BAR FLASHCARDS - C9 Third Parties (1)
Entrustment
Merchant who ordinarily deals in goods of kind sells entrusted goods to BFP.
Someone who owns good brings goods to dealer to fix goods, but dealer sells them to BFP.
OWNER has NO RIGHTS against BFP. BFP prevails.
But has to be bought from merchant-dealer.
Intended Third Party Beneficiary
Two people entering into a contract with the intent to benefit a Third party.
That third party can enforce the K, even tho they never made it.
Intended third party beneficiary can enforce rights under K.
Term: Intendied beneficiary -
- named in K
- Can enforce the K
Term: Promisor -
Party who promises to perform for third party
Term: Promisee -
Party who secures promise
Promisor has same defenses against third party beneficiary as promisee.
Promisor has same defenses against third party beneficiary as promisee.
Incidental beneficiaries
Incidental beneficiaries Do NOT have rigfht to enforce the contract.
Who can enfroce rights against promisor?
Either Promisee or beneficiary can enfroce rights against promisor.
Incidental beneficiaries Do NOT have rigfht to enforce the contract.
Recission
Contract can be rescined/modified until benificary’s rights have vested.
Vesting
Beneficary’s rights vest when learn of contract and rely on it.
Promisor and promisee cannot cancel contracrt after vesting UNLESS:
- beneficiary consents, or
- K provides otherwise.
distinguish from assignment situation
Assignment: transferring rights, takes two steps.
- 2 parties contract
- later, one party (assignors) assigns right to third party (assignee)
- Obligor is assigned to pay ___
Third Party beneficiary: Takes one step.
- One step.
Valid assignment
- language of present transfer (not promise to assign)
- No consideration needed (gift assignments are OK)
Restriction on assgiments
Prohibition: assignments not permitted
- Assignee without knowledge can still collect
Invalidation: Assignments null and void
- Assignee cannot collect
Assignments cannot substantially change duties of obligor.
After assingment….
Obligor has to pay assignor/assignee.
Assignee can recover from obligor directly.
Gift assignments
- Easily revocabke
- last gratuitious assignee wins
9.3 ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES
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Assignment
In the typical assignment situation, X (the obligor) contracts with Y (the assignor). Y assigns his right to X’s performance to Z (the assignee).
What rights can be assigned
All contractual righs may be assigned.
EXCEPTIONS:
(1) an assignemnt that would SUBSTANTIALLY CHANGE the obligor’s duty or risk (personal ervice contracts where service is uniquie);
(2) An assignment of future rights to ARISE FROM FUTURE CONTRACTS (not future rights in already existing contracts); and
(3) an assignment PROHIBITED BY LAW (wage assignments in some states).
Assignment example
Batman contracts to provide security for Gotham City for $200,000. Batman (“assignor”) then assigns his right to the payment to Robin (“assignee”). Robin has the right to receive payment from Gotham City (“obligor”).
Effect of Assignment
Effect of assignment is to establish privity of contract btwn obligor an the assignee while extinguishing privity between obligor and the assignor.
Once the obligor has knowledge of the assignment, they must render performance to or pay the assignee.
If the obligor renders performance to or pays the assignor, they do so at their own risk.
What is necessary for an effective assignment?
Assignor must manifest an intent to immediately and completely transfer their rights.
A writing is not required.
The right being assigned must be adequately described.
Not necessary to use the word “assign”.
Consideration is not required.
Is Assignment Revocable or Irrevocable?
Assignments are divided into two categories: assignments for value and gratuitous assignments.
— Assignment for Value: An assignment is for value if it is: (1) done for consideration, or (2) taken as security for or payment of a preexisting debt. Assignments for value CANNOT be revoked.
— Gratuitous Assignments: An assignment not for value (a gratuitous assignment) generally is revocable.
Exceptions to Revocability - A gratuitous assignment is irrevocable if:
A gratuitous assignment is irrevocable if:
(1) the obligor has already performed;
(2) a token chose (that is, a tangible claim, such as a stock certificate) is delivered;
(3) an assignment of a simple chose (that is, an intangible claim, such as a contract right) is put in writing; or
(4) the assignee can show detrimental reliance on the gratuitous assignment (that is, estoppel).
