Third Party Rights and Obligations

Question 1

What is a Third Party Beneficiary (TPB)?

Answer 1

Where the parties, at the time of contracting, contemplate performance to be rendered to a third, non-contracting party.

Question 2

What is the only type of Third Party Beneficiary to have rights?

Answer 2

An Intended TPB

Question 3

What are the three (usual) elements that create an Intended TPB?

Answer 3

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

Question 4

If a TPB is not Intended, what are they?

Answer 4

Incidental

Question 5

Do Incidental TPB’s have any rights?

Answer 5

No

Question 6

What are the two sub-types of Intended TPB’s?

Answer 6

Creditor TPB and Donee TPB

Question 7

What is a Creditor TPB?

Answer 7

The person has become a TPB to satisfy an underlying obligation by the promisee

Question 8

What is a Donee TPB?

Answer 8

The person has become a TPB because the promisee is giving them a gift

Question 9

Before a TPB’s rights have “vested”, can the promisor and promisee modify their contract even up to the point of eliminating the TPB?

Answer 9

Yes

Question 10

What three conditions create “vested rights” in the TPB?

Answer 10

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

Question 11

What two conditions do not result in the creation of “vested rights” in the TPB?

Answer 11

1) when the contract is formed, nor 2) when the TPB learns of the contract

Question 12

Under what two conditions can a TPB sue?

Answer 12

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.

Question 13

Under what one condition can the promisee sue the promisor in a TPB contract?

Answer 13

For specific performance to the TPB

Question 14

What defenses are available to the promisor against the TPB if sued?

Answer 14

Any defense the promisor could use against the promisee if sued

Question 15

What is an Assignment of Rights?

Answer 15

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.

Question 16

What two conditions would make an assignment invalid?

Answer 16

1) If the assignment materially alters the obligor’s duty or risk 2) the assignment is prohibited by the law.

Question 17

What would constitute a material alteration to the obligor’s duty or risk under Assignment?

Answer 17

Too personal (or possibly) under a Requirement and Output contract

Question 18

Can a Requirement and Output contract be Assigned?

Answer 18

Not under Common Law. Under the UCC, yes (if done so in good faith).

Question 19

In order for rights to be properly Assigned, what is required with regard to intent?

Answer 19

Intent by the assignor to assign the rights

Question 20

Within an Assignment, is any particular language required?

Answer 20

No

Question 21

Must an Assignment be in writing?

Answer 21

Sometimes

Question 22

What four Assignments require a writing?

Answer 22

1) Wage assignments 2) Interests in land 3) Interest in choses in action for more than $5,000 4) Security interests

Question 23

When a right is assignable and is properly assigned, what two things occur with regard to the assignee?

Answer 23

1) the assignee becomes a real party of interest 2) once notified, the obligor must deal directly with the assignee

Question 24

The Assignee may sue whom and under what?

Answer 24

May sue the Obligor under the contract and/or the Assignor under breach of warranty

Question 25

When the Assignee sues the Assignor under breach of warranty, what two conditions of warranty might the Assignee sue for?

Answer 25

1) Warranty not to interfere with assignment 2) Warranty that assigned right is not subject to defenses

Question 26

What defenses are available to the Obligor against the Assignee if sued under the contract?

Answer 26

Any defense the Obligor could have used against the Assignor

Question 27

Are gratutious assignments generaly revocable?

Answer 27

Yes, unless they are in writing

Question 28

What are the four conditions under which a gratuitous assignment is irrevocable?

Answer 28

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

Question 29

Is an Assignment for consideration revocable?

Answer 29

No

Question 30

When there are multiple assignments of the same right, what happens to revocable assignments?

Answer 30

They are revoked by subsequent Assignments

Question 31

When there are multiple assignments of the same right, what happens to irrevocable assignments?

Answer 31

They compete “first-in-time, first-in-right”

Question 32

When there are multiple Assignments of the same right, under what condition would an irrevocable Assignment not compete “first-in-time, first-in-right”?

Answer 32

Subsequent assignee takes without notice of prior assignment (and) gets judgement, payment, token chose, or obtains a novation or estoppel.

Question 33

Within Assignment of the contract, what verbiage may represent an Assignment of the contract? What does that verbiage represent?

Answer 33

Assignment of “the contract” or of “all my rights under the contract”. Represents an Assignment of rights and delegation of duties.

Question 34

With regard to an Assignment, a prohibition of the Assignment of “the contract” is to be construed as meaning what?

Answer 34

It is barring only the delegation of duties

Question 35

With regard to Non-Assignment clauses, what happens if the clause does not contain the word “VOID”?

Answer 35

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.

Question 36

With regard to Non-Assignment clauses, what happens if the clause does contain the word ‘VOID”?

Answer 36

The the assignor has neither the “power” nor the ‘right” to assign and the Assignment is ineffective.

Question 37

What is a Delegation of Duties?

Answer 37

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.

Question 38

What is the difference between an “Assignment of Rights” and a “Delegation of Duties”?

Answer 38

“Rights” are assigned, “Duties” are delegated

Question 39

Under what two conditions would a Delegation of Duties be invalid?

Answer 39

1) the duties involve personal judgement, or 2) the delegation would materially change the Obligee’s expectations.

Question 40

In order for Duties to be properly Delegated, what is required with regard to intent?

Answer 40

Intent to delegate by the Delegator

Question 41

Within a Delegation, is any particular language required?

Answer 41

No

Question 42

Must a Delegation be in writing?

Answer 42

A Delegation can be written or oral

Question 43

If the Duty is Delegable and properly Delegated, what two things occur?

Answer 43

1) the Obligee must accept performance from the Delegatee 2) the Delegator remains a Surety for the Delegatee

Question 44

Under Delegation of Duties, what two parties may the Obligee sue?

Answer 44

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

Question 45

What is Novation?

Answer 45

A new contract with the substitution of a new party

Question 46

What four elements are necessary to a Novation?

Answer 46

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

Question 47

Under a Novation, what happens to the duties of the replaced party?

Answer 47

They are discharged