Third-Party Beneficiaries Definitions
If two parties contract with some intent of benefitting a third party, that third party is a third-party beneficiary.
Third Party Beneficiaries Characteristics
- Not parties to the contract; TPB are merely beneficiaries
- However, intended TPBs have right under the contract.
Creditor TPB v. Donee TPBs
- Creditor TBP’s benefit is conferred based on a debt owed by the promise to the contract
- Donee TPB’s benefit is conferred gratutously
Determining TPB status
One becomes an intended TPB to a contract if they are either:
- Expressly designated in the contract
- Directly benefit from some perfromance under the contract, or
- Stand in such a relationship to the promisee under the contract that an intent to benefit the third party can be inferred.
Incidental Beneficiary
If a third party does not meet the requirment, she is an incidental beneficiary and does not have any rights under the contract.
Rights of Third-Party Beneficiaries
Vesting of Rights Elements
To enforce rights under a contract, a TPB’s right must vest.
Vesting Rights occurs when either:
- The TPB assents to the promise in a manner requested by the parties to the contract
- The TPB brings suit to enforce the promise
- The TPB materially changes position in justifiable reliance on the promise.
Rights of Third-Party Beneficiaries
Enforcing the Contract
- TPB can sue promisor
- Promisor can assert any of his own defenses
- Promisee can sue promisor at law and in equity for specific performance
- TPB can only sue promisee if TPB is a creditor beneficiary
Assignment Definition
A transfer of rights to a third party after a contract is formed. Consideration is not required.
Common Law Limitations on Assignment
Common law bars assignment that substantially change the duties of the obligor.
- Assignment of payment is not a substantial change
- Assignment of rights to perfromance is a substantial change
Contractual Limitations on Rights of Assignment
- Contract provisions prohibiting assignment
- Take away the right to assign but not the pwoer to assign
- I.e. an assignee can still enforece the assignmnet if the was unaware of the provision.
- Take away the right to assign but not the pwoer to assign
- Contract provisions invalidating assignmnets
- Take away both the right and the power to assign
- I.e. any assignment is invalid and unenforceable.
- Take away both the right and the power to assign
Revocability
Assignment for Considerations
Irrevocable
Revocability
Gratuitous Assignmnets
Revocable, unless:
- Death or bankruptcy of assignor
- Notice of revocation by assignor
- Taking of Perfromance by assignor, or
- Later assignmnet to another.
Revocability of Assignmeents
Enforcement & Recovery
- An assignee can recover from the obligor
- An assignor for consideration cannot recover from the obligor
- Payment by obligor to assignor is effective until obligor knows of the assignment.
Delegation Definition
Generally, all duties may be delegated, subject to exceptions
- Obligee must generally accept perfromance for delegee
- Only duties may be delegated, whereas rights may be transferred to a third-party via assigment
Delegation Liability
Delegator remains liable for delagee’s perfromance
Obligee may sue delegator for non-perfromance by delegee
Obligee may only sue delegee if the delegee has assumed duties of the entire contract.
Delegation Exceptions
Duties are non-delegable if:
- Duties involve personal judgement and skill
- Delegation changes the expectance in a requirement or output contract
- A party has placed special trust in the delegator, or
- A contractual provision restricts delegation
