Third Parties

Question 1

Three types of 3Ps

Answer 1

• TP Beneficiaries
• Assignments
• Delegations

Question 2

Steps to determine whether a third party can sue to enforce a K made by two other people

Answer 2

1. ID the 3 parties (promisor, promisee, TPB)
2. Is TP an intended or incidental beneficiary?
3. If intended TP, have their rights been revoked?

Question 3

Who are the three parties in a TPB K?

Answer 3

1. Promisor = person making promise that TP is trying to enforce (breacher)
2. Promisee = contractual counterparty to that promise; person could enforce the promise but is not
3. TP = outsider suing the promisor for the breach

Question 4

Intended v Incidental beneficiaries – what rights do they have; how to know which the TP is?

Answer 4

Intended = has right to sue
Incidental = does not have right to sue

Ask: did the promisor/promisee intend to convey enforcement rights to the TP in the event of a breach.

Two types of intended TPB:
- Creditor beneficiary (debt repayment)
- Donee beneficiary (life insurance)

Example 195: Cam loaned Abe $500 last month. In satisfaction of this debt, Abe agrees to pay Beth $500 if Beth mows Cam’s lawn 10 times. Beth never shows up, and Cam files a lawsuit against Beth. Cam can sue Beth because he is a creditor beneficiary.

Question 5

Four ways a TPs rights cannot be revoked

Answer 5

1. TP knows about promise and changes position in reasonable reliance on the promise. If so, TP can make a Promissory Estoppel claim.
2. TP’s right vests: beneficiary detrimentally relies on the rights
3. TP’s right vests: beneficiary manifests assent to the K.
4. TP’s right vests: beneficiary files a lawsuit to enforce the K.

If the TP’s rights have vested, the original parties cannot rescind the K by mutual agreement. TP can still enforce the K.

Question 6

How can a promisor defend against a TPB?

Answer 6

Promisor can assert any K defense against the TP that he would be entitled to assert against the promisee.

Question 7

What is an assignment?

Answer 7

An assignment is the transfer of rights under a K.

Question 8

What is a delegation?

Answer 8

A delegation is the transfer of duties under a K.

Question 9

What is the difference between a TPB an an assignee?

Answer 9

TPB – benefit occurs to TP all in one step (the creation of the K)

Assignment – first step = formation of K; second step = transfer the benefits of the K from original party to TP

Question 10

What benefits can be assigned? Under what two circumstances can assignments in K not be made?

Answer 10

Almost all K benefits can be assigned, in whole or in part, unless K explicitly (1) prohibits or (2) invalidates assignments.

Question 11

What are the consequences of the K prohibiting assignments?

Answer 11

1. assigning party breaches when he assigns
2. TP can still recover guarantor (non-assigning party to K)

AKA, power to assign persists, even if right to assign does not.

Question 12

What are the consequences of the K invalidating assignments?

Answer 12

TP cannot recover because there is no power or right to assign.

Question 13

What happens if someone assigns the same rights twice?

Answer 13

1. if the rights are assigned without consideration (from assignee) –> assignment is revocable and last assignment controls
2. if rights are assigned for consideration –> first assignment for consideration is typically irrevocable and will hold.

Exception to 2: later assignment takes priority if second assignee does not know of initial assignment and is first to obtain payment or judgment (second assignee is a bona fide purchaser for value without notice)

Question 14

Are delegations permitted?

Answer 14

Yes, unless:

• K prohibits delgations
• other party does not have a special interest in having specific individual perform

Question 15

Can a delegatee be held liable for breach?

Answer 15

No, unless he receives consideration from the DELEGATING party.