Methods of Revocation of an assignment (AKA WHAT AN ASSIGNMENT IS TERMINATED BY)
A revocable gratuitous assignment may be terminated by:
(1) the death or bankruptcy of the assignor;
(2) notice of revocation by the assignor to the assignee or the obligor;
(3) the assignor taking performance directly from the obligor; or
(4) subsequent assignment of the same right by the assignor to another.
Suppose the obligor, after notice of the assignment, renders performance to or pays the assignor. Result?
Suppose the obligor, after notice of the assignment, renders performance to or pays the assignor.
If the assignment was revocable, it is revoked by the assignor’s acceptance, and the obligor is discharged.
If, however, the assignment was for value, the obligor is not discharged by his performance or payment to the assignor.
The obligor remains liable to the assignee.
Effect of Revocation
Once an assignment is revoked, the privity between the assignor and the obligor is restored, and the assignor is once again the real party in interest.
Express Contractual Provision Against Assignment
A clause prohibiting assignment of “the contract” will be construed as barring only delegation of the assignor’s duties. A clause prohib- iting assignment of “contractual rights” generally doesn’t bar assignment, but rather merely gives the obligor the right to sue for damages. However, if the contract provides that attempts to assign will be void, the parties can bar assignment. Also, if the assignee has notice of the nonassignment clause, an assignment will be ineffec- tive.
Assignemnt: What Are the Rights and Liabilities of the Various Parties?
Assignee vs. Obligor: The assignee can sue the obligor, as the assignee is the real party in interest interest because it is the assignee—not the assignor—is entitled to performance under the contract. (The obligor has as a defense against the assignee any defense inherent in the contract; for example, failure of consideration and other defenses that came into existence before the obligor had knowledge of the assignment.) The obligor cannot raise by way of defense any defenses the assignor might have against the assignee.
Assignee vs. Assignor: In every assignment for value, the assignor warrants that: (1) they have not made a prior assignment of the same right; (2) the right exists and is not subject to any undisclosed defenses; and (3) they won’t interfere with the assigned right. The assignee may sue the assignor for breach of any of these warranties. However, the assignor won’t be liable to the assignee if the obligor is incapable of performing.
Multiple Assignments—Which Assignee Gets to Collect?
If the first assignment is revocable, a subsequent assignment revokes it. If it is irrevocable, the first assignment will usually prevail over a subsequent assignment. Several exceptions exist (if the second assignee has paid value and taken without notice of the first assignment): (1) the subsequent assignee gets the first judgment against the obligor; (2) the subsequent assignee gets the first payment of a claim from the obligor; (3) the subsequent assignee gets delivery of a token chose; (4) the subsequent assignee is the party to a novation releasing the assignor; or (5) the subsequent assignee can proceed against the first assignee on an estoppel theory (estoppel could, of course, operate against the subsequent assignee as well).
DELEGATION
In the typical delegation situation, Y (the obligor/delegator) promises to perform for X (the obligee). Y delegates their duty to Z (the delegate).
What Duties May Be Delegated?
Generally, all duties may be delegated.
EXCEPTIONS:
(1) the duties involve personal judgment and skill;
(2) delegation would change the obligee’s expectancy (for example, requirements and output contracts);
(3) a special trust was reposed in the delegator by the other party to the contract; and
(4) there is a contractual restriction on delegation.
What Is Necessary for Effective Delegation?
The delegator must manifest a present intention to make a delega- tion. There are no special formalities to be complied with to have a valid delegation. It may be written or oral.
Delegation: What Are the Rights and Liabilities of the Parties?
The obligee must accept performance from the delegate of all duties that may be delegated. The delegator remains liable on the contract; thus, the obligee may sue the delegator for nonperformance by the delegate. The obligee may require the delegate to perform only if there has been an assumption (that is, the delegate expressly or impliedly promises they will perform the duty delegated and this promise is supported by consideration or its equivalent). This promise creates a contract between the delegator and the delegate in which the obligee is a third-party beneficiary.
Today, words assigning “the contract” or “all my rights under the contract” are usually construed as…
Today, words assigning “the contract” or “all my rights under the contract” are usually construed as including an assumption of the duties by the assignee, unless a contrary intention appears.
Novation
Novation subs a new party for an origianl party to the K. It requires assent of all parties and completely release the original party.
