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Question 1

Once a TPB’s rights have vested what is he entitled to?

Answer 1

He can get damages or specific performance against the promisor, but not restitution because he didn’t confer a benefit on the promisor

Question 2

What defenses can a promisor use against a third-party beneficiary?

Answer 2

Any that could have been used against the original promisee. But if the TPB is a creditor beneficiary and the promisor’s duty is to pay a debt the promisee owed the TPB, he can’t use the defenses the promisee could have used because that is between the promisor and the promisee

Question 3

How are the TPB’s rights affected by the promisee – promisor relationship?

Answer 3

Not at all, so if the promisee breaches, the TPB can enforce the old rights against the promisee but he can only recover once

Question 4

What are the two major problems when a tenant tries to transfer possession of his leased property to another while the lease is still effective?

Answer 4

It is a question of whether the new tenant assumes the lease or doesn’t assume the lease

Question 5

If a tenant transfers possession of a leasehold to another person and the new tenant promises to perform the obligations the original tenant owed to the landlord, what has happened?

Answer 5

He has assumed the lease and become the promisor in a contract with the old tenant who is the promisee, and the landlord is the creditor third-party beneficiary. If the new tenant doesn’t perform, the landlord can bring an action to enforce the old contract and can enforce the original lease against the old tenant

Question 6

If a tenant transfers possession of a leasehold to another, and the new tenant executes a new lease with the old tenant where he doesn’t make any promise to perform the original obligations, what rights does the landlord have against the new tenant?

Answer 6

Has no contract rights against the new tenant, but has rights of ownership like a right to possession if the new tenant defaults

Question 7

If land is for sale and it has a mortgage on it, what are the two possible options for a buyer?

Answer 7

Can assume the mortgage or take subject to the mortgage

Question 8

What does it mean for a buyer to assume a mortgage?

Answer 8

He promises to perform the obligations of the mortgage agreement between the seller and the mortgagee. Mortgagee is then a TPB of the buyer-seller contract. If buyer doesn’t perform, mortgagee can get remedies against the buyer and has rights against the seller.

Question 9

If a buyer takes property “subject to” a mortgage, what does that mean?

Answer 9

The buyer makes no promises about the mortgage. The mortgagee doesn’t have any enforceable rights from the buyer – seller agreement, he just keeps a security right in the property and can enforce the original mortgage against the seller.

Question 10

If one buyer takes subject to an existing mortgage, then sells the land to another who assumes that same mortgage, what are the two positions on what has happened?

Answer 10

• majority: the assumption is proper and the original mortgagee is a third-party beneficiary who has contract rights against the second buyer
• minority: the second buyer is subject to the mortgage

Question 11

What are public contracts?

Answer 11

Those made by the government for the benefit of its citizens. Ie: City contracts for a police station or parks

Question 12

Can an individual be a third party creditor beneficiary in a public contract when a promisor agrees to perform services for the government?

Answer 12

Yes, and he can recover if the government breaches

Question 13

In the case where the plaintiff’s house burned down, the court said the defendant’s obligation to provide water to the hydrants ran to who?

Answer 13

The city, not individuals, so the plaintiff was just an incidental beneficiary and couldn’t be compensated unless the contract showed an intent to compensate individuals if there was a default

Question 14

Usually a promisor can assert against the third-party beneficiary any defense that what?

Answer 14

He could’ve used against the promisee

Question 15

Can a promisor raise the promisee’s defenses against a third-party beneficiary?

Answer 15

Only if the promisor promised to pay whatever the promisee owes, but not if the promisor promises to pay regardless of the liability of the promisee to the beneficiary

Question 16

What are exceptions to the rule that a promisor can assert any defense against the third-party beneficiary that he could’ve used against the promisee?

Answer 16

• if the parties agree the TPB has an enforceable right despite the defense
• policy reasons
• promisors can assert counterclaims from the same TNO, but not different ones
• after the TPB right vested, he can’t raise a defense

Question 17

What are recurring TPB cases?

Answer 17

• assumption of a mortgage
• would-be legatees
• government contracts
• suits by subcontractors against sureties of general contractors

Question 18

What is an assumption of a mortgage?

Answer 18

One person assumes the obligations already owed by another to a third-party.

Question 19

If a purchaser assumes an existing mortgage as part of a purchase transaction, the mortgagee is a creditor beneficiary of the purchaser’s promise, so if there is a default, what happens?

Answer 19

Both the assuming purchaser and the original mortgagor are personally liable for the full mortgage debt

Question 20

If a client gets a lawyer to make a will that benefits a third-party and the lawyer doesn’t do it according to the client’s wishes, and the client dies, and the third-party doesn’t get anything because of the failure, what happens?

Answer 20

The third-party has a right against the lawyer because he is an intended TPB.