Third-Party Rights and Responsibilities : Contract Law

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  1. Third-Party Rights and Responsibilities
    1. In general, third parties can only sue for damages if they are intended beneficiaries, not incidental beneficiaries.  
    2. The law is receptive to payees who wish to assign their rights to payment.
    3. The law is generally unreceptive when the suit is over the delegation to perform a duty.
      1. For instance, if you contract a brain surgeon to operate on you, and he has his less qualified friend do it, your cause of action is against the surgeon.
      2. C, A member of the public cannot recover for injury from B’s failure to perform a contract with the United States to carry mail over a certain route. Restatement §145(illus 1)
    4. UCC § 2-318
      1. A natural person is a human. A person as compared to a natural person may include a corporation.
      2. Three options to the states in implementation: A seller’s warranty (express or implied) extends…
        1. Alternative A: to the immediate family or household or guest of the buyer if it is reasonable that such person would be injured by breach. (Seller cannot exclude.)
        2. Alternative B: to any natural person who would reasonably be expected to use the goods and could be injured by breach. (Seller cannot exclude.)
        3. Alternative C: to anyone who would reasonably be expected to use the goods and could be injured by breach. (A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the warranty extends.)
    5. Third-Party Beneficiaries
      1. Intended beneficiary v. incidental beneficiary. Sec. 302(1) of the Rst. 2: definitions. An intended beneficiary can enforce the duty of the promisor. An incidental beneficiary can’t do shit.
        1. Prof. notes 311 of the Rst.: Variation of a Duty to a Beneficiary. The promisor and promisee can change the terms, unless the agreement prohibits them from doing so: “In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement.”
          1. Prof. also notes 305: (1) and (2): (2) “Whole or partial satisfaction of the promisor’s duty to the beneficiary satisfies to that extent the promisor’s duty to the promisee.”
          2. Prof. also notes 310 of the Rst.: Basically, the beneficiary of the agreement can go after the promisee or the promisor or both “based on their respective duties to him.”
            1. i.e., in the case of Lawrence v. Fox, the beneficiary (Lawrence) could have sued Hawley (the promisee) in order to collect the $300; Hawley was NOT absolved of his duty to Lawrence just because Fox became the promisor.
        2. Prof. notes Rst. Sec. 308 for Identification of Beneficiaries
          1. It is not essential to the creation of a right in an intended beneficiary that he be identified when a contract containing the promise is made.
            1. Like if the intended beneficiary is A’s oldest surviving child, then we won’t know until a condition precedent comes to pass and that’s ok
      2. Lawrence v. Fox
        1. Facts: H owed L $300; F needed $300; H loaned F the $300, on the condition that F would get $300 to L by the following day; F didn’t bring the money to L; H was outta there; L beneficiary sued F promisor for the money
          1. Prof. notes: In 1806, it was regarded as settled law in England that “where one person makes a promise to another for the benefit of a third person, that third person may maintain an action upon it.”
            1. Just b/c Fox in this case was not a “trustee” of the property of Holly for the benefit of Lawrence doesn’t mean the traditional rule applied to trusts is not applicable in this instance.
              1. A promise made to one for the benefit of another, he for whose benefit the promise is made may bring an action for its breach
              2. In the instant case, Fox rec’d consideration from Holly in the form of a $300 loan for Fox’s promise to pay Lawrence $300 the following day; the consideration rec’d and Fox’s promise to pay made it Fox’s duty to pay, just as if the money had been remitted to Fox for that exact purpose.
            2. Dissent says: We shouldn’t allow Lawrence to recover from Fox b/c F and H can subsequently modify their agreement and leave L without a COA against Fox; the parties should be free to do this w/o L’s interference
      3. Martinez v. Socoma Companies, Inc.
        1. Facts: the east L.A. case where the defendants entered into a K w/ the govn’t to implement a job training and employment program for “hard-core unemployed” residents of east L.A.; D’s did not satisfy the terms of the K; the residents attempted to sue as 3rd party beneficiaries of the K; the Court held that P’s were not intended beneficiaries & had no standing to sue
          1. Held, P’s do not qualify as either creditor or donee beneficiaries of the contracts–the contracts do not state that either the government or corporate D’s will be liable to persons such as P’s for damages resulting from the D’s non-performance; also, the benefits to be derived from the D’s performance were not GIFTS from the govn’t to such persons but were a means of executing public purposes stated in the contracts and underlying legislation.
          2. American law generally classifies persons having enforceable rights under contracts to which they are not parties as either creditor beneficiaries or donee beneficiaries (Rst. 1, 133)
            1. Creditor ben: a person is a creditor ben if the promisor’s performance will discharge some form of legal duty owed to the ben by the promisee (P’s don’t claim to be creditor bens)
            2. Donee ben: a person is a donee ben if the promisee’s contractual intent is either 1) to make a gift to him or 2) to confer on him a right against the promisor (Rst. 1, 133).
              1. Instant case: No intention to make a GIFT can be imputed to govn’t. B/c a govn’t program for social betterment bestows benefits upon people who are not required to give contractual benefits in return doesn’t mean the govn’t is giving them a “gift.”
              2. Instant case: A govn’t intent to confer a right to P’s against D’s will not be inferred just because P’s were intended to enjoy the benefits.
                1. Rst. says “a promisor bound to the US to render a service to some or all members of the public is not under a duty to such members to give compensation for failing to perform the service unless an intention is manifested in the K, in light of surrounding circumstances, that the promisor will compensate members of the public for injury.” (Rst. 1, 145)
                2. Court says the contract actually retains the govn’ts control over resolving contractual disputes and limits D’s financial risks, suggesting a govn’t purpose to exclude the rights against D’s claimed by P’s
      4. Key Things to Take Away from 3rd Party Beneficiaries
        1. The distinction b/w intended and incidental beneficiaries
        2. Take into account the unique concerns of government contracts
          1. Look to Rst. 2nd Sec. 313