Flashcards in Page 59 Deck (15):
What is a creditor beneficiary under the first restatement TPB contract?
promisee's primary purpose is to pay a creditor to satisfy an actual, supposed, or asserted obligation already owed by the promisee to a third-party. Promise discharges a duty
Example of a creditor beneficiary promise?
Promising to pay off someone's bank loan if they will landscape your yard (Bank is creditor beneficiary because they have obligation from you and you are using a third-party to satisfy it). Creditor beneficiaries can get recovery from both the promisor and the promisee
Can a third-party beneficiary count as a creditor beneficiary even if the promise was made thinking there was an obligation, but there wasn't actually an obligation owed?
Yes. Ie: T brings a claim of $1000 against P who believes the claim is valid. Later M buys goods from P and as consideration he agrees to pay the thousand dollars to T. T's claim turns out to be invalid. It doesn't matter, T is a creditor beneficiary and can enforce M's promise even if the claim had no actual merit
What is an incidental beneficiary?
Third person that will benefit from the promise, but has no enforceable rights to the contract because original parties didn't intend to confer a benefit, it was just incidental
Under the majority view for third-party beneficiary contracts, how does it divide the parties?
- intended beneficiaries
- incidental beneficiaries
What is an intended beneficiary under the minority view for third-party beneficiary contracts?
These parties have rights under the contract, and they:
- are identified in the promise
- have a recognized right to performance that runs directly to them
- The performance will satisfy an obligation of the promising to pay money to the beneficiary OR
- promise he intends to give the beneficiary the benefit of the promise (intention to benefit)
What is an incidental beneficiary under the majority view of TPB contracts?
Parties that incidentally benefit from performance of the contract, but the original parties didn't intend them to, so they have no rights to the contract
Example of an incidental beneficiary?
You contract to landscape your friend's yard, and you buy everything you need from the nursery, who isn't named in the contract and there's no intention to benefit them, so they just incidentally got the benefit
Until the rights of a TPB are vested, what can happen to them?
They can be terminated or modified by the original contracting parties, but once they are vested, that can only happen with the TPB's consent (but if the change doesn't diminish his rights, his consent is not needed)
If you promise to landscape my mom's yard for $500 that I will pay to the bank, and then we change the promise before mom finds out and you will paint the garage instead. When would the rights vest?
Not until mom or the bank know about them and assent
What is the only time that vesting really becomes an issue?
If the promisor and promise you want to modify the contract that a TPB had rights under. If his rights have vested, the contract can't be modified. If they haven't, vesting is not an issue
What are the three different views on vesting?
- majority/R2: TPB's Rights vest if he learns about the contract and assents to it in the way requested, he materially changes his position in justified reliance on the promise, or he brings suit to enforce the promise
- Minority/R1: different for creditor and donee beneficiaries
• creditor: his rights vest when he brings an action to enforce the contract, or materially changes position before learning about discharge/modification
• donee: vest immediately when the contact is made
- UCC: original parties can modify or substitute the contract in good faith according to reasonable commercial standards even if notification was given as long as the assigned contract hasn't been fully performed
Once there is an intended TPB and his rights have vested, what are the rules?
- he can enforce the promise at the moment of vesting
- creditor beneficiaries can sue either the promisor or the promisee, but can only get one recovery
- promisees can usually enforce the contract against the promisor
When do a TPB's rights vest?
When he has learned about the promise and assented to it