Chapter 17 – Third Party Rights – Flashcards
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privity of contract
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The relationship that exists between the promisor and the promisee of a contract
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a third party
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one who is not a direct party to
a particular contract—normally does
not have rights under that contract
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True.
(p.319)
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True or False:
privity of contract is not required to recover damages under product liability laws.
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bilateral
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In a _____ contract, the two parties have corresponding
rights and duties
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assignment
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The transfer of contractual
rights to a third party is known as an _____
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delegation
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The transfer of contractual duties to a third party is
known as a _____
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after
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An assignment or a delegation
occurs (after/before) the original contract was made.
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assignor
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the party assigning the rights to a third party
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assignee
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the party receiving the
rights
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obligee
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the person to whom a duty, or obligation,
is owed
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obligor
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the person who is obligated to
perform the duty
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True.
(p.320)
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True or False:
The third party (the assignee) has a right to demand performance from the other original party (obligor) to the contract.
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1. The assignment is prohibited by statute (worker's compensation benefits).
2. The contract is personal, (unless, if all that remains of contract is a monetary payment, meaning the personal services have already been performed).
3. The assignment significantly changes the risk or duties of the obligor. (assigning insurance policies by the person that took out the policy)
4. The contract prohibits assignment (antiassignment clause).
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The following rights cannot be assigned.
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alienation
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In real property law, the voluntary transfer of property from one person to another (as opposed to a transfer by operation of law).
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1. right to receive funds.
2. real estate.
3. negotiable instruments (checks, notes).
4. in contract for sale of goods, the right to receive damages for breach of contract or payment of an account owed.
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exceptions to the restrictions of no assignment under a contract, which prohibits assignment (the following assignments are allowed)
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the assignee
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once a valid assignment of rights has been made, who should notify the obligor? the assignee or the assignor?
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False.
Giving notice is not legally necessary to establish
the validity of the assignment: an assignment is effective
immediately, whether or not notice is given.
(p.322)
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True or False:
giving notice of an assignment is legally necessary in order to establish the validity of the assignment.
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1. priority issues.
2. potential for discharge by performance to the wrong party.
(if assignee doesn't give notice, and obligor pays the obligee (assignor), then the assignee can claim the money from obligee (assignor) but not the obligor because the assignee didn't give notice to the obligor)
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2 problems when no notice is given from the assignee to the obligor
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False.
The assignee may go after the assignor for the money since the assignee did not give proper notice to the obligor.
(p.323)
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True or False:
If the assignee does not give notice to the obligor, and the obligor subsequently pays the obligee (assignor) because he or she has not received notice, the assignee may go after the obligor for payment.
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delegator
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the party delegating the duties
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delegatee
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the party to whom the duties are delegated
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True.
(p.324)
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True or False:
Normally, a delegation of duties does not relieve the delegator of the obligation to perform in the event that the delegatee fails to do so.
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False:
No special form is required to create a valid delegation of duties. As long as the delegator expresses an intention to make the delegation, it is effective.
(p.324)
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True or False:
Delegation must be in writing
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1. personal in nature (personal service, requiring a personal skill).
2. performance by a third party will vary materially from that expected by the obligee.
3. contact prohibits delegation.
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Duties that cannot be delegated
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True.
(p.324)
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True or False:
the delegation is effective if a performance that is required is routine and nonpersonal in nature
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False:
if a delegation of duties is enforceable (isn't a personal service, obligee's expectations are not changed, and contract doesn't prohibit delegation), then the obligee MUST accept performance from the delegatee.
The obligee can legally refuse performance from the delegatee only if the duty is one that cannot be delegated.
(p.324)
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True or False:
Although a delegation may be effective, the obligee may have the right to cancel the contract
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False:
the general rule today is that the obligee can sue BOTH the delegatee and the delegator
(p.325)
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True or False:
The general rule today is that the obligee can only sue the delegator.
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True.
(p.325)
Thus, the assignor
remains liable if the assignee fails to perform the contractual
obligations.
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True or False:
When a contract provides for an "assignment of all rights," this wording may create both an assignment of rights and a delegation of duties.
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intended beneficiary
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As an _____ beneficiary of the contract, the third party has legal rights and can sue the promisor directly for breach of the contract
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True
(p.325)
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True or False:
As the intended beneficiary of the contract, the third party has legal rights and can sue the promisor directly for breach of the contract.
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the person who made the promise that benefits the third party
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who is the promisor in a bilateral contract with a third party beneficiary?
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intended
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only _____ (intended/incidental) beneficiaries acquire legal rights in a contract
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creditor beneficiary
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a _____ benefits from a contract in which one party (the promisor) promises another party (the promisee) to pay a debt that the promisee owes to a third party
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creditor beneficiary
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A third party beneficiary who has rights in a contract made by the debtor and a third person. The terms of the contract obligate the third person to pay the debt owed to the creditor. The _____ can enforce the debt against either party
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donee beneficiary
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when a contract is made from the express purpose of giving a gift to the third party, the third party (the ______) can sue the promisor directly to enforce the promise
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donee beneficiary
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A third party beneficiary who has rights under a contract as a direct result of the intention of the contract parties to make a gift to the third party.
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donee beneficiary
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example of a ____ is a life insurance policy
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True.
(p.327)
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True or False:
Because most third party beneficiaries do not fit neatly into either the (1) creditor beneficiary or the (2) donee beneficiary, Today, courts frequently distinguish only between intended beneficiaries (who can sue to enforce contracts made for their benefit) and incidental beneficiaries (who cannot sue, as will be discussed shortly).
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True.
(p.327)
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True or False:
an intended third party beneficiary cannot enforce a contract against the original parties until the rights of the third party have vested, meaning the rights have taken effect and cannot be taken away.
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1. the third party materially changes his or her position in justifiable reliance on the promise.
2. third party brings a lawsuit on the promisee.
3. third party demonstrates her or his consent to the promise at the request of the promisor or promisee (such as, sending an email or letter)
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3rd party beneficiary becomes vested, when:
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incidental beneficiary
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A third party who incidentally benefits from a contract but whose benefit was not the reason the contract was formed; an incidental beneficiary has no rights in a contract and cannot sue to have the contract enforced.
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reasonable person test
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although no single test can embrace all possible situations, courts often apply the _____ test, in order to determine whether a third party beneficiary is an intended or an incidental beneficiary.
