contracts - 5. 3rd parties.txt
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Third Party Beneficiary?
- Two parties contracting with common intent to benefit a 3rd party, the beneficiary.
- *one contract
Intended vs. Incidental 3rd party beneficiary Beneficiary?
- 1) generally identified in the K
- 2) Receives performance directly from promisor
- 3) Has some relationship w/ promisee to indicate intent to benefit
- Only intended beneficiaries have K law rights
Creditor or Donee 3rd party beneficiary?
- 1) Assumption: Donee beneficiary
- 2) Look at whether third-party beneficiary was a creditor of the promisee before the contract.
Can a K be modified or cancelled, when there is a 3rd party beneficiary?
- Before 3rd partys rights vest, K can be modified w/o his consent.
- If vested, K cannot be cancelled or modified without 3rd party's consent, unless K says otherwise.
When have the third party beneficiary's rights vested?
- 1) Beneficiary manifests assent [in a manner invited or requested by the parties]
- 2) Beneficiary sues to enforce its rights
- 3) Beneficiary learns of the K and detrimentally relies on it
Who can sue whom, in a 3rd party beneficiary case?
- 1) Beneficiary can sue Promisor
- Promisor can raise any defense she has against Promisee
- 2) Promisee can sue Promisor [specific performance included]
- 3) Beneficiary generally cannot sue Promisee
- ------a) Creditor Beneficiary can sue both Promisee and Promisor, but limited to one satisfaction, only on pre-existing debt.
- ------b) Donee beneficiary cannot sue Promisee unless foreseeable detrimental reliance, and beneficiary reasonably relied on it
What is an Assignment of rights?
- 1) transfer of contract rights
- 2) by one party to a third party
- 3) by another contract
- Assignor: party to K who later transfers rights under K to another
- Assignee: not party to K, able to enforce K b/c of assignment
- Obligor: other party to K
When are rights assignable?
- Rights are generally assignable unless
- 1) assignment substantially changes obligor's duty or risk;
- 2) assignment is for future rights based on future contracts; or
- 3) assignment is prohibited by a non-assignment provision, or by law
Prohibition against assignment?
- Prohibition: takes away right to assign, but not power to assign
- rights hereunder are not assignable
- Assignee can still enforce K (if didnt know of prohibition)
Invalidation against assignment?
- Invalidation: takes away both right AND power to assign
- all assignments under this contract are void/disregarded
- Assignee, no rights
Requirements contracts, assignable?
- Generally, right to receive goods under a requirement contract is not assignable because the obligors duties could change substantially.
- However, the UCC allows the assignment of requirements contracts if the assignee acts in good faith not to alter the terms of the contract.
What can you assign, what is a substantial change to duty or risk?
- 1) Can assign right to be paid (right to be paid is never a substantial change)
- 2) Cant assign right to performance (not involving a payment)
Is consideration required to assign?
- Consideration not required to assign; but gratuitous assignments can be revoked.
- Generally, assignment for consideration is irrevocable.
Assignments for consideration have implied warranties of what assignor will do:
- 1) Right assigned actually exists
- 2) Right assigned not subject to defenses by obligor
- 3) Assignor wont do anything to impair value of assignment (but no warranty of what obligor will do)
How to revoke gratuitous assignment?
- Gratuitous assignment can be revoked by the assignor taking performance directly from the obligor.
- However, cannot revoke when assignor is estopped because he should reasonably foresee the assignee changed position in reliance on the assignment to his detriment.
Assignee suing Obligor?
- 1) can sue under the K
- 2) obligor can raise any defenses against assignee that it would have against assignor
Assignor for consideration suing obligor?
- cannot recover from obligor
- Assignment for consideration cannot be revoked
Assignee suing Assignor
- 1) can sue if irrevocable
- 2) assignor not liable if obligor unable to perform; assignor does not warrant that the obligor will perform
Multiple assignments? w/irrevocable assignment
- assignments for consideration, first assignee in time wins, except if subsequent assignee
- 1) pays for value
- 2) is unaware of earlier assignment, and
- 3) is first to obtain payment, judgment, novation, or ownership
Multiple assignments w/revocable assignment?
- when it's ONLY gratuitous assignments, last assignee in time wins, except if
- 1) gratuitous assignment is irrevocable
- 2) assignee receives ownership, or
- 3) assignee reasonably and detrimentally relied
Delegation of duties definition?
Transfer of duty created in one contract to a third party by another contract
Duties are generally delegable, except?
- 1) involves special (personal) skill or special reputation of delegator [requires a novation]
- 2) substantially alters obligee's risks
- 3) special trust was reposed in delegator, or
- 4) K prohibits delegation OR assignment [no assignment = no delegation]
- 1) new K
- 2) replacing a valid K
- 3) with all parties agreeing
- 4) to release one original party and substituting a new party, and
- 5) extinguishing the old K
Obligee v. Delegator
Delegating party always remains liable if delegatee fails to perform
Obligee v. Delegatee
- Delegatee is liable ONLY if she receives consideration from delegator
- Note: because Delegation for consideration creates a 3rd party beneficiary obligation!
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