Third-Party Problems

Question 1

When does an entrustment issue arise under Article 2?

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

What are an owner’s remedies for violation of entrustment?

Answer 2

The owner may sue the dealer for conversion

Question 3

When is a third-party beneficiary relationship created?

Answer 3

When two people enter into a contract intending to benefit a third party

Question 4

Who is the third-party beneficiary in the contractual relationship?

Answer 4

A person who is not a party to the contract, but has rights because the contract was intended for their benefit

Question 5

Who is the promisor in the TPB contractual relationship?

Answer 5

The party who promises to perform for the TBP

Question 6

Who is the promisee in the TPB contractual relationship?

Answer 6

The party who secures the promise

Question 7

Who is an intended beneficiary?

Answer 7

The person to whom performance is to eb give under the contract. Only intended beneficiaries have legal rights.

Question 8

Who is a donee beneficiary?

Answer 8

A person who is getting the performance as a gift

Question 9

Can a TPB contract be rescinded or modified?

Answer 9

Either the promisee or the promisor can rescind or modify until the rights of the TPB have vested.

Question 10

When does a TPB’s rights vest?

Answer 10

When the TPB learns of the contract and relies on it. There is an exception, however, when the contractual language holds to the contrary.

Question 11

Who is a promisor liable to in a TPB contract?

Answer 11

1. The promisee

2. The TPB (has the same rights as the promisee)

Question 12

Who is the promisee liable to in a TPB contract?

Answer 12

A creditor beneficiary, not a donee beneficiary.

Question 13

What is the general rule regarding delegation of contractual duties?

Answer 13

Contractual duties may be delegated without the consent of the person to whom performance is owed (“the obligee”).

Question 14

Who is the obligee under a contract?

Answer 14

The person to whom performance is owed.

Question 15

Can delegation be prohibited?

Answer 15

Yes, delegation and assignment may be prohibited by the terms of the contract.

Question 16

Absent express prohibition in the contract, when is delegation otherwise not allowed?

Answer 16

When the contract is based on the obligor’s special skill or reputation

Question 17

Who is the obligor under a contract?

Answer 17

The person who owes the duty

Question 18

Who is liable to the obligee when a delegation occurs?

Answer 18

1. The delegating party remains liable

2. The delegate is liable if he received consideration

Question 19

What is an assignment of rights?

Answer 19

Two people make a contract. Later, one (the “assignor”) transfers his rights to a third party (the “assignee”). The party who owes the duty to the assignee is the obligor.

Question 20

How is an assignment different from a TPB contract?

Answer 20

In an assignment, the third party appears later.

Question 21

How is an assignment created?

Answer 21

Must have clear language of a present transfer. A promise to assign is insufficient.

Question 22

Is consideration required for an assignment?

Answer 22

No, but it may be given. If no consideration is given, it is a gift assignment and easily revocable.

Question 23

Are there any restrictions on the assignability of contractual rights?

Answer 23

Yes. The contractual language controls and may prohibit assignment. Otherwise, the duties of the obligor may not be substantially changed when assigned.

Question 24

In an assignment, to whom is the obligor liable?

Answer 24

The assignee. The assignee steps into the shoes of the assignor. The obligor, however, must know of the assignment to be liable.

Question 25

Who prevails when there are multiple gratuitous assignments?

Answer 25

The last gratuitous assignee prevails over earlier gratuitous assignees.

NY Distinction - A gratuitous assignment in writing is irrevocable.

Question 26

Who does the first assignee for consideration prevail over?

Answer 26

All subsequent assignees, whether gratuitous or for consideration.

Question 27

When can a later assignee for consideration prevail over the first assignee for consideration?

Answer 27

1. If the later assignee does not know about the earlier assignee; and
2. Is the first to get payment from or a judgment against the obligor