Third Party Issues / Interests

Question 1

What is a Third Party Beneficiary?

Answer 1

A non-party to a contract who receives some advantage or benefit from the contract

Question 2

Restatement 302: Intended v. Incidental Beneficiary

Answer 2

1. Intended: Receives direct benefit because parties intended to benefit them. Have the right to enforce promises
2. Incidental: Receives indirect benefit even though parties did not intend to benefit them and they have no right to enforce promises

Question 3

Restatement 302: A beneficiary is intended if: (2)

Answer 3

1. It is appropriate toe effectuate the intention of the parties AND
2. Party is either a Creditor Beneficiary or Donee Beneficiary

Question 4

What is a Creditor v. Donee Beneficiary?: R2D 301

Answer 4

1. Creditor Beneficiary R2d 301(1)(a): To discharge a debt or obligation owed by the promisee to the beneficiary
2. Donee Beneficiary R2d 301(1)(b): To make a gift or confer a benefit to the third party.

Question 5

UCC 2-318: Third Party Beneficiaries of Warranties Express or Implied

Answer 5

People who are not direct buyers but still have legal protection if they are harmed due to breach of warranty.

Once an individual covered under Alternatives A, B, or C suffers an injury from breach, their right to claim damages becomes vested

Question 6

UCC 2-318: What are the Three Alternatives TPB can recover from?

Answer 6

1. Alternative A: Protection is limited to family members, household members, or guests in the Buyers home. Person must have been injured due to breach of warranty
2. Alternative B: Broadens protection to any natural person who could reasonably be expected to use or be affected by the goods and who is the injured person
3. Alternative C: Covering any person who could reasonably be expected to use or to be affected by the goods. Also allows property damage and economic loss

Question 7

What is Vesting?

Answer 7

When a person’s rights become enforceable and cannot be modified or revoked without their consent

Question 8

What is the Traditional Vesting View regarding TPB? (2)

Answer 8

1. Creditor: rights vest the instant the promisor agrees to undertake the promise’s duty or liability to the beneficiary.
2. Donee: rights vest only if reliance.
   Gift: where the gift has not been delivered, or where gift is made conditional upon subsequent events which may or may not occur, the gift may be revoked by the donor at any time prior to vesting

Question 9

Restatement 311: Vesting In Third Party Beneficiaries

Answer 9

Ignores Creditor/Donee vesting and view’s beneficiary rights as vesting when one of the three events occur:

1. Beneficiary manifests assent to the promise (B agrees to contract or accepts benefit when asked to do so by one of contracting parties)
2. Beneficiary sues to enforce the promise
3. Beneficiary justifiably relies on the promise to his detriment: (B takes significant action or makes decision based on expectation they will receive the promise)

Question 10

Beneficiary’s Consent to modify or rescind?

Answer 10

Any effort by contracting parties to modify or rescind the contract without the beneficiary’s consent is VOID but only AFTER those rights have vested

Question 11

Who has Control of the contract during TPB?

Answer 11

The two original contracting parties remain in control UNLESS TPB’s rights have vested

Question 12

Restatement 304: Creation of Duty to Beneficiary

Answer 12

1. The person making the promise (promisor) has a legal duty to fulfill it
2. The intended beneficiary has the right to enforce, incidental beneficiary does not

Question 13

Restatement 307: Remedy for Specific Performance

Answer 13

If specific performance is an appropriate remedy, both:
1. Promisee (person who originally made the contract) AND
2. Intended Beneficiary (not just the contracting parties)
Can sue to enforce the promisor to perform his obligation

Question 14

What is an Assignment?

Answer 14

The Transfer of Rights or Benefits

-One contract exists and the second contract is the rights to assign to someone else

Question 15

What is an Assignor/Assignee/Obligor?

Answer 15

1. Assignor: party who transferred the rights away
2. Assignee: third party whose been transferred the rights to collect something
3. Obligor = party with duty to actually perform on the assigned rights

Question 16

Assignee’s Rights: (2)

Answer 16

Assumes all of the assignor’s rights as contract stands at the time of assignment, subject to claims/defenses that:
1. Accrued before obligor received notice of assignment:
If the obligor had valid claims or defenses against the assignor before being notified of the assignment (e.g., breach, fraud, setoff), those can be used against the assignee too.

2. Stem from assignor’s present or future failure to perform:
   Even after the assignment, if the assignor has obligations that they fail to perform, the obligor can raise that failure as a defense against the assignee.

Question 17

One can freely Assign UNLESS: Exceptions (4)

Answer 17

1. Materially Change: if the assignment would materially change the duty of the obligor, materially increase the burden of risk imposed on him, materially impair his chance of obtaining return performance, or materially reduce its value to him
2. Forbidden by Statute: or inoperative on grounds of public policy
3. Expressly Forbidden: if the contract precludes assignment of rights
4. Personal Services Contract: contract for personal services for a definite period of time

Question 18

What are the Warranties of Assignor? (3)

Answer 18

1. Assignor promises that they haven’t done and won’t do, anything that would reduce the value of the assigned rights and they aren’t aware of any facts that could negatively impact the assignment’s value
2. Assignor guarantees that the right they are assigning is valid and enforceable, and that there are no hidden defenses that the obligor could raise except those already known at the time of assignment
3. If Assignor provides any written documents to the Assignee to prove the existence of the assigned right, the Assignor guarantees that these documents are genuine and authentic

Question 19

What is a Delegation?

Answer 19

Transfer of Duties or Obligations

Question 20

What is a Delegator/Delegate/ Obligor/ Obligee?

Answer 20

1. Delegator: person who transfers duty to another
2. Delegate: to whom the duty is transferred to
3. Obligor: The person or entity who is legally or contractually obliged to provide a benefit or payment to another
4. Obligee: The person to whom the transferred duty is owed

Question 21

One Can Freely Delegate Unless: (3)

Answer 21

1. Delegation is contrary to public policy
2. Delegation violates the terms of the promise (Parties agree that only one party would do something, and other party cannot delegate the promise to someone else)
3. The other party has a special interest in you doing the job or you have a special reputation

Question 22

Who remains Liable in a Delegation?

Answer 22

The Delegator always remains liable:
The other party can recover from the delegator if the delegate fails to perform UNLESS the party seeking recovery released the delegator from the liability in the original agreement through a novation.

Question 23

Restatement 280: What is a Novation?

Answer 23

1. Substituting a new contract in place of an old contract transferring both your rights and obligations to a third party.
2. Requires consent from all parties

Question 24

k. Novation Can be Express or Implied AFTER Delegation IF:

Answer 24

1.Delegator refuses to remain responsible for liability to the other party AND
2. The other party accepts performance of the contract without reserving rights against the Delegator