Third Party Rights and Obligations Flashcards
What is a Third Party Beneficiary (TPB)?
Where the parties, at the time of contracting, contemplate performance to be rendered to a third, non-contracting party.
What is the only type of Third Party Beneficiary to have rights?
An Intended TPB
What are the three (usual) elements that create an Intended TPB?
1) the TPB is named in the contract 2) performance runs directly to the TPB from the promisor, and 3) there is a special relationship between the TPB and the promisee
If a TPB is not Intended, what are they?
Incidental
Do Incidental TPB’s have any rights?
No
What are the two sub-types of Intended TPB’s?
Creditor TPB and Donee TPB
What is a Creditor TPB?
The person has become a TPB to satisfy an underlying obligation by the promisee
What is a Donee TPB?
The person has become a TPB because the promisee is giving them a gift
Before a TPB’s rights have “vested”, can the promisor and promisee modify their contract even up to the point of eliminating the TPB?
Yes
What three conditions create “vested rights” in the TPB?
1) The TPB is asked to assent to be a TPB in a manner prescribed by the parties 2) the TPB detrimentally relies on the promise 3) the TPB brings a lawsuit to enforce the promise
What two conditions do not result in the creation of “vested rights” in the TPB?
1) when the contract is formed, nor 2) when the TPB learns of the contract
Under what two conditions can a TPB sue?
1) TPB can sue the promisor for specific performance to the TPB 2) TPB can sue the promisee on the underlying obligation if the TPB is a creditor TPB.
Under what one condition can the promisee sue the promisor in a TPB contract?
For specific performance to the TPB
What defenses are available to the promisor against the TPB if sued?
Any defense the promisor could use against the promisee if sued
What is an Assignment of Rights?
Where the parties, at the time of contracting, do not contemplate performance to a third, non-contracting party, but subsequently, a party transfers rights under the contract to a third party.
What two conditions would make an assignment invalid?
1) If the assignment materially alters the obligor’s duty or risk 2) the assignment is prohibited by the law.
What would constitute a material alteration to the obligor’s duty or risk under Assignment?
Too personal (or possibly) under a Requirement and Output contract
Can a Requirement and Output contract be Assigned?
Not under Common Law. Under the UCC, yes (if done so in good faith).
In order for rights to be properly Assigned, what is required with regard to intent?
Intent by the assignor to assign the rights
Within an Assignment, is any particular language required?
No
Must an Assignment be in writing?
Sometimes
What four Assignments require a writing?
1) Wage assignments 2) Interests in land 3) Interest in choses in action for more than $5,000 4) Security interests
When a right is assignable and is properly assigned, what two things occur with regard to the assignee?
1) the assignee becomes a real party of interest 2) once notified, the obligor must deal directly with the assignee
The Assignee may sue whom and under what?
May sue the Obligor under the contract and/or the Assignor under breach of warranty
When the Assignee sues the Assignor under breach of warranty, what two conditions of warranty might the Assignee sue for?
1) Warranty not to interfere with assignment 2) Warranty that assigned right is not subject to defenses
What defenses are available to the Obligor against the Assignee if sued under the contract?
Any defense the Obligor could have used against the Assignor
Are gratutious assignments generaly revocable?
Yes, unless they are in writing
What are the four conditions under which a gratuitous assignment is irrevocable?
1) the assignee has detrimentally relied upon the assignment 2) the assignment is in writing 3) the assignee receives a token chose 4) the obligor has completely performed to the assignee
Is an Assignment for consideration revocable?
No
When there are multiple assignments of the same right, what happens to revocable assignments?
They are revoked by subsequent Assignments
When there are multiple assignments of the same right, what happens to irrevocable assignments?
They compete “first-in-time, first-in-right”
When there are multiple Assignments of the same right, under what condition would an irrevocable Assignment not compete “first-in-time, first-in-right”?
Subsequent assignee takes without notice of prior assignment (and) gets judgement, payment, token chose, or obtains a novation or estoppel.
Within Assignment of the contract, what verbiage may represent an Assignment of the contract? What does that verbiage represent?
Assignment of “the contract” or of “all my rights under the contract”. Represents an Assignment of rights and delegation of duties.
With regard to an Assignment, a prohibition of the Assignment of “the contract” is to be construed as meaning what?
It is barring only the delegation of duties
With regard to Non-Assignment clauses, what happens if the clause does not contain the word “VOID”?
Then the assignor has the “power” but not the “right” to assign. In this case, the assignment is effective but the assignor will be liable for damages.
With regard to Non-Assignment clauses, what happens if the clause does contain the word ‘VOID”?
The the assignor has neither the “power” nor the ‘right” to assign and the Assignment is ineffective.
What is a Delegation of Duties?
Where the parties, at the time of contracting, do not contemplate performance by a third, non-contracting party, but subsequently, a party transfers duties under the contract to a third party.
What is the difference between an “Assignment of Rights” and a “Delegation of Duties”?
“Rights” are assigned, “Duties” are delegated
Under what two conditions would a Delegation of Duties be invalid?
1) the duties involve personal judgement, or 2) the delegation would materially change the Obligee’s expectations.
In order for Duties to be properly Delegated, what is required with regard to intent?
Intent to delegate by the Delegator
Within a Delegation, is any particular language required?
No
Must a Delegation be in writing?
A Delegation can be written or oral
If the Duty is Delegable and properly Delegated, what two things occur?
1) the Obligee must accept performance from the Delegatee 2) the Delegator remains a Surety for the Delegatee
Under Delegation of Duties, what two parties may the Obligee sue?
1) the Delagator as a Surety 2) The Delegatee (but only if the Delegation was for consideration under a third party promise with the Delegatee being the promisor and the Obligee being the TPB
What is Novation?
A new contract with the substitution of a new party
What four elements are necessary to a Novation?
1) A previous valid contract 2) an agreement among all parties (including the new party) 3) immediate extinguishment of one contract, and 4) immediate enactment of a new contract
Under a Novation, what happens to the duties of the replaced party?
They are discharged
