Third Party Problems

Question 1

Entrustment rule

Answer 1

An owner who entrusts goods to a merchant who deals in goods of the kind has no rights against a bona fide purchaser

Question 2

Third-party beneficiary

Answer 2

Two people enter a contract intending to benefit a third party

Question 3

Intended beneficiary

Answer 3

A person who is not party to a contract, but has rights under the contract because it was intended to benefit her.

Question 4

Promisor

Answer 4

The party who promises to perform for the 3rd party.

Question 5

Promisee

Answer 5

The party who secures the promise

Question 6

Applicability of defenses against the promisee on the third party

Answer 6

Any defense against the promisee applies to the third party beneficiary

Question 7

incidental beneficiary

Answer 7

people who benefit from k but promisee didn’t intend them to

Question 8

rights of incidental beneficiary

Answer 8

cannot sue to enforce the contract

Question 9

rights of the promisee and the intended beneficiary

Answer 9

Either can sue to enforce the contract

Question 10

Recission/Modification in a third party contract

Answer 10

• The promisor and promisee can rescind or modify the contract until the rights of the third party have vested (3rd party learns about the k).
  
  • Exception: Contrary language in the contract

Question 11

Assignment of rights to a third party

Answer 11

• Two people make a contract, one (assignor) transfers his rights to a third party (assignee).
• The party who owes the duty (typically to pay money) is the obligor.

e.g. I will paint A’s house for 2k. I assign B to paint the house. B now has the right to collect from A. I am the assignor, B is the assignee, and A is the obligor.

Question 12

Difference between assignment and third party beneficiary

Answer 12

• With assignment, 2 parties enter into a k and a third party appears later on.
• With third-party beneficiary, all 3 parties are there from the start

Question 13

Language needed for valid assignment

Answer 13

Valid assignments must have language of present transfer

(no promises to assign)

Question 14

Consideration for assignments

Answer 14

Consideration is not required to make a valid assignment

Question 15

Effect of a prohibition clause on assignments

Answer 15

• If the contract has a prohibition clause, assignments are not permitted
• but assignee who didn’t know of prohibition can still collect

Question 16

Effect of invalidation clause

Answer 16

• If k has an invalidation clause,
  
  • e.g. all assignments are null and void
• assignee cannot collect on assignment

Question 17

How to tell if a clause is a prohibition or invalidation clause

Answer 17

If you can’t tell between an invalidation and prohibition clause, it’s probably a prohibition clause

Question 18

Effect of assignment on the contract’s duties

Answer 18

Assignments cannot substantially change the duties of the obligor

(e.g. assign a performance right when obligor previously only had to pay money)

Question 19

Rights of assignee against obligor

Answer 19

If obligor breaches, the assignee may sue the obligor directly

Question 20

Duty of obligor to pay assignee

Answer 20

Obligor can continue to pay assignor until he knows of or learns about the assignee.

Question 21

Gratuitous assignment

Answer 21

• A later gift assignment revokes an earlier one.
• Last gratuitous assignee prevails.
• e.g. A owes me money under previous contract. I assign the right of payment to B. I then assign it to C. C prevails.

Question 22

Assignment for consideration rule

Answer 22

• The first assignee for consideration prevails over all subsequent assignees as well as prior gratuitous assignees.
• Exception: a later assignee for consideration prevails if he does not know of the earlier assignments and is the first to get payment from or a judgement against the obligor.

Question 23

Delegation

Answer 23

A transfer of contract duties to a third party (not rights)

Question 24

Delegation rule

Answer 24

• contractual duties may be delegated to another party without the consent of the person to whom performance is owed (the obligee)
• exception: if the contract prohibits delegation, no delegation allowed

Question 25

Effect of prohibitoon of assignment but not delegation

Answer 25

If a contract prohibits assignment but not delegation, party can still delegate, and vice versa

Question 26

Delegation when party has a special skill

Answer 26

A person with special skill/reputation cannot delegate to anyone, even someone with similar/better reputation or skill

Question 27

Liability of delegating party

Answer 27

delegating party always remains liable for the k.

Question 28

Delegation and consideration

Answer 28

If a delegate gets paid consideration, he is personally liable for breach.