Third-Party Problems Flashcards
Entrustment
An owner who entrusts goods to a merchant who deals in goods of that kind has no rights against a BFP. The owner’s only option is to sue the merchant. The BFP wins.
Intended beneficiary vs. incidental
Promisor vs. promisee
Only intended beneficiaries have contractual rights. Consider if the beneficiary is (1) ID’d in the K, (2) receives performance directly from the promisor, and (3) has some relationship with the promisee to indicate an intent to benefit.
2 types: (1) Creditor beneficiaries and (2) donees
Promisor: the party who promises to perform for the 3P
Promisee: the party who secures the promise
3PB’s rights must have vested:
In order for a 3PB to enforce a K, his rights must have vested. This occurs when he (1) assents to the K, (2) brings suit to enforce the K, or (3) materially changes positions in justifiable reliance on the promise.
Rights under the K once vested:
3PB v. promisor: promisor can raise any defense against the 3PB he could have raised against the promisee.
3PB v. promisee:
Donee beneficiary: may not sue promisee unless detrimental reliance
Creditor beneficiary: may sue promisee on underlying obligation (can sue both promisor and promisee, but can only obtain one satisfaction)
If 3PB’s rights have not yet vested:
Then the promisor and promisee are free to rescind or modify K’s terms, including changing the beneficiary.
Assignment:
Generally, all K rights are assignable unless the assignment (1) materially alters the obligor’s duty or risk or (2) it’s prohibited by law. The assignor must manifest an intent to transfer her rights. Consideration is not required.
K clause that prohibits assignment vs. invalidates assignment
If clause prohibits assignment of “the K” –> only delegations of duties are prohibited
If clause prohibits assignment of “contractual rights” –> assignments are OK, but obligor has right to sue for damages.
If clause says attempts to assign “will be void” –> assignment is barred. If assignee had NOTICE of the nonalignment clause, an assignment is ineffective.
Assignments for value and revocability
An assignment is for value if (1) it’s done for consideration or (2) taken as a security for or payment of a preexisting debt. These CANNOT be revoked.
The first assignee for consideration prevails over subsequent assignees UNLESS (1) the later one does not know of the earlier assignments and (2) is the first to get payment from the obligor.
Gratuitous assignments
These are not for value and generally ARE revokable unless an exception applies: (1) obligor already performed, or (2) assignee can show detrimental reliance.
Revocation methods: (1) Death or bankruptcy of assignor, (2) notice of revocation to the assignee or the obligor, (3) assignor taking performance directly from the obligor, or (4) subsequent assignments of the same right by the assignor to another.
the last gratuitous assignee prevails over earlier ones because a later gift assignment revokes an earlier one.
Delegation: General rule
Generally, all contractual duties may be delegated except (1) duties that involve personal judgment and skill, (2) delegation would change the obligee’s expectancy, or (3) there’s a contractual restriction on delegation.
Rights and liabilities of the parties
The delegating party always remains liable (so the obligee may sue the delegator for nonperformance by the delegate). The obligee may require the delegate to perform only if there’s been an assumption (i.e. delegate promised to perform and the promise is supported y consideration). AKA if the delegate received consideration, he’s liable.
Note: A novation completely releases the OG party.
