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Flashcards in Third party beneficiaries supp Deck (7)
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1

• Incidental beneficiary: third parties who will benefit from a promisor’s performance as a practical matter, but are not intended beneficiaries.
EXAMPLE: The residents who live in the neighborhood where Lawyer’s school is located will be benefited by the mural, but none of them can sue if Artist does not deliver because they are incidental beneficiaries. Only the school has a claim.
Can they sue why or why not?

No they cannot because they do not have standing
Incidental beneficiaries cannot sue anyone to enforce the K.

2

• Parties to a contract are free to modify or rescind by mutual consent, and they may modify or rescind a third party beneficiary provision without consent unless

unless beneficiary’s rights under the K have vested

3

• With intended beneficiaries, vesting occurs when:

o Situation #1: beneficiary brings suit on the matter

o Situation #2: beneficiary changes position in justifiable reliance on the K;
EXAMPLE: Landlord has had it with Artist and is ready to start eviction proceedings. The landlord then learns that Artist has arranged that Lawyer’s payment for the mural be paid the landlord . In light of this, the landlord decides not to continue with the conviction proceedings. At this point, because the landlord/beneficiary has changed his position in justifiable reliance, the landlord/beneficiary’s rights have vested.

o Situation #3: beneficiary manifests assent to the K at the request of promisor or promisee;
EXAMPLE: Patron (the lawyer) speaks to representatives of her alma mater, informing them about the mural that she has arranged to be painted for the school. The representatives gladly assent to the painting. Once the school says it will accept the mural, it is too late to modify the contract with the artist.

o Situation #4: rights of beneficiary have vested under express K terms
EXAMPLE: Under the terms of her life insurance policy with Hartford Insurance, A’s designations of beneficiaries become irrevocable upon A’s demise or adjudication of incompetence. The rights of C, a designated beneficiary, against Hartford Insurance will vest upon the occurrence of either event.

4

T or F • Defenses Available to Promisor: any valid defenses the promisor has against the promisee are also effective against the third-party beneficiary.

true

EXAMPLE: If Lawyer and Artist enter into a contract in which Lawyer agrees to pay artist for the painting of a wall mural, and Artist in fact does not paint that mural, there is a failure of consideration and Lawyer’s obligation to pay is discharged. Moreover, Lawyer can raise that as a defense against Artist’s landlord, if that landlord sues as a third-party beneficiary of the contract.

5

T or F Promisor may not assert defenses based on separate transactions with the promisee.

True

EXAMPLE: Before Lawyer entered into a contract with Artist for the painting of the mural, Lawyer had loaned Artist money. Artist has not repaid the loan as promised. In an action between Artist and Lawyer, Lawyer has a right of setoff. But if Artist’s landlord sued as a third-party beneficiary to the contract for the mural, Lawyer could not raise the setoff as a defense.

6

• Assignment = A transfer of a right to receive a contract performance
• To be effective, owner of the right must manifest

manifest an intention to make a present transfer of an existing right

7

• Rights to Be Assigned: all rights generally assignable except when:

o Exception #1: when assignment would materially change the duties of other party;
EXAMPLE: A and B are parties to a requirements contract under the terms of which A is obligated to supply B with B’s monthly requirements for widgets. B’s rights under the contract are not assignable to C if C’s monthly requirements would greatly exceed B’s.
o Exception #2: when the obligor has personal interest in rendering performance to the obligee and not a third party;
EXAMPLE: A student attempts to assign his right to a private tutor who is picky about his students. Because the tutor has a personal interest in who he tutors, the contract is not assignable.
o Exception #3: when it would violate applicable law or public policy;
EXAMPLE: A state statute prohibiting assignment of wages.
o Exception #4: when assignment is prohibited by the K
 However, most courts will treat this as a breach of K by assignor, but not a basis for nullifying assignee’s rights
 EXCEPTION: If the contract provision provides that any assignments of this contract “ARE VOID” or similar language, than any assignment is completely negated.