3d Party Issues Flashcards
What is entrustment (UCC)?
Under Art. 2/UCC, with entrustmentan owner who entrusts goods to a MERCHANT who deals in goods of the kind (e.g. a dealer) has NO rights against a bona fide puchaser (BFP) if the merchant wrongfully sells the good
When can K duties be delegated AND what are the rights of the obligee?
General rule: K duties MAY be delegated W/O consent of the person to whom performance is owed (the “obligee”)
EXCEPTIONS:
The K language cntrls (if delegation is prohibited, CANNOT delegate)
If K prohibits assignment (this means NO delegation EITHER!)
Special skill or reputation prevents delegation
Rights of the obligee…
Delegating party REMAINS liable to obligee (COMPARE w/ novation)
A delegate WHO GETS CONSIDERATION is liable to the obligee (b/c this would make the obligee a 3d party beneficiary)
What is a 3d party beneficiary AND what rights does she have?
3PB arrises when TWO ppl enter into a K intending to benefit a 3d party
A 3PB is NOT a party to the K, but has RIGHTS b/c the K intended to benefit her
An intended beneficiary has legal rights, BUT an incidental beneficiary DOES NOT
Two types of intended beneficiary: (i) creditor beneficiary = is getting benefit b/c a debt is owed to him; OR (ii) donee beneficiary (more likely) = performance is given as a gift
Rescission and modifictaion of a 3PB K General rule = the promisor and promisee (orig parties to K) CAN recind or modify the K UNTIL the rights of the 3PB have “vested” Vested means the intended beneficiary has (i) MANIFESTED ASSENT to the K; (ii) brought SUIT to enforce K; OR (iii) has RELIED on the K
Once the rights of the 3PB have “vested”, the original parties NEED the consent of the 3PB in order to modify/recind the K NOTE: contrary language in the K cntrls! Liability
Liability
The intended beneficiary CAN sue the original promisor for breach of K (privity is not necessary) NOTE: if the promisor (of benefit to 3PB) has breached K and can’t enforce performance (against promisee), NEITHER can 3PB The original promisee is liable to a CREDITOR beneficiary (b/c the creditor is owed something); DONEE beneficiary has no rights against original promisee
(Of course) the original promisor is liable to the original promisee
What is anassignment?
Assignment = after two ppl make a K; LATER one (assignor) transfers his rights to a 3d party (assignee)
The party who owes the duty to perform is the obligor
The obligor is liable to the assignee, BUT ONLY IF (i) the assignor performs properly under K (no material breach); AND (ii) the obligor is AWARE of the assignment
NOTE: w/ an assignment, two parties K and a 3d person shows up LATER; with a 3d party beneficary, the 3d party is PRESENT at time of K
What’s needed for a validassignment AND what are the restrictions on assignment?
1) Must have language of PRESENT transfer YES: “I assign…”
NO: “I promise to assign…”
2) Consideration or a writingis NOT required Gift assignments are valid BUT easily revoked Oral assignments are valid
3) Restrictions on assignment
K language cntrls BUT distingush b/t a cl that PROHIBITS assignment from that which INVALIDATES assignments EVEN IF assignments are prohibited (“Rights under this K are not assignable”), a VALID assignment can exist, just in breach of original contract
If language states that assignments are INVALID (“All assignments under this K are void”), then any assignment is VOID Cannot SUBSTANTIALLY change duties of the obligor
With multiple assignments, which assignee has rights? NOTE: NY Distinction
1) Gratuitous (“gift”) assignments are EASILY revoked by assignor (UNLESS there is detrimental reliance by the assignee from the obligor’s performance)
The LAST gratuitous assignee PREVAILS over earlier gratuitous assignees b/c the later gift assignment revokes the earlier one NY DISTINCTION: a gift assignment is IRREVOCABLE if embodied in a signed writing by the ASSIGNOR
2) Assignments for consideration are more DURABLE
General rule: the FIRST assignee for consideration PREVAILS over all subsequent assignees (as well as gratuitous assignees) EXCEPTION: a later assignee for consideration prevails IF he (i) does not know about the earlier assignments; AND (ii) is the first to get pmt from or a jgmt againt the obligor
