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Question 1

What is a creditor beneficiary under the first restatement TPB contract?

Answer 1

When the promisee’s primary purpose is to pay a creditor to satisfy an actual, supposed, or asserted obligation already owed by the promisee to a third-party. Promise discharges a duty.

Question 2

What is an example of a creditor beneficiary promise?

Answer 2

Promising to pay off someone’s bank loan if they will landscape your yard. The bank is a creditor beneficiary because they have an obligation from you and you are using a third-party to satisfy it. Creditor beneficiaries can get recovery from both the promisor and the promisee.

Question 3

Can a third-party beneficiary count as a creditor beneficiary even if the promise was made thinking there was an obligation, but there wasn’t actually an obligation owed?

Answer 3

Yes. Ie: T brings a claim of $1000 against P who believes the claim is valid. Later M buys goods from P and as consideration he agrees to pay the $1000 to T. T’s claim turns out to be invalid. It doesn’t matter, T is a creditor beneficiary and can enforce M’s promise even if the claim had no actual merit.

Question 4

What is an incidental beneficiary?

Answer 4

Third person that will benefit from the promise, but has no enforceable rights to the contract because original parties didn’t intend to confer a benefit, it was just incidental

Question 5

Under the minority view for third-party beneficiary contracts, how does it divide the parties?

Answer 5

• intended beneficiaries

- incidental beneficiaries

Question 6

What is an intended beneficiary under the minority view for third-party beneficiary contracts?

Answer 6

These parties have rights under the contract, and they:

• are identified in the promise
• have a recognized right to performance that runs directly to them
• the performance will satisfy an obligation of the promisee to pay money to the beneficiary OR
• promisee intends to give the beneficiary the benefit of the promise (intention to benefit)

Question 7

What is an incidental beneficiary under the majority view of TPB contracts?

Answer 7

Parties that incidentally benefit from performance of the contract, but the original parties didn’t intend them to, so they have no rights to the contract.

Question 8

What is an example of an incidental beneficiary?

Answer 8

You contract to landscape your friend’s yard, and you buy everything you need from the nursery, who isn’t named in the contract and there’s no intention to benefit them, so they just incidentally got the benefit.

Question 9

Until the rights of a TPB are vested, what can happen to them?

Answer 9

They can be terminated or modified by the original contracting parties, but once they are vested, that can only happen with the TPB’s consent (but if the change doesn’t diminish his rights, his consent is not needed)

Question 10

If you promise to landscape my mom’s yard for $500 that I will pay to the bank, and then we change the promise before mom finds out and you will paint the garage instead. When would the rights vest?

Answer 10

Not until mom or the bank know about them and assent

Question 11

What is the only time that vesting really becomes an issue?

Answer 11

If the promisor and promisee want to modify the contract that a TPB had rights under.

• If his rights have vested, the contract can’t be modified.
• If they haven’t, vesting is not an issue.

Question 12

What are the three different views on vesting?

Answer 12

• Majority/R2: TPB’s rights vest if he LEARNS about the contract, ASSENTS to it in the way requested, materially CHANGES position in reliance on it, OR brings SUIT to enforce it.
• Minority/R1:
  • creditor: rights vest when he brings an ACTION to enforce the contract, OR materially CHANGES position before learning about discharge/modification.
  • donee: vest IMMEDIATELY when contact is made
• UCC: original parties can modify or substitute the contract in good faith according to reasonable commercial standards even if notification was given as long as the assigned contract hasn’t been fully performed.

Question 13

Once there is an intended TPB and his rights have vested, what are the rules?

Answer 13

• he can enforce the promise at the moment of vesting
• creditor beneficiaries can sue either the promisor or the promisee, but can only get one recovery
• promisees can usually enforce the contract against the promisor

Question 14

When do a TPB’s rights vest?

Answer 14

When he has learned about the promise and assented to it

Question 15

If you contract with someone else to landscape your grandma’s yard, once she is told about it and agrees to it, what are her rights?

Answer 15

She can sue the other person if he doesn’t do the work (and you can sue the other person if he doesn’t landscape even though you don’t have an interest in the performance, you have the right to require him to render it)