Third-Party Rights Flashcards
What is a third-party beneficiary?
A person who was not a party to a bargain and gave no consideration but may be able to enforce the contract because they will benefit from the contract’s performance
*the third party beneficiary must be a donee or creditor beneficiary to bring suit
-incidental beneficiaries may NOT sure to enforce the K
What is the legal standard for when a 3rd party beneficiary may sue to enforce a K?
may she to enforce a K once their rights have vested
Does a 3rd party donee beneficiary have rights under a contract against the promisee?
NO
A third-party donee beneficiary may generally not sue a promise for failure to perform because the promisee owed the beneficiary no obligation
*a third party donee beneficiary may sue the promisee under a promissory estoppel theory if there is detrimental reliance
What is an “intended third-party beneficiary”?
Where one party contracts with another with the intention of benefiting a third party
This intent can be manifested by the contract or by some verbal expression by the contracting parties
*the intended beneficiary’s rights must vest before they may enforce the contact
What is an incidental 3rd party beneficiary?
A party who would benefit from the performance of a contract, but there is no indication that the OG parties intended to benefit the 3rd party
*incidental may NOT bring suit to enforce K
What is the effect of an “assignment”?
Assignment of a contractual right extinguishes the right in an assignor and gives the right exclusively to an assignee
May the rights to a contract be assigned?
YES.
Contractual rights may be assigned as long as the contract does not expressly prohibit assignment and the parties’ bargains would not materially change
*a clause of non-assignability must be included in the contract to be enforceable
What is a contractual “delegation”?
Occurs when a party to an existing contract appoints all of their duties owed under the contract to a third party
*the party who delegates their duties will be secondarily liable after a delegation
What is a novation?
Is a third party agreement where the obligee agrees to completely discharge the original obligor and accept another in the obligor’s place
**distinguish from a delegation, which is a transfer of contractual duties to a third party
When an intended third-party beneficiary is enforcing the K, who may they sue?
-a creditor beneficiary may sue both the promisor and promisee
-a donee beneficiary may ONLY sue the promisor unless an exception applies
What is a 3rd party “donee beneficiary”?
a third party the promisee intends to benefit from the k because the promisee wants to give them a gift
What are the 3 ways a 3rd party ben’s rights may vest under the Second Restatement?
3rd party rights vest when:
- the beneficiary assents to the promise in a contract in the manner requested by the parties
- the beneficiary sues to enforce the k’s promise; AND/OR
- the beneficiary materially changes position in justifiable reliance on the K’s promise
HYPO:
If performance under a K is not rendered to a third-party creditor beneficiary, may the promisee sue the promisor on behalf of the beneficiary?
YES
The promisee may sue the promisor if the promisee already paid the 3rd party creditor beneficiary and may compel specific performance by the promisor if they have not paid the debt under the OG obligation
When there are successive revocable assignments, which assignee prevails?
under CL, if the prior assignment is revocable a subsequent assignment revokes the prior assignment, the subsequent assignee prevails over the prior assignee
What are the five methods for revoking a revocable assignment of rights?
- notice of revocation
- later assignment of the same right
- death of the assignor
- bankruptcy of the assignor
- acceptance by the assignor of payment or performance directly from the obligor
What are the assignee’s rights against the obligor and how may the obligor respond?
An assignee may directly enforce their rights against obligor
Obligor may raise any defenses against the assignee that they could have asserted against the assignor
Which 2 rights does an assignee have against the obligor?
- right of direct action: an assignee may enforce their rights by a direction action against obligor; AND
- effect of notice to obligor: once the obligor has knowledge of the assignment, they must deliver performance or pay the assignee
What is a nondelegable duty?
Is a contractual duty that the original obligor must perform, rather than delegate it to another, because the obligee has a substantial interest in having the OG obligor perform it personally
*generally, all other duties may be delegated to someone else
Must an obligee accept a delegated performance?
YES
must accept performance of delegable duties, but not required to accept performance of any nondelegable duties
What is the effect of a revocation of assignment?
After assignment is revoked, the assignor is reinstated as the real party in interest and privity between the assignor and the obligor is re-established
In a delegation of duties, what are the rights and liabilities of the delegatee (the person who receives the delegated duties)?
-if there is only delegation, the delegatee has the power to perform the delegator’s duty but may not be compelled to perform
-if there is a delegation AND an assumption of duty, where the delegatee promises to perform in exchange for consideration, the obligee is a third-party beneficiary who may compel the delegatee to perform
What is a 3rd party beneficiary contract?
RESULTS WHEN 2 PARTIES ENTER INTO A K with the understanding and intent that the performance to be rendered by one will go to a 3rd person
HYPO:
If performance under a contract is not rendered to a 3rd party donee beneficiary, may the promisee sue the promisor on behalf go the beneficiary?
YES
man view allows promisee to recover NOMINAL damages or compel specific performance by the promisor
What is the effect of a delegation of duty?
A valid delegation places the primary responsibility to perform on the deluge and secondary liability (as a surety) on the delegator
*a delegation does not solely excuse the delegator from their own duty to perform
Is an attempt to delegate a nondelegable duty a breach of K?
NO - mere attempt is not
What is an assignment?
occurs when a party to an existing contract transfers their rights under the K to a third person
When an assignment might materially change the K is it permissible?
NO
to be valid assignment must NOT materially change the duty or materially increase burden on obligor
How does an effective assignment occur?
the assignor manifests the intent to transfer rights to the assignee, and the assignee assents to the assignment
Are there contractual limits on assignment?
when there is no contractual provision prohibiting an assignment, contract rights are generally assignable
however, contacts may contain provision prohibiting or invalidating assignments
What are the basic rights and obligations of the parties after assignment?
Basic Rule: assignee gets whatever rights to the K that their assignor had, and the assignee takes subject to whatever defenses the obligor could hav raised against the assignor
What is an assignment for value?
An assignment is for value if:
- it is taken s security for or payment of a preexisting debt, OR
- it is done for consideration
*assignments for value are IRREVOCABLE
What is an assumption?
When the delegatee supports their promise to perform the duties delegated w/ consideration
*if assumption occurs, the non-delegating party can sue for nonperformance of the delegated duties as a third-party beneficiary
Does a delegation completely release the delegator?
NO
A delegation does NOT receive the delegator from their obligations under the K, they remain secondarily liable
What is a third-party “creditor beneficiary”?
3rd party whom the promisee intends to benefit from the K because the promisee owes them money
How do the rights of an intended 3rd party beneficiary differ from those of an incidental?
An intended 3rd party beneficiary may have a COA to sue a breaching party and enforce the K
Whereas incidental does NOT have any right to sue for breach of K
