Chp 16: Third Party Rights

Front 1

Extinguishes the rights of the assignor

Back 1

When rights under a contract are assigned unconditionally; the assignee has a right to demand performance from the original party to the contract(obligor).

Front 2

Assignee takes rights subject to defenses

Back 2

Assignee only obtains rights that assignor originally had, but those rights are subject to the defenses that obligor has against the assignor.

Front 3

When rights that can't be assigned

Back 3

1. statute expressly prohibits assignment; self explanatory

2. the contract is for personal services; tutoring

3. the assignment will materially alter the obligor's risk or duties; insurance policy

4. The contract prohibits assignment; ordinarily cannot be assigned

Front 4

Exceptions to contract prohibiting assignment

Back 4

1. Contract cannot prevent an assignment of the right to receive funds

2. Assignment of ownership rights in real estate cannot be prohibited because it is contrary to public policy in most states.

3. Assignment of negotiable instruments

4. Sales good contract-damages-despite contract prohibition

Front 5

Alienation

Back 5

Transferring land out of one's possession.

Front 6

Notice assignment

Back 6

Given notice to obligor is not legally necessary to give validity to the assignment(effective immediately despite notice), but two major problems arise if notice isn't given:

1. priority issues

2. potential for discharge by performance to the wrong party

Front 7

Priority issues

Back 7

Assignor assigns same right to two different persons:

1. Most often, the first assignment in time is the first in right

2. Less often, priority is given to first assignee who gives notice.

Front 8

Potential for discharge by performance to the wrong party

Back 8

1. Until obligor has received notice, the obligor can discharge his obligation by performance to the assignor

2. If notice is given, obligor must discharge obligation through performance to assignee.

Front 9

When delegation is prohibited

Back 9

1. When performance depends on the personal skill or talents of the obligor; in contrast, nonpersonal duties may be delegated

2. when special trust has been placed in the obligor.

3. When performance by a third party will vary materially from that expected by the obligee under the contract

4. When the contract expressly prohibits delegation

Front 10

effect of a delegation

Back 10

if a delegation of duties is enforceable, the obligee must accept performance from the delegatee.

Front 11

Assignment of all rights

Back 11

Traditional view: assignee did not assume any duties; not sufficient to imply promise

Modern view: probable intent in using such general words is to create both an assignment of rights and assumption of duties.

Front 12

Who is the promisor(third party contracts)

Back 12

1. Both parties are promisors.

2. Courts determine identity of promisor by asking which party made the promise that benefits the third party.

3. determining promisor, allows third party to sue promisor directly and not sue promisee, reducing burden on courts(because promisee would sue promisor after being sued by the third party)

Front 13

Creditor Beneficiary

Back 13

Promisor promises promisee to pay a debt due to a third party(creditor beneficiary) to which the creditor beneficiary can sue the promisor directly to enforce the contract.

Front 14

Donee Beneficiary

Back 14

When contract is made with express purpose to give a gift to a party, the donee beneficiary can sue the promisor directly to enforce the promise.

Front 15

Third party's rights must vest

Back 15

Third party beneficiary cannot enforce a contract against the original parties until the third party's rights have vested, meaning they have taken effect and cannot be taken away.

Until then, the original parties can modify or rescind the contract without consent of the third party.

Front 16

When the rights of an intended beneficiary vest

Back 16

1. The third party demonstrates express consent to the agreement(letter or note) and consent to, a contract formed for his benefit.

2. Third party materially alters his or her position in detrimental reliance on the contract

3. When the conditions for vesting are satisfied.

Front 17

Intended versus incidental beneficiaries

Back 17

Courts focus on intent as expressed in contract language and implied by the surrounding circumstances.

If not intended beneficiary, then incidental beneficiary

Front 18

Reasonable person test

Back 18

Would a reasonable person believe that the promise intended to confer on the beneficiary the right to enforce the contract.

Front 19

Other factors indicating an intended beneficiary

Back 19

1. Performance is rendered directly to the third party

2. Third party has the right to control the details of the performance.

3. Third party is expressly designated as beneficiary in the contract.