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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?