing delivered by assignor: assignor puts assignment in writing & delivers the writing to assignee

Question 8

rights of assignee & assignor

Answer 8

• 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 9

multiple assignments

Answer 9

1. if gratuitious assignment: last assignee prevails UNLESS the assignment was IRREVOCABLE
2. If for consideration: first assignee for consideration prevails UNLESS the later assignee:
   - has NO notice, AND
   - is the first to obtain either (a) payment, (b) a judgment, (c) a new K from obligor by novation, OR (d) some indica of ownership

Question 10

delegation

Answer 10

all contract duties are delegable UNLESS
- contract prohibits delegation or assignment,
- delegation is prohibited by law or public policy,
- it’s a personal service K that calls for exercise of personal skill/discretion, OR
- delegation materially alters the expectancy of the obligee

NOTE: the delegating party remains liable for non-performance UNLESS a novation occurs
- I think delegation can be unilateral