Third Party Rights

Question 1

When does a third-party beneficiary contract result?

Answer 1

When two parties enter a contract with the understanding and intent that the performance to be rendered by one will go to a third-party.

Question 2

What are intended beneficiaries

Answer 2

Persons who have a right to sue on a third-party beneficiary contract because the original contracting parties either explicitly or implicitly intended to benefit them.

Question 3

What are incidental beneficiaries?

Answer 3

Third parties will benefit from the promisor’s performance, but may not meet the test for intended beneficiaries.

Question 4

Do incidental beneficiaries have the right to enforce a third-party beneficiary contract?

Answer 4

No

Question 5

A party to a contract may modify or rescind a third-party beneficiary provision without the beneficiaries consent until:

Answer 5

The beneficiaries right under the contract have vested.

Question 6

When does vesting occur with regard to an intended beneficiary?

Answer 6

1. The beneficiary brings suit on the matter;
2. The beneficiary changes her position in justifiable reliance on the contractual promise;
3. The beneficiary manifests her assent to the contract at the request of either the promisee or the promisor; or
4. The rights of the beneficiary have vested under an express term of the contract providing for such a vesting.

Question 7

Do intended beneficiaries have the right to enforce a third-party beneficiary contract?

Answer 7

Yes

Question 8

What is an assignment?

Answer 8

Transfer of a right to receive a performance under contract.

Question 9

What is the basic rule for the rights and obligations of the assignee after the assignment?

Answer 9

An assignee gets whatever rights to the contract his assignor had, and the assignee takes subject to whatever defenses the obligor could have raised against the assignor.

Question 10

In several jurisdictions, the second assignee who has paid value and takes the assignment in good faith will prevail if he does what?

Answer 10

1. Obtains payment from the obligor;
2. Recovers a judgment on the debt;
3. Enters into a new contract with the obligor; or
4. Receives delivery of a tangible token or writing from the assignor, the surrender of which is required by the obligors contract.

Question 11

What are the two exceptions to the general rule that all contractual duties are delegable?

Answer 11

1. When the performance in question is personal, and the recipient must rely on qualities such as the character, reputation, taste, skill, or discretion of the party that is to render the performance; or
2. When the contract prohibits delegation.