Third Parties Flashcards
Entrustment:
Someone brings merchant dealer(ordinarily deals in goods of the kind) goods who then sales it to a bone fide #P in the ordinary course of business.
Rule: owner has no rights against BFP. (BFP ALWAYS wins). Can sue merchant dealer.
Intended 3P
2 Pts contract for benefit of third. Third
Intended vs. Incidental Beneficiary
Only intended have contractual rights.
Intended: (1) is identified in the contract, (2) receives
performance directly from the promisor, or (3) has some relationship
with the promisee to indicate intent to benefit.
Parties in 3PB and their rights / liabilities.
Promisor: Pt who promises to perform for third party. (same defenses against 3P as against promisee).
Promisee: Secures the promise for another. (either promisee or beneficiary can enforce rights against promisor.)
Promisor / promisee can rescind or modify until 3P beneficiary right’s have vested.
A third party can enforce a contract only if their rights have vested.
This occurs when they: (1) manifest assent to a promise in the manner requested by the parties; (2) bring a suit to enforce the promise; or (3) materially change position in justifiable reliance on
the promise.
After vesting, promisor / promisee can’t cancel contract UNLESS (1) 3PB consents or (2) contract otherwise provides.
Assignment (define and compare with 3PB)
Assignment: transfer of rights to another. Take two steps (instead of 1 like the 3PB).
(1) 2 parties contract.
(2) LATER 1 party (assignor) assigns rights to a third party (assignee) who can enforce rights against party who owes duty (obligor).
*Assignee isn’t original party to contract. (appear later). (in 3PB the beneficiary is mentioned in the contract itself or meant for the third immediately).
Valid Assignment:
Valid assignment:
(1) Language of present transfer (NOT I will assign or I promise to / Must be “I assign or Batman assigns.”
(2) Consideration not required (gift assignments okay).
Assignment Parties and their rights / liabilities.
Assignment can’t substantially change obligor’s duties. (transfer of money is not substantial change, but transfer of service is).
Obligor liability: has to pay assignee (steps into shoes of assignor). Can recover from obligor directly. Payment to assignor okay until obligor knows of assignment.
Obligor has same defenses against assignee as against assignor.
Assignment Restrictions
Restrictions on Assignment: Contract language controls.
Prohibition vs. Invalid.
Prohibit: Assignment are not permitted (assignee w/out knowledge can still collect).
Invalidation: Assignments null and void (assignee cannot collect.
*If unsure, go w/prohibition.
Multiple Assignments: Who gets to collect?
(1) last gift assignee prevails over earlier.
(2) Consideration more durable - first wins. (and over gift assignees) EXCEPTION (later doesn’t know of earlier consideration and receives payment first or first to judgment).
*ask, is assignment valid? Then, is it superceded?
Delegation Defined and General Rule
Transfer of Duties: Party to contract delegates duty 3P.
General Rule: Obligor can delegate duties w/out obligee’s consent. (don’t have to get permission from person to whom duty is owed).
Delegation limitations:
Prohibition against delegations = no delegations allowed.
“No assignment” also means that you are not allowed to make delegations.
Special skills / reputation: cannot delegate duties.
Delegation parties’ duties and liability
Delegating party ALWAYS liable to obligee (I.e., the original party is still bound. If the person they delegated to fails, delegating party still the one liable).
Delegate (the one who was delegating the duties) is not liable unless they received consideration.
Delegations for consideration create intended third party beneficiary obligations. (two people contract to benefit another).
Delegation vs Novation
Novation substitutes a new party for an original party to the contract.
It requires assent of all parties and completely releases the original
party. (unlike delegation where 1 person alone tries to get out of duties).
