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Flashcards in Third Party Beneficiaries Deck (25)
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1
Q

Define

third party beneficiary

A

Person who is not a party to K that K benefits

2
Q

What are the types of beneficiaries in the:

  1. First Restatement (minority jurisdictions)
  2. Second Restatement
A
  1. First Restatement:
    • Creditor
    • Donee
    • Incidental
  2. Second Restatement:
    • Intended (includes creditor and donee)
    • Unintended
3
Q

Define

creditor beneficiary

A

A third-party beneficiary of the contract; the promisee seeks performance by the promisor to fulfill an obligation owed to the third party creditor beneficiary.

4
Q

Define

donee beneficiary

A

A third party beneficiary to the contract; the promisee seeks performance from the promisor in order to make a gift to a third party donee beneficiary.

5
Q

Define

incidental beneficiary

A

A third party who benefits from performance of the K, even though the benefit to them wasn’t the parties’ primary intent in forming the K

6
Q

What are the incidental beneficiary’s rights under the contract?

A

They do not have any rights to seek enforcement of the contract

7
Q

Define

intended beneficiary

A

Someone for whom the contracting party intended to benefit with the contract; can seek enforcement of K

8
Q

When does an intended beneficiary have rights to seek enforcement of the contract against the:

  1. Promisor?
  2. Promisee?
A
  1. Against the Promisor: always, because promisor is under an obligation to the beneficiary
  2. Against the Promisee: never concerning enforcement of the promised performance under the new contract; a 3rd party beneficiary will only have rights against the promisee if there was a prior obligation between promisee and third party beneficiary
9
Q

When do the interests of an intended third party beneficiary vest?

A

A third party intended beneficiary’s interest vests if:

  1. Beneficiary sues;
  2. Beneficiary justifiably changes her position of reliance on the K;
  3. At the request of the parties, the beneficiary manifests assent to the contract; or
  4. The contract’s express terms state that the rights have vested
10
Q

What is the consequence of an intended third party beneficiary’s rights vesting?

A

Both parties are bound to the contract and must gain consent of the beneficiary to modify or rescind

11
Q

What defenses are available to promisors against the beneficiary?

A

Any valid defenses the promisor has against the promisee

12
Q
  1. In a contract with intended third party beneficiaries, when the promisor breaches their duties, what right does the promisee have against the promissor?
  2. What if the beneficiary is a donee beneficiary?
  3. What if the beneficiary is a creditor beneficiary?
A
  1. When the promisor does not perform, the promisee has a claim for breach of contract against the promisor, and may possibly seek specific performance or damages, BUT…
  2. If the promisor’s performance is intended to benefit a donee beneficiary, then the promisee has no damages, but specific performance may be appropriate.
  3. If the promisor’s performance is intended to benefit a creditor beneficiary, then the promisee may seek enforcement of the promisor’s obligation
13
Q

Define

assignment

A

Transfer of K rights; generally allowed

14
Q

What is required to make an effective assignment?

A

Owner of right manifests a present intent to transfer the existing right

15
Q

What are the 4 situations where contract rights are not assignable?

A

Rights are not assignable when:

  1. Assignment would materially alter the risks or obligations with respect to the other party to the contract;
  2. Assignment would violate the law or public policy;
  3. The obligor has a personal interest in providing their service to the obligee rather than a 3rd party; or
  4. The contract specifies that assignments are prohibited
16
Q

Can you prohibit someone from assigning their right to receive payment?

A

No, assignment of payment is allowed

17
Q

What happens if there is an assignment of rights but the K says “assignment of rights under this contract is prohibited”?

A

The assignor has breached the contract, and is likely liable for damages to the obligor, but most courts would hold it is not a basis for nullifying the obligor’s obligation to perform to the benefit of the assignee.

18
Q

What is the effect if the contract prohibits “assignment of the contract” but does not specify further?

A

Courts will generally interpret this to mean a prohibition of the delegation of duties, but not an assignment of rights

19
Q

When are assignments revocable and when are they irrevocable?

A

Revocable: all gratutious assignments unless assignee has detrimentally relied on the assignment.

Irrevocable: assignments made with consideration

20
Q

An assignor impliedly warrants what two things to the assignee?

A

An assignor impliedly warrants to the assignee that she:

  1. Does not know any facts that would defeat the value of the assignment, and will not take any action that would do the same; and
  2. Actually has the right she claims and said right is not subject to limitations or defenses that would undermine the assignee’s interests
21
Q

When can an assignee sue the obligor?

A

When the obligor is in breach of their duties under the K; the assignee has the same rights as the assignor would have had, had the K not been assigned.

22
Q

When can an assignee sue the assignor?

A

Breach of warranty or revocation

23
Q

Define

delegation

A

Transfer of K obligations

(vs. assignment, which is a transfer of rights)

24
Q

What are the two situations where duties are non-delegable?

A

Generally all contractual duties are delegable, unless:

  1. Performance of the service is personal, and the beneficiary of the performance values the unique service (character, reputation, taste, discretion, skill) of the intended performing party; or
  2. K specifies that delegation is prohibited
25
Q

Upon delegation, does the delegator remain liable for the delegatee’s performance?

A

Yes, can be sued if the delegatee doesn’t perform

⚠️ Exception: delegator isn’t liable if there is a novation (when all parties agree to a new contract to replace the old one)