Third-Party Problems

Question 1

Entrustment (article 2)

Answer 1

An owner who entrusts goods to a MERCHANT who deals in GOODS OF THE KIND has no rights against a BFP.

Question 2

Third-Party Beneficiary

Answer 2

A person who is not party to a K, but who has rights b/c the K was intended to benefit her.

Question 3

Promisor

Answer 3

The party who promises to perform

Question 4

Donee Beneficiary

Answer 4

A third person who is getting the performance of a K as a gift

Question 5

Creditor beneficiary

Answer 5

A third person who is getting the performance of a K to repay a debt

Rare

Question 6

Rescission and Modification when there is a TPB?

Answer 6

General Rule- the promisor and promisee CAN rescind or modify the K until the rights of the TPB have VESTED

Exception– Even if the rights of the TPB have vested, the K can be rescinded or modified by the promisor and promisee if contrary language in the contract allows

Question 7

When does a TPB rights vest?

Answer 7

when TPB learns about the K AND EITHER:

• manifests assent to the promise in a manner invited or requested by the parties
• brings suit to enforce the promise
• materially changes position in justifiable reliance on the promise

Question 8

Promisor liability to a TPB

Answer 8

Intended beneficiary can sue breaching promisor even though there is no privity btw them. However, the TPB only has the rights that the promisee would have had. So if the promisee would not be entitled to recover, neither can the TPB.

Question 9

Promisee liability to a TPB?

Answer 9

ONLY a CREDITOR beneficiary has rights against the promisee. Otherwise, no rights b/c just a gift.

Question 10

Delegation of Duties

• General rule?
• Exceptions?

Answer 10

ROL- contractual duties may be delegated w/o the consent of the person to whom performance is owed (aka the obligee)

Exceptions:

• K prohibits delegation
• K prohibits assignment
• special skill or reputation

Question 11

Rights of the Obligee After Delegation

Answer 11

• Delegating party remains liable to obligee

- Delegate who gets consideration is liable

Question 12

Assignment of Rights

Answer 12

Def- two people make a K; later, one (assignor) transfers his rights to a third party (assignee). The party who owes the duty is the obligor.

• must have language of present transfer. (“i assign” NOT “i promise to assign”)
• Consideration is NOT required

ex- Batman contracts to provide security for GC for $200. Batman (assignor) assigns his right to payment to Robin (assignee). Robin has the right to receive payment from GC (obligor).

Question 13

Different between an assignment and a TPB

Answer 13

BAR TIP– in an assignment, 2 parties enter into a K and a third person (the assignee) appears labor on. Its a 2-step process. With a TPB, all three persons are present from the beginning.

Question 14

Restrictions on Assignment

Answer 14

1- Contract language controls: distinguish a clause that prohibits assignment (assignment still valid but liable for breach) and a clause that completely invalidates assignment (“all assignments under this K are void).

2- Assignment cannot substantially change the duties of the obligor

Question 15

Obligor’s liability to assignee?

Answer 15

If the obligor knows about the assignment, then he is liable to the assignee.

Question 16

Multiple gratuitous (gift) assignments — who gets the benefit?

Answer 16

Gift assignments are easily revoked. The LAST gratuitous assignee prevails over earlier gratuitous assignees b/c a later gift assignment revokes an earlier one.

“Last in time rule”

Question 17

Multiple assignments for consideration — who gets the benefit?

Answer 17

General ROL- the FIRST assignee for consideration prevails over all subsequent assignees and prior gratuitous assigned. (“First in time rule”)

Exception– a later assignee for consideration prevails if he DOES NOT KNOW about the earlier assignments AND is the FIRST TO GET PAYMENT from or a JUDGMENT against the obligor.