Third Party Beneficiaries

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Third Party Beneficiaries by Mind Map: Third Party Beneficiaries

1. A third party beneficiary is the person outside of the original agreements of the parties who will receive the benefit of the agreement.

1.1. Parties to the contract

1.1.1. Promisor

1.1.2. Promisee

1.1.3. Third Party

1.1.3.1. Does not need to be identifiable at the time of the contract.

1.1.3.1.1. As long as the party can be identified at the time the contract is enforced.

1.1.3.1.2. If the 3rd party is not determined until vested, then the agreement can still be changed.

2. Forms of Beneficiaries

2.1. Creditor

2.2. Donee

3. Vesting of the parties Rights

3.1. A change to the promise cannot be made if the rights have vested.

3.1.1. Under the Hybrid Test

3.1.1.1. Creditor beneficiary rights vest on reliance of the agreement.

3.1.1.2. Donee rights vest when they know of the agreement and assent to its terms

4. Approach to the Issue

4.1. 1. Identify the players

4.2. 2. Make a T chart labeling the players

4.3. 3. Ask: Did the Promisee intend to provide a benefit to the Third Party?

4.3.1. Yes

4.3.1.1. Intended Beneficiary; proceed to next steps

4.3.2. No

4.3.2.1. Incidental beneficiary; no rights under the promisor->promisee agreement

4.4. 4. Is the promisor's agreement with the promisee enforceable? (supported by consideration, is there a condition precedent, do avoidance doctrines apply, etc)

4.4.1. Yes

4.4.1.1. Proceed to next step

4.4.2. No

4.4.2.1. There is no contract, and the Third party beneficiary has no rights

4.5. 5. Is the 3rd party beneficiary a creditor or donee beneficiary? ASK: Is the TPB a creditor of the promisee?

4.5.1. Yes

4.5.1.1. Creditor Beneficiary

4.5.2. No

4.5.2.1. Ask if the promisee intended to confer a gift upon the TPB

4.5.2.1.1. Yes, Donee Beneficiary

4.6. 6. When do the Rights of the TPB Vest? ONLY APPLY WHEN: the promisor or promisee are attempting to change the agreement to the detriment of the beneficiary

4.6.1. Restatment 1 (Pure)

4.6.1.1. Creditor beneficiary rights will vest upon reliance

4.6.1.2. Donee beneficiary rights vest immediately

4.6.1.2.1. Not followed by the courts

4.6.2. Hybrid Test, Developed by the courts (Apply on exams)

4.6.2.1. Creditor Beneficiary's rights vest upon reliance

4.6.2.2. Donee Beneficiary's rights vest when the donee knows or assents

4.6.3. Restatement II

4.6.3.1. Same for all intended beneficiaries

4.6.3.1.1. Where beneficiary materially changes his position in reliance of promise OR

4.6.3.1.2. Beneficiary brings suit on the promise OR

4.6.3.1.3. Beneficiary assents to the promise at request of the promisor or the promisee

5. Special Case: MORTGAGES

5.1. Assuming or taking subject to a mortgage

5.1.1. Assumption of a mortgage

5.1.1.1. Creates TPB

5.1.1.2. The bank can sue both the buyer who assumes the mortgage as well as the original owner unless a novation occured.

5.1.2. Breaks in the Assumptions

5.1.2.1. Once an owner takes subject to the mortgage (2 views

5.1.2.1.1. 1. there can be no further valid TPB contracts because "nothing" is owed

5.1.2.1.2. 2. There can still be a valid TPB contract and nothing is owed. The court will disregard the break in the assumption

5.1.3. Taking subject to a mortgage

5.1.3.1. A buyer who takes subject to a mortgage cannot be sued, but the original owner can be.