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CHAPTER 16
THIRD PARTY RIGHTS
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 16.1—QUESTIONS (PAGE 307)
WHAT IF THE FACTS WERE DIFFERENT?
Suppose that Graham had not benefited from the Center’s assumption of the duties associated with her
choreography. Would the alleged assignment have been valid? Why or why not? Probably not, assuming
that there would have been no other consideration shown for the assignment. As the court explains,
consideration is a requirement for a valid assignment, just as it is an element of any valid contract.
THE E-COMMERCE DIMENSION
If Graham’s dances had existed as part of a database available only over the Internet, would the
principles applied in this case, and how they were applied, have been different? Why or why not? No.
CASE 16.2—QUESTIONS (PAGE 312)
1A. Why did the court use the term creditor beneficiary to describe Allan? It would seem obvious
that the term creditor beneficiary should refer to a third party beneficiary to whom the promissee in a
contract promised to pay a debt. In this case, however, Koraev did not owe Allan a debt, but a duty—
Koraev had a duty not to cause damage to Allan’s condominium unit. The failure of Koraev to perform
that duty allowed Allan to sue him for damages. Only after it was established that Koraev had breached
the contract and owed Allan damages could Allan be called a creditor beneficiary in the traditional
sense. Before bringing the lawsuit, however, Allan could not have been regarded as a creditor
beneficiary under the traditional rule, because it was not yet clear that Koraev owed her a debt (of
138 UNIT THREE: CONTRACTS AND E-CONTRACTS
damages). Note that the court defined the term creditor beneficiary broadly by saying that a party is a
creditor beneficiary if it appears from the contract that performance “will satisfy an actual or asserted
duty of the promissee to the beneficiary, such as an indebtedness, contractual obligation, or other
legally enforceable commitment to the third party, and the promisee must intend that the beneficiary
will have the right to enforce the contract.” It is understandable why many courts, and the Restatement
(Second) of Contracts, have largely dropped the traditional distinction between donee, creditor, and
incidental third party beneficiaries and refer only to intended versus incidental third party beneficiaries.
2A. Suppose that Allan had sued Koraev for negligence. Would she be successful? Discuss your
CASE 16.3—QUESTIONS (PAGE 315)
THE GLOBAL DIMENSION
If the agreement between MAO and MNCPO had involved a third party—an international pageant
organization—would this have been a basis for concluding that Revels was an intended third-party
beneficiary? Why or why not? The outcome would not likely have been different. The agreement
between MAO and MNCPO provided that the national organization would accept the winner of the state
pageant as a contestant in the national pageant, but this did not establish that the two organizations
intended to make the winner of the state pageant an intended third-party beneficiary of the agreement.
This—not the domestic or global character of the contracting parties—was the determining factor.
THE E-COMMERCE DIMENSION
How might Revels’s third-party status with respect to the agreement between MAO and MNCPO have
been affected if the contracting parties had conducted their business online? Explain. The court
CHAPTER 16: THIRD PARTY RIGHTS 139
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Delegation
Jackson can delegate the duty to Dunn because she cannot perform all tasks related to her property, but
that does not necessarily relieve her of liability.
2A. Liability
Jackson had an obligation to McCall, and thereby his customers, to maintain the building. Her delegation
to Dunn will not relieve her of possible liability. If Dunn is in the business of providing such maintenance,
by contract, for Jackson, then Dunn could be liable; if Dunn is just an employee of Jackson, then Jackson
retains primary liability.
3A. Beneficiary
The purpose of the contract was to have business premises that would be frequented by clients such as
Faught. Hence, he is a third party beneficiary of the relationship and is due protection from such
hazards.
