Third Party Rights; Delegations; Assignments; Contests
nondelegable duty
A duty that cannot be delegated, or transferred, to another party when one party relies on identity of the other party Famous opera singer
What needs to be shown if there is no express clause in the K if arguing intended beneficiary?
BOTH parties need express intention to make the third party an INTENDED 3rd PARTY beneficiary
Seaver v. Ransom (1918)
RULE: The general rule in both law and equity, was that privity between a π and ∆ is necessary to the maintenance of an action on the contract. The consideration must be furnished by the party to whom the K is made; The K cannot be enforced against the 3rd party and therefore it cannot be enforced by him on the other hand , the right of the beneficiary to sue on a K made expressly for his benefit has been fully recognized in many American jurisdictions either by judicial decision or by legislation and is said to be the prevailing rule in this country
R § 309: Defenses Against the Beneficiary
o (1) A promise creates no duty to a beneficiary unless a K is formed between the promisor and promisee; and if a K is voidable or unenforceable at the time of its formation the right of any beneficiary is subject to the infirmity o (2) If a K ceases to be binding in whole or in part because of impracticability, public policy, non-occurrence of a condition, or present or prospective failure of performance, the right of any beneficiary is to that extent discharged or modified o (3) Except as stated in 1 & 2 and in §311 or as provided by the K, the right of any beneficiary against the promisor is not subject to the promisor's claims or defenses against the promisee or to the promisee's claims or defenses against the beneficiary o (4) A beneficiary's right against the promisor is subject to any claim or defense arising from his own conduct or agreement
• §317: Assignment of a Right
o (1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance o (2) A contractual right can be assigned unless • (a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor or materially increase the burden or risk imposed on him by his K or materially impair his chance of obtaining return performance or materially reduce its value to him OR • (b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy or • (c) assignment is validity precluded by contract
R §318: Delegation of Performance of Duty
o (1) An obligor can properly delegate the performance of his duty to another unless the delegation is contrary to public policy or terms of his promise o (2) Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has a substantial interest in having that person perform or control the acts promised o (3) Unless the obligaee agrees otherwise, neither delegation of performance nor a contract to assume the duty made with the obligor by the person delegated discharges any duty or liability of the delegating obligor
Res § 311: Variations of a Duty to a Beneficiary
o (1) Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or by a subsequent agreement between promisor and promisee is ineffective if a term of the promise creating the duty so provides. o (2) In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement. o (3) Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or promisee. o (4) If the promisee receives consideration for an attempted discharge or modification of the promisor's duty which is ineffective against the beneficiary, the beneficiary can assert a right to the consideration so received. The promisor's duty is discharged to the extent of the amount received by the beneficiary.
§302 Intended and Incidental Beneficiaries
o (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and EITHER • (a) the performance the promise will satisfy an obligation of the promisee to pay money to the beneficiary OR • (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance o (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary
• Difference between Third Party Beneficiary and Assignment
o 3PB= one transaction (the K) o Assignment of rights= two transaction (original K, then assignment of right o assignee)
• UCC § 2-210: Delegation of Performance and Assignment
o Agreed otherwise or "substantial interest"
Sally Beauty v. Nexxus Products, Co.
o Best acquired by S o SB arg: BBB's argument; ∆ becayse of the competition between AC (SB) + N makes it unassignable discussing the K as a personal service K (opera K) we weren't bargaining for AC to give unequal marketing • Court agrees with Nexxus o § 2-210 and the "Dominant Factor" test to determine whether the UCC should be used o ∆ had a substantial interest in NOT having this contract performed by π o Dissent, Posener, • Simplying business wrongly SB is a distributor what is the rational business decisions where actors (economic) want to make as much money as possible • Irrational for SB to undercut N in marketing
Grigerik v. Sharpe (1998)
o Foreseeability as used by Grigerik is more like torts than contracts - simply because you see benefit doesn't mean that you explicitly intend them to be a 3rd party beneficiary o Whether or not foreseeability or knowledge will make someone an intended beneficiary • §302(1) (b) if recognition parties PLURAL needs to be intention of BOTH parties! Just because one qualifies doesn't mean knowledge in and of itself will be enough if knowledge was enough that would mean that business would actively have to disavow that the outside parties are 3rd party beneficiary in the contract→too cumbersome
• Lawrence v. Fox (1859)
o H→F owed him 300; F promised to pay L the 300 o Rule: "a promise made to one for the benefit of another, he for whose benefit it is made may bring an action for its breach" • This rule has been applied before in trust cases o Even though there's no trust, and ∆ is trying to argue that there is no privity between π and ∆, court says that the law has changed and there should be a suit here → extend intended beneficiary to a greater range than just trust cases
• Does A have to provide the reasonable requirements of C?
