Third Party Rights

1
Third Party Rights
2
Four Concepts

• K as a private agreement
• Contracts that benefit Third Parties
• Assignment of Rights under a K
• Delegation of Duties under a K

3
K as a Private Agreement

• Privity of Contract
• what do you get out of a contract between two
  other people?
• What standing do you have to pursue an action
  against either?

4
Third Party Beneficiary Contracts

• One intention of the contract is to benefit a
  3P.... although there may be other intentions as
  well... no need for exclusivity
• Understanding of difference between those
  intended to benefit and those who benefit
  incidentally

5
Assignment of Rightsand the Delegation of Duties

• The transfer of contractual obligations and
  benefits to another party...
• Dont confuse the terms!!!!

6
More on 3P Beneficiary Ks

• City of South Bend contracts with ABC Paving to
  cover streets in my neighborhood with asphalt.
  They do so, but after first rainstorm, asphalt
  breaks apart, requiring repaving. Asphalt kicked
  up by cars, dings door of my car, parked in
  driveway.
• I live in the neighborhood. I sue on two grounds
• Breach of Contract
• Tort claim what kind of claim?
• Result?

7
What kind of Beneficiary am I?

• Am I an intended beneficiary?
• Was performance rendered to me?
• Do I have right to control performance?
• Am I mentioned in the K?
• Am I an incidental beneficiary?
• Do I benefit from the K? Collaterally?
• What if its not the city, but instead its me
  and a few of my neighbors paving our cul-de-sac?

8
Donee Beneficiary?

• Am I named in the K? Do I get a contractual
  benefit as a gift?
• What happens when I name my nephew and niece as
  beneficiaries of my University Life Insurance
  policy?
• Can they sue me for taking them off?
• Can they sue the Company for not paying off when
  I croak?

9
Donee Beneficiary

• A third party named in a K who is intended to
  receive a contractual right as a gift
• Intention is key... b/c intention exists, donee
  can pursue and has standing
• Understanding of intent reduces need for
  distinguishing between donee and creditor
• R2d no longer differentiates

10
Creditor Beneficiaries

• What are they?
• 3Ps named in a K who are intended to receive a
  contractual right in order to satisfy a duty owed
  by the promisee to the third party
• Main purpose to satisfy duty owed to the 3P
• Creditor and Donee beneficiaries are both
  Intended Beneficiaries

11
Intended Beneficiaries

• Modern view distinguishes only between intended
  and incidental beneficiaries
• Understand difference between creditor and donee
  beneficiaries, though
• Be sure to understand what makes a beneficiary
  intended

12
Intended Beneficiaries

• To enforce promise made for her benefit
• subject to terms of the K
• Defenses that could be asserted against promisee
  can be asserted against the 3P
• Promisor and Promisee can mutually agree to
  defeat the beneficiaries right
• unless what???

13
Vesting of Rights

• Will detrimental reliance necessarily vest
  rights?
• Besides detrimental reliance, how else can rights
  be vested?
• 3P learns of K and manifests assent at request of
  promisor and promisee
• 3P brings suit upon the K

14
Remember

• K might expressly reserve to the parties (the
  promisor and promisee) the right to change,
  modify, rescind or even cancel the K... and the
  3P is subject to the resulting change
• e.g., as in life insurance Ks
• when, how do such rights vest?
• Recollection of what important concept?.

15
Assignment of Rights

• Distinguish between Assignment and 3P Beneficiary
  Contracts and Novations
• Typical uses
• assigning rights to payments
• financing transactions
• mortgages
• Important Terms
• assignor, assignee, obligor, obligee

16
Distinguish

• 3P Beneficiary K - intention at time of
  contracting to benefit a 3P... 3P has legal
  rights in the K
• Novation - substitutes a new party for one of the
  original parties discussed further in next
  chapter
• Assignment - transfer of a K right to a person
  other than a party to the K

17
More on Assignments

• Definition transfer of rights
• Need intention to transfer oral or written, but
  few real formalities
• Can transfer most any right
• the right must exist
• must not be personal in nature ( are OK)
• No consideration needed... gratuitous assignments
  are OK

18
Contract rights are freely assignable, except...

• K right involving personal skill and judgment
  (e.g., employment K, as in babysitting example)
• When assignment is prohibited in the K
• exception to exception
• in UCC any agreement to restrict assignability of
  A/R is void
• can always assign and negotiable instruments
• When assignment materially increases obligation
  of obligor

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Is this a valid assignment?

• Marty Merchant sells Jim 1500 of widgets. Marty
  has an A/R with Jim (i.e., Jim purchased the
  widgets on account). Agreement says Jim will pay
  100/month, only to MM, no one else, regardless
  of assignment.
• Any problem?

20
Valid Assignment?Problems with Notice...

• Roger hires Kate under a K as an Independent
  Contractor. Kate assigns K payment to Beth, but
  no notice is given to Roger. Later, Kate assigns
  rights to Charlie, Charlie gives notice to Roger.
• Who has rights to the K payment?
• implications of not giving notice?
• implications of subsequent assignment?
• majority rule... first in time or first w/
  notice?
• effective immediately

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What rights do assignees have?

• .... they acquire the same rights that the
  assignor possessed.... same quantity and
  quality... if right of assignor was subject to
  claims, defenses, set-offs, liens, etc., the
  right in the hands of the assignee has the same
  status
• and may be even further restricted if provided
  for in the assignment

22
Can you revoke an assignment?

• What do you think?
• What if consideration has been given for the
  assignment?
• Kate assigns portion of payment in return for
  covenant not to sue
• What if it was a gratuitous assignment?
• if nothing is transferred (signed writing, CD,
  policy), probably can be revoked
• How about a gratuitous assignment with some
  reliance on the assignment by the assignee?

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Delegation of Duties

• Remember.... RIGHTS ARE ASSIGNED,DUTIES ARE
  DELEGATED
• Definition authorization or permission to
  perform an existing duty given by an obligor to a
  3P
• Generally, any duty can be delegated, unless
• personal skills or traits of the obligor
• K provision restricting delegation
• fiduciary or trust relationship
• delegation materially changes duty to be performed

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Understand...

• Delegation - the mere authority to perform a duty
• original obligor remains bound to performance
• delegate is under no obligation, unless there is
  an...
• Assumption - a delegation combined with a binding
  agreement to perform the duty of the delegating
  party
• Novation - K whereby the obligor is discharged,
  and new obligor is substituted...
• delegation, assumption and release

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Problem 16-1

• Alexander is donee beneficiary
• Intended to benefit or incidental?
• Have Alexanders rights (if he has any) vested?
• Can Alex as third party enforce the K for his
  benefit?
• Sue his uncle?

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Problem 16-2

• Debtor-Creditor relationship between which
  parties?
• Who is intended to benefit from assignment...
  does it matter?
• Can Thrift hold Hensley liable?
• How about Sylvia?

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Problem 16-3

• Can assignments be prohibited?
• On what basis is this assignment being
  prohibited?
• What about public policy concerns?
• What public policy concerns are being protected
  through the anti-assignment clause?
• Anything personal about the K?

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Problem 16-4

• K created duties
• Are these duties personal?
• What difference do the standardized plans make in
  the resolution of this problem?

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Problem 16-5

• Is a malpractice claim assignable?
• Personal relationship?
• Is Duty of a personal nature?
• Assignability of claim or judgment