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT THE END OF THE
CHAPTER
As a matter of public policy, personal injury tort claims cannot be assigned. This public policy is
wrong and should be changed. If it’s not against public policy to allow attorneys to take cases in which, if
won, the attorneys obtains contingency fees of, say, one third of the awards, then it should not be
against public policy to allow the assignment of personal injury tort claims. Sometimes, individuals do
not have the knowledge or the mental state to pursue their own personal injury tort claims. Third
140 UNIT THREE: CONTRACTS AND E-CONTRACTS
16-1A. Third party beneficiary
(Chapter 16—Pages 311–313)
Alexander is an intended (donee) beneficiary of the contract made between his father, Michael, and
16-2A. QUESTION WITH SAMPLE ANSWER: Assignment
Thrift is a creditor beneficiary. To be a creditor beneficiary one must be the creditor in a previously
established debtor-creditor relationship, and then the debtor’s subsequent contract terms with a third
party must confer a benefit on the creditor. The contract made between the debtor and third party is
16-3A. Assignment
(Chapter 16—Page 308)
As a general rule any right(s) flowing from a contract can be assigned. There are, however, exceptions,
16-4A. Delegation
(Chapter 16—Page 309)
The contract to build the boat created a set of duties. Whether these duties can be assigned or
delegated without Inez’s consent depends on whether the contractual duties are personal in nature to
16-5A. Third party beneficiary
(Chapter 16—Pages 311–313)
The court held that “Himalaya clauses apply to all defenses that the carriers may raise, and the forum
selection clause is as valid a defense that the carriers may raise as any other. A forum selection clause
16-6A. CASE PROBLEM WITH SAMPLE ANSWER: Intended versus incidental beneficiaries
The contract that served as the basis for Bloom’s allegations is the contract between the NCAA and its
members (the colleges and universities with whom it contracts). Bloom was not a party to this contract,
but he was an intended third party beneficiary of it and thus would be entitled to enforce the NCAA’s
16-7A. Third party beneficiary
(Chapter 16—Pages 313–315)
The beneficiary of a contract made between other parties for the beneficiary’s benefit can maintain an
action, as an intended third party beneficiary, against the promisor on the contract. The third party
16–8A. Assignment and delegation
(Chapter 16—Pages 310–311)
The court ruled that “An assignment of ‘the contract’ or of ‘all my rights under the contract’ . . . is an
assignment of rights, and unless the language or the circumstances (as in an assignment for security)
16-9A. A QUESTION OF ETHICS: Assignment
(a) The rule most often observed in the United States with respect to assignments is that the
first assignment in time in the first in right, whether or not notice has been given. Under that rule, notice
is a courtesy, and the obligor may fulfill his or her duty under the assigned contract by performance to
the assignor. Under the English rule, priority is given to the first assignee who gives notice.
The court ruled that SCC was entitled to the entire $50,000 payment. Foley appealed to the
Idaho Supreme Court, which reversed and remanded the case. The state supreme court applied the
144 UNIT THREE: CONTRACTS AND E-CONTRACTS
most often observed rule to hold that that the assignor retained no interest in the payment after the
initial assignment to an assignee, and the assignee thus had the right to control the final payment. In
other words, Foley should have been awarded the entire lump sum, because he was Grigg’s first
assignee.
The court explained that an assignment is a complete transfer of rights or property from one
person to another. Once an assignor makes an assignment, he or she no longer retains control of the
subject of the assignment. Here, the lower court determined that Grigg had assigned the $50,000
payment to Foley. Therefore, “Foley had all the property rights to the payment, and Grigg no longer had
control over or any rights to the payment. As such, Grigg retained nothing to assign to SCC, and his
ANSWER TO VIDEO QUESTION NO. 16–10
Third Party Beneficiaries
(a) Discuss whether a valid contract was formed when Oscar and Vinny bet on the
outcome of a football game. Would Vinny be able to enforce the contract in court? In the video,
Vinny acknowledges that gambling is illegal in the town in which the contract was formed. As
stated in the text, contracts that are illegal (or contrary to statute) are considered void. The court
will not aid either party to enforce an illegal contract. Thus, assuming that Vinny won the bet,
Vinny could not legally enforce the contract against Oscar.
(b) Is the Fresh Air Fund an incidental or intended beneficiary? Why? The Fresh Air Fund
is an intended third party beneficiary to the contract. A beneficiary is intended if a reasonable
person in the position of the beneficiary would believe that the promisee intended to confer on
the beneficiary the right to enforce the contract. Here, Oscar and Vinny enter the agreement
within hearing distance of Maria. Oscar specifically states, “if I win, you give the money to Maria
Thus, Oscar is the promisee, Vinny is the promisor (because his promise will benefit the third
party), and the Fresh Air Fund is the intended (donee) beneficiary.
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