o Is a requirements K assignable? • No, the reasonable requirements of EACH party can be VASTLY different • Invalid if would increase burden or risk to Acting party
Herzog v. Irace (1991)
o Lawyers being sued when their client's doctor was not paid - make arguments regarding the validity of the assignment and the ethical repercussions o Court holds that it was a valid assignment, and doctor should be paid
Bel-Ray Company v. Chemrite (Pty) Ltd
o No express prohibition to assign
Sisney v. State (2008)
o Rule: At the time of contract, it must the parties' express intent to benefit the third party, that was CLEARLY manifested o Sisney was incidental beneficiary to the calorie setting measures - he was trying to sue CBN (food provider) because the # of calories in kosher prison food was less than the required 2600 per day o The contract was not for π's direct benefit or enforcement, it was for the collective benefit of the inmates. Court says he does not have the ability to enforce o Mere mention of one's name in
Sisney v. Reisch (2008)
o Sisney was able to maintain a suit because they were the intended beneficiaries of the Heftel Agreement, so they could maintain a suit to enforce settlement agreement about the kosher food
Verni v. Cleveland Chiropractic
o Student to a 3PB to employment agreement between faculty and college o RULE: To be bound as third party beneficiary the terms of the K most clearly express intent to benefit that party of an identifiable class of which party is a member o Generally courts are wary of calling a party a 3PB
Detroit Institute of Art Founders Society v. Rose (2001)
o There DOES NOT have to be express language in the contract creating a direct obligation to the third part beneficiary o Motives and Purposes of the party to determine that the intent of both parties was a 3rd party benefit
• Delacy Investments, Inc. v. Thurman & Re/Max Real Estate Guide, Inc. (2005) - pg 982
o UCC 9-404(a)(1) → π is subject to all agreements between ∆ and obligee - all they can hand over is what he was entitled (which was nothing) • Under 9-404(a)(1) because the rights of CE are subject to all terms of the agreement between Re/Max and Thurman—namely, the independent contractor agreement giving CE a right to all of Thurman's commissions which exceed past-due financial obligations to ReMax because the commissions earned by R as a result of Thurman's sales do not exceed his past-due financial obligations to R
Chemical Bank v. Rinden Professional Association (1985)
o Waiver clause - regardless as to any counterclaim or defense, you have to keep paying the assignee. A waiver must be for value and made in good faith o In this case, that was satisfied, so the court holds that it's fine and that the parties were dealing at arms length
Restatement §307 Remedy of Specific Performance
o Where specific performance is otherwise an appropriate remedy, either the promisee or the beneficiary may maintain a suit for specific enforcement of a duty owed to an intended beneficiary
• §323: Assent to Assignment
o you can put into the K there needs to be assent to an assignment
Res § 322: Contractual Prohibition of Assignment
• Assignment was not invalidated, it was enforceable but there were damages • Obligor has the ability to get damages, but it does not necessarily render the assignment ineffective • (1) Unless the circumstances indicate the contrary, a contract term prohibiting assignment of the K bars only the delegation to an assignee of the performance by the assignor of a duty or condition • (2) A contract term prohibiting the assignment of rights under, the contract, unless a different intention is manifested, o (a) does not forbid assignment of a right to damages for breach of the whole K or a right arising out of the assignor's due performance of the entire obligation o (b) gives the obligor a right to damages for breach of the term forbidding assignment but does not render the assignment ineffective o (c) is for the benefit of the obligor, and does not prevent the assignee from acquirigin rights against the assignor or the obligor from discharging his duty as if there were no such prohibition
o Res § 324: Mode of Assignment in General
• It is essential to an assignment of a right that the obligee manifest an intention to transfer the right to another person without further action or manifestation of intention by the obligee. The manifestation may be made to the other or to a third person on his behalf and, except as provided by statute or by contract, may be made either orally or by a writing
