Three types of 3Ps
- TP Beneficiaries
- Assignments
- Delegations
Steps to determine whether a third party can sue to enforce a K made by two other people
- ID the 3 parties (promisor, promisee, TPB)
- Is TP an intended or incidental beneficiary?
- If intended TP, have their rights been revoked?
Who are the three parties in a TPB K?
- Promisor = person making promise that TP is trying to enforce (breacher)
- Promisee = contractual counterparty to that promise; person could enforce the promise but is not
- TP = outsider suing the promisor for the breach
Intended v Incidental beneficiaries – what rights do they have; how to know which the TP is?
Intended = has right to sue
Incidental = does not have right to sue
Ask: did the promisor/promisee intend to convey enforcement rights to the TP in the event of a breach.
Two types of intended TPB:
- Creditor beneficiary (debt repayment)
- Donee beneficiary (life insurance)
Example 195: Cam loaned Abe $500 last month. In satisfaction of this debt, Abe agrees to pay Beth $500 if Beth mows Cam’s lawn 10 times. Beth never shows up, and Cam files a lawsuit against Beth. Cam can sue Beth because he is a creditor beneficiary.
Four ways a TPs rights cannot be revoked
- TP knows about promise and changes position in reasonable reliance on the promise. If so, TP can make a Promissory Estoppel claim.
- TP’s right vests: beneficiary detrimentally relies on the rights
- TP’s right vests: beneficiary manifests assent to the K.
- TP’s right vests: beneficiary files a lawsuit to enforce the K.
If the TP’s rights have vested, the original parties cannot rescind the K by mutual agreement. TP can still enforce the K.
How can a promisor defend against a TPB?
Promisor can assert any K defense against the TP that he would be entitled to assert against the promisee.
What is an assignment?
An assignment is the transfer of rights under a K.
What is a delegation?
A delegation is the transfer of duties under a K.
What is the difference between a TPB an an assignee?
TPB – benefit occurs to TP all in one step (the creation of the K)
Assignment – first step = formation of K; second step = transfer the benefits of the K from original party to TP
What benefits can be assigned? Under what two circumstances can assignments in K not be made?
Almost all K benefits can be assigned, in whole or in part, unless K explicitly (1) prohibits or (2) invalidates assignments.
What are the consequences of the K prohibiting assignments?
- assigning party breaches when he assigns
- TP can still recover guarantor (non-assigning party to K)
AKA, power to assign persists, even if right to assign does not.
What are the consequences of the K invalidating assignments?
TP cannot recover because there is no power or right to assign.
What happens if someone assigns the same rights twice?
- if the rights are assigned without consideration (from assignee) –> assignment is revocable and last assignment controls
- if rights are assigned for consideration –> first assignment for consideration is typically irrevocable and will hold.
Exception to 2: later assignment takes priority if second assignee does not know of initial assignment and is first to obtain payment or judgment (second assignee is a bona fide purchaser for value without notice)
Are delegations permitted?
Yes, unless:
- K prohibits delgations
- other party does not have a special interest in having specific individual perform
Can a delegatee be held liable for breach?
No, unless he receives consideration from the DELEGATING party.
