Third-Party Beneficiaries Flashcards
(25 cards)
What are the three main concepts concerning third-party beneficiary?
- Third-party beneficiary contracts
- Assignment
- Delegation
What should you ask with a third-party contract?
Whether a third party can sue to enforce a contract made by two other people
Who is the promisor in a third-party contract?
The promisor is the person making the promise that the outsider is trying to enforce
Who is the promisee in a third-party contract?
A contractual counterparty to that promise; this person could presumably enforce the contract, but is not doing so.
Who is the third-party beneficiary in a third-party contract>
The outsider suing the promisor for breach
What are the different types of third parties?
(a) Intended Beneficiary
(b) Incidental Beneficiary
(c) Creditor Beneficiary
(d) Donee Beneficiary
Does an intended beneficiary have the right to sue?
Yes
Does an incidental beneficiary have the right to sue?
No
How do you determine whether a given third party is an intended or an incidental beneficiary?
Ask whether the initial counterparties (promisor and promisee) intended to convey enforcement rights to the third party in the event of a breach
What is a creditor benefiary?
A beneficiary that arises when the promisee strikes a deal with the promisor in order to repay some earlier debt to the third party
What is a donee beneficiary?
Arises when there is no preexisting obligation, but the promisee clearly intends to confer a gift of enforcement on a third party
When can the third party make a promissory estoppel claim?
The initial counterparties might try to revoke or modify the third party’s right to enforce the contract. In this case, ask whether the third party knows about the promise and has changed position in reasonable reliance on the promise. If so, the third party may be able to make out a claim under promissory estoppel.
What facts cause the right to vest (meaning that the third party will NOT lose enforcement rights)?
(a) The beneficiary detrimentally relied on the rights (similar to promissory estoppel)
(b) The beneficiary manifests assent to the contract; OR
(c) The beneficiary has filed a lawsuit to enforce the contract
What defenses can the promisor assert against the third party?
The promisor can assert any contract defense against the third party that he would be entitled to assert against the promisee.
What is an assignment in a contract?
The transfer of RIGHTS under a contract
What is a delegation in a contract?
The transfer of DUTIES under a contract
How do you distinguish assignment from a third party beneficiary contract?
You will typically see two steps in an assignment:
1. The formation of a contract; and
2. The transfer of the benefits of the contract from an original counterparty to some third party
What is the general rule regarding assignments in contracts?
Almost all contracts can be assigned in whole or in part, unless the contract explicitly prohibits or invalidates assignments.
What should you do if the contract states that the rights under the contract are not assignable?
You must determine whether the contract PROHIBITS or INVALIDATES assignments
What happens if a contract prohibits assignments and a party assigns anyway?
The assigning party has breached when he makes the assignment, but the third party can still recover from the guarantor.
***The power to assign persists, even if the right to assign does not.
What happens if a contract invalidates assignments and a party assigns anyway?
The third party CANNOT recover because there is no power or right to assign
What happens if someone assigns the same rights twice?
It depends on whether the assignee has paid consideration for the rights.
If the rights are assigned WITHOUT consideration, the assignment is generally revocable and the last assignment controls.
If the rights are assigned FOR CONSIDERATION, then the first assignment for consideration is typically irrevocable and will hold. LIMITED EXCEPTION: A later assignment will take priority if the second assignment does not know of the initial assignment and is first to obtain payment or a judgment.
When does a delegation occur?
When a party to a contract “outsources” their duties under the contract
What is the general rule for delegation?
Delegation is generally acceptable, as long as the contract does not prohibit delegation and the other party does not have some special interest in having a specific individual perform.
