Contract Law

Chapter 9 Lecture Notes

Third Party Contracts

            The purpose of this chapter is to alert the student to the fact that not all contracts actually impose duties and obligation on the contracting parties; there may be persons not originally party to the contract who wind up having enforceable contract rights and obligations.
            The Chapter Overview gives a short outline of the different types of third party contracts that will be discussed in the chapter.  The chapter deals specifically with three types of third party relationships:  third party beneficiary contracts, assignments, and delegations.  The overview indicates the basic differences between these types of situations.
            The main text of the chapter commences with a discussion of Third Party Contracts generally, and then goes on to specify the difference between Third Party Creditor Beneficiary Contracts and Third Party Donee Beneficiary Contracts.  Several examples are given of both types of situations, and the same factual circumstance is varied to provide the nuances that create the different types of contracts.  In this manner the student can see how the same small group of people, by slight changes in the facts, can be involved in both types of third party beneficiary contracts.        
            Because these contractual situations are typically confusing for the student, a diagram has been provided indicating the differences in the two types of third party beneficiary contracts.  The diagram can be used as the focal point of the classroom discussion, and thus the basis of the student’s notes for this part of the course.
            Section F discusses Assignments and differentiates assignments from third party beneficiary contracts.  Usually, once the student has absorbed third party beneficiary contracts, both assignment and delegation appear fairly simple.  Special attention should be placed on novations, which are discussed in this section, both for its impact on contractual obligations and as a practical alternative that may be used in negotiating and drafting contracts for clients.
            Section G provides a brief discussion of delegation and highlights the types of obligations that may and may not be delegated, noting that the delegator never relinquishes liability for the contractual obligation.
            Chapter 9 continues with some Sample Clauses that exemplify the text material, and each clause is followed by a brief analysis to help the student focus on the area of law specified by the sample clause. The Chapter Summary is divided into two sections.  The first section is a prose recapitulation of the material covered in the chapter.  This recapitulation reinforces the material learned throughout the chapter and provides the student with a quick review.  The second section is a Synopsis, which acts as an outline of the chapter.  Most paralegal students like to be given outlines of the course material, and BASIC CONTRACT LAW FOR PARALEGALS provides such an outline.  This outline can be used during the classroom discussion so that class notes can be interlineated with the synopsis, giving the student the ability to listen rather than taking notes all of the time.    The Key Terms is a mini-glossary of all of the terms discussed in the chapter.  This section provides both a quick reference to the important terminology of the text material, and a guideline for a quick review of the material discussed, reinforcing the knowledge gained.    

 
The chapter provides five Exercise problems.  Questions 1, 3, 4, and 5 all require the student to analyze and explain the material covered in the chapter.   Question 2 provides a drafting exercise for the student in the creation of third party beneficiary contracts.             
Two Cases for Analysis are included in the chapter, introduced by a brief paragraph pointing out their importance with respect to the text material.
The first case, Deltaa Mech., Inc. v Garden City Grp, discusses the problems associated with asserting rights pursuant to third party contracts. The questions that follow this case highlight the vesting of such rights and the difference between an assignment and a delegation.

The Bay Corrugated Container case highlights the concept of a novation. The questions following this case can be used to generate a discussion contrasting a novation from an assignment.
Several Suggested Case references are included for outside work by the student. Each suggested case is introduced by a short sentence that highlights the important facts of the case or the effect of the case on the material discussed. The cases are taken from various jurisdictions to underscore the universality of basic contract principles.

ABA Rule 1.8(c) discusses the ethical prohibitions with respect to a lawyer preparing a document by which a client gives a substantial gift to a relative of the lawyer.