Contract Law Lecture Three (of 3) – Third-Party Rights

Lecture 3

I. Third-Party Rights

A. Third-Party Beneficiaries

Intended vs. Incidental Beneficiaries

Intended: Has rights to enforce the contract. (Example: life insurance policy beneficiaries)

Incidental: No legal rights to enforce.

Vesting of Rights

Occurs when a beneficiary detrimentally relies, assents, or brings suit. Before vesting, parties can modify or revoke the beneficiary’s rights.

B. Assignment and Delegation

Assignment of Rights

Transfer of rights to a third party. Generally valid unless it materially changes the obligor’s duty or contract language forbids it.

Must be clear and present intent; no formalities usually required unless statute says otherwise.

Delegation of Duties

Permitted unless the duty is personal in nature (requires special skill) or the contract prohibits delegation.

Original party typically remains liable if delegatee fails to perform.

II. Distinctions: UCC vs. Common Law

Scope of the UCC

Governs the sale of goods, including implied warranties like merchantability or fitness for a particular purpose.

Formation Differences

Firm Offer Rule: Under the UCC, a merchant’s signed, written offer to buy or sell goods remains open for the stated time (or up to three months if none stated).

Battle of the Forms: UCC 2-207 modifies the common law mirror image rule.

Remedies for Sellers and Buyers

Sellers may recover damages (e.g., resale damages, lost volume profits) or enforce specific performance in limited cases (unique goods).

Buyers may reject non-conforming goods, cover (purchase substitute goods) and sue for the difference, or seek specific performance (unique or shortage goods).

III. Exam Tips, Strategy, and Conclusion

A. Analytical Roadmap

Identify Governing Law: Is it goods (UCC) or services (common law)?

Check for Formation: Offer, acceptance, consideration.

Look for Defenses: SoF, capacity, illegality, fraud, duress, etc.

Evaluate Performance and Breach: Material breach vs. minor breach, anticipatory repudiation.

Select Remedies: Expectation, reliance, restitution, specific performance.

B. Use IRAC (Issue, Rule, Application, Conclusion)

Issue: Identify the problem (e.g., “Does a valid contract exist?” “Has a breach occurred?”).

Rule: State the applicable legal doctrines.

Application: Apply those rules to the facts methodically.

Conclusion: Provide a clear resolution.

C. Final Thoughts

Contract law is often tested heavily on exams and the bar due to its prevalence in legal practice. Mastering contract formation, performance, breach, and remedies, along with third-party rights and the distinctions under the UCC, will set you up for success. Remain systematic in your approach—follow the sequence from formation to remedies, note specific rules for the sale of goods, and carefully apply the facts to the rules. This methodical approach is the best defense against tricky exam questions.