Download Chapter 17 Third-Party Interests

PARALEGAL CHECKLIST
Third-Party Interests
o A paralegal must sometimes be concerned
with parties other than those contracting.
These parties include third-party beneficiaries, assignees, delegatees, and third
parties who interfere with existing contractual rights (tortfeasors). Regardless of the
situation, the first step in an analysis
requires the paralegal, with the supervision of an attorney, to determine the existence of a contract. Without a contract,
there can be no third-party beneficiary,
assignee, delegatee, or tortfeasor. Use the
following guidelines to evaluate whether a
contract exists.
1. Who does the contract benefit? A thirdparty beneficiary contract is a contract
for the benefit of a third party.
a. Is the third party a donee or a creditor
beneficiary? A donee or a creditor
beneficiary has enforceable contractual
rights. An incidental beneficiary has
no enforceable contractual rights. The
Restatement (Second) of Contracts
does not distinguish between donee
and creditor beneficiaries but identifies
both as intended beneficiaries. Focus
on the intent of promisor to determine
whether a beneficiary is an intended
beneficiary.
b. Does the third party have rights and
duties under the contract? A third-party
beneficiary has only contractual rights
(no duties) under the contract.
c. Is there a third-party beneficiary who
can enforce the contract? A third-party
beneficiary’s rights depend on the
existence and enforceability of a
contract between the contracting
parties.
(1) If a contract has not been formed,
a third-party beneficiary does not
exist.
(2) If a contract exists but is
unenforceable, the third-party
beneficiary cannot enforce the
contract.
d. Can the beneficiary enforce the
contract? Contracting parties are
generally free to make a subsequent
agreement to discharge or modify
duties to the beneficiary if the
beneficiary consents. If the beneficiary
does not consent, he or she may be
able to enforce the contract despite
efforts by the contracting parties to
discharge or modify their duties. The
trend is to allow both creditor and
donee beneficiaries to enforce the
contract when the beneficiary has
learned of the contract and has relied
on it or has brought suit to enforce the
contract before receiving notification
of the discharge or modification.
2. Did the parties retain their contractual
rights and duties? After a contract has
been formed, the parties may either sell
contractual rights or delegate contractual
duties.
a. Was there an assignment of contractual
rights? An assignment of a contract is
the transfer to another of the rights
due under the terms of the contract.
(1) Many, although not all, rights can
be assigned. Whether a right is
assignable depends on whether the
transfer of the right will
materially alter the duty of the
obligor—the party who must
perform the duty associated with
that right.
(2) An assignee takes the assigned
right subject to any defense that
the obligor could have raised
against the assignor-obligee at the
time of the assignment.
b. Was there a delegation of a duty?
A delegation of a duty is an
authorization to another party to
perform the duty.
(1) The party who delegates the duty
is the delegator and the party who
is authorized to perform the duty is
the delegatee. The party who has
the right to receive performance
of the duty is the obligee.
(2) The act of delegating a duty does
not terminate the duty on the part
of the delegator. Delegation only
increases the number of parties
who have the duty.
(3) Not all duties may be delegated.
Whether a duty is delegable
depends on whether the delegation
of the duty will materially alter
the right of the obligee. The
obligee may have a substantial
interest in requiring the original
obligor to perform.
c. Has there been a novation? A novation
occurs when one of the original
contracting parties is replaced by a
party who was not a party to the
original contract. A novation is a
contract that discharges a party to the
contract, sometimes an obligor and
sometimes an obligee, and substitutes
a new party in his or her place.
(1) If the new party is an obligor, the
obligor may have the same or
different duties as the original
obligor. If the new party is an
obligee, the new obligee may have
the same or different rights as the
original obligee.
(2) Although novations come in
different forms, what is critical is
that a third party, one who was not
a party to the original contract,
must be added and either the
original obligor or the original
obligee must be discharged.
(3) As a substitute contract, a novation
replaces the original contract.
Because the novation is substituted
for the original contract and the
duties in the original contract are
terminated, a party is unable to
maintain a breach of contract
action under the original contract.
3. Has there been interference in the
contract by a third party? One who
interferes with the contractual
relationship of others may be liable for
harming this relationship. The cause of
action is known as “tortious interference
with a contract.” A party claiming
interference must be able to answer the
following questions affirmatively:
a. Did an enforceable contract exist?
b. Did the party inducing the breach
know of the contract?
c. Did the interfering party intentionally
induce the breach?
d. Did the interfering party induce the
breach unjustifiably? and
e. Was the party claiming interference
damaged by the breach of contract?