Rights and Duties of Third Parties Flashcards
Entrusting goods
Entrusting goods to a merchant who deals in goods of that kind gives them the power, but not the right, to transfer all rights of the entruster to a buyer in the ordinary course of business
Entrusting includes both delivery goods to merchant and leaving goods with the merchant to pick up later
Entrusting and buying in ordinary course
Buying in the ordinary course means buying in good faith from a person who deals in goods of the kind without knowledge that the sale is in violation of the ownership rights of third parties
Typical third-party beneficiary situation
A (promisee) contracts with B (promisor) that B will render some performance to C (the third-party beneficiary)
Who is the third party beneficiary
Only intended beneficiaries have contractual rights, not incidental beneficiaries
In determining if a beneficiary is intended, consider whether the beneficiary
- is identified in the contract
- receives performance directly from the promisor, or
- has some relationship with the promisee to indicate intent to benefit
Two types of intended beneficiaries
- creditor beneficiary, and
- donee beneficiary
Beneficiaries rights
A beneficiary may sue the promisor on the contract
- promisor may raise against the third-party beneficiary any defense that the promisor has against the promisee
If the promisor made an absolute promise to pay, rather than a promise to pay what promisee owes, the promisor cannot assert the promisee’s defenses
- if not absolute, promisor can assert the promisee’s defenses
Third party and rights vested
A third party can enforce a contract only if their rights have vested
Rights have vested when they
- manifest assent to a promise in the manner requested by the parties
- bring a suit to enforce the promise, or
- materially change position ins justifiable reliance on the promise
Act of bringing suit vests their rights so if third party is one suing, cannot modify / rescind
When can modify or rescind the beneficiary’s rights
The contract can be rescinded or modified until the third party rights have vested
Once the third party’s rights vest, the promisor and promisee cannot vary their rights without consent
Assignment generally
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
Generally, all contractual rights may be assigned
Unless
- an assignment that would substantially change the obligor’s duty or risk
- an assignment of future rights to arise from future contracts, and
- an assignment prohibited by law
Effect of assignment
Establish privity of contract between obligor and assignee while extinguishing privity between obligor and assignor
Once obligor has knowledge of assignment, must render performance to or pay the assignee
- if obligor renders performance or pays the assignor, do so at own risk
What is necessary for an effective assignment
For an assignment to be effective, the assignor must manifest an intent to immediately and completely transfer their rights
- present transfer
Writing is usually not required to have an effective assignment
Right being assigned must be adequately described
Not necessary to use word “assign” - any accepted words of transfer is ok
Consideration not required
Assignments for value
An assignment is for value if it is
- done for consideration, or
- taken as security for or payment of a preexisting debt
Cannot be revoked
- but gratuitous one generally revocable
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 prohibiting assignment of contractual rights generally does not bar it, but rather merely gives the obligor the right to sue for damages
If contract provides that attempts to assign will be void, parties can bar assignment
Multiple assignments and 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
Gratuitous assignments and multiple assignments
The last gratuitous assignee prevails over earlier gratuitous assignees because a later gift assignment revokes an earlier one
Last one wins
Assignments for consideration and multiple assignments
The first one wins
If the second assignee has paid value and taken without notice of the first assignment,
- the subsequent assignee gets the first judgment against the obligor
- the subsequent assignee gets the first payment of a claim from the obligor
- delivery of a token chose,
- etc
Delegation
Typical delegation situation, Y (the obligor/delegator) promises to perform for X (the obligee)
Y delegates their duty to Z (the delegate)
What duties can be delegated
Generally, all duties may be delegated without consent of the other
Except
- duties involve personal judgment and skill
- delegation would change the obligee’s expectancy (requirements and output contracts)
- a special trust was reposed in the delegator by the other party to the contract, and
- there is a contractual restriction on delegation
Delegation when k restricts assignments
No assignments in a contractual clause also means no delegations
Rights and liabilities of parties in delegation
The obligee must accept performance from the delegate of all duties that may be delegated
Delegator remains liable on the contract
- so obligee can sue the delegator for non-performance by the delegate
Obligee may require the delegate to perform only if there has been an assumption - the delegate expressly or impliedly promises they will perform the duty delegated and this promise is supported by consideration
- this creates a contract between delegator and delegate In which obligee is a third-party beneficiary
