• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/24

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

24 Cards in this Set

  • Front
  • Back
Third Party Beneficiaries
Typical Situation: A (promisee) contracts with B (promisor) that B will render some performance to C (third-party beneficiary).
Who is a third-party beneficiary? When do they have contractual rights?
Only INTENDED beneficiaries have contractual rights, NOT INCIDENTAL beneficiaries.

3 factors that identify an intended beneficiary:

1. Identified in the contract

2. Receives performance directly from the promisor; or

3. Has some relationship with the promisee to indicate intent to benefit.
What are the two types of intended beneficiaries?
1. Creditor beneficiaries--debt is owed to him by promisee.

2. Donee beneficiary--person whom the promisee intends to benefit gratuitously.
When do the rights of the beneficiary vest?
Third party can only enforce the contract when his rights vested; this occurs when he:

1. Manifests asset to the promise in the manner requested by the parties.

2. Brings a suit to enforce the promise.

3. Materially changes position in justifiable reliance on the promise.

Prior to vesting the promisee and promisor are free to modify or rescind the beneficiary's rights under the contract--including removing the beneficiary altogether.
Rights of Third Party B v. Promisor
B may sue promisor on the contract.

Promisor may raise any defense against B that promisor has against promisee.

If promisor made an absolute promise to pay, then he cannot assert the promisee's defenses.

If the promise is not absolute, promisor can assert the promisee's defenses.
Rights of Third Party B v. Promisee
A CREDITOR beneficiary can sue the promisee on the existing obligation between them (and the promisor--but can obtain only one satisfaction).

A DONEE beneficiary CANNOT sue the promisee UNLESS grounds for a DETRIMENTAL RELIANCE remedy exist.
Promisee v. Promisor
A promisee may sue promisor both at law and equity for specific performance if the promisor is not performing for the third person.
Assignment of Rights

Typical Assignment Situation
X (obligor) contracts with Y (the assignor). Y assigns his right to X's performance to Z (the assignee).
What rights may be assigned?
Generally, ALL contractual rights may be assigned.

EXCEPTIONS:

1. Assignment that would substantially change the obligor's duty or risk (e.g. personal service contracts where the service is unique, requirements and outputs contracts where the assignee will substantially vary the quantity);

2. An assignment of future rights to arise from future contracts (not future rights in already existing contracts)

3. Assignments prohibited by law (wage assignments)
What is the effect of a contractual provision against assignment?
A clause prohibiting assignment of "the contract" will be construed as barring only delegation of the assignor's duties.

A clause prohibiting assignment of "contractual rights" generally does not bar assignment, but rather merely gives the obligor the right to sue for damages.

However, if the contract provides that attempts to assign WILL BE VOID, the parties can bar assignment.

If assignee has notice of the nonassignment clause, an assignment will be ineffective.
What is the effect of assignment vis-a-vis the parties?
Establishes privity of contract between the obligor and assignee.

Extinguishes privity between the obligor and the assignor.
Are assignments revocable or irrevocable?
Assignments for VALUE (done for consideration or taken as security or payment of a preexisting debt) are IRREVOCABLE.

GRATUITOUS ASSIGNMENTS are generally REVOCABLE. But exceptions exist where:

1. Obligor has already performed.

2. A token chose (tangible claim, such as stock certificate) is delivered.

3. Assignment of simple chose (intangible claim, such as a contract right) is put in writing.

4. Assignee can show detrimental reliance (estoppel).
How can a revocable gratuitous assignment be terminated?
1. Death or bankruptcy of the assignor.

2. Notice of revocation by the assignor to the assignee or the obligor.

3. The assignor taking performance directly from the obligor.

4. Subsequent assignment of the same right by the assignor to another.
What is the effect of revocation of an assignment?
Once an assignment is revoked, the privity between the assignor and the obligor is restored, and the assignor is once again the real party in interest.
What are the rights and liabilities of Assignee v. Obligor?
Assignee can sue the obligor, as the assignee is the real party in interest (i.e. the assignee, not the obligor, is entitled to performance under the contract).

The obligor can raise any defense inherent in the contract (failure of consideration or any other defenses that arose before the obligor had knowledge of the assignment).

The obligor cannot raise by way of defense any defenses the assignor might have against the assignee.
What are the rights and liabilities of Assignee v. Assignor?
In every assignment FOR VALUE, the assignor WARRANTS:

1. He has not made a prior assignment of the same right;

2. The right exists and is not subject to any undisclosed defenses.

3. He will do nothing to interfere with the assigned right.

The assignee may sue for breach of any of these warranties. However, the assignor will not be liable to the assignee if the obligor is incapable of performing.
What problems exist if there have been successive assignments of the same rights?
Rule: if the first assignment is revocable, a subsequent assignment revokes it.

If it is irrevocable, the first assignment will usually prevail over a subsequent assignment.

Exceptions:

1. The subsequent assignee gets a first judgment against the obligor.

2. The subsequent assignee gets the first payment of a claim from the obligor.

3. The subsequent assignee gets delivery of a token chose.

4. The subsequent assignee is the party to a novation releasing the assignor.

5. The subsequent assignee an proceed against the first assignee on an estoppel theory (estoppel could, of course, operate against the subsequent assignee as well).
Delegation

Typical Situation
Y (the obligor/delegator) promises to perform for X (the obligee). Y delegates her duty to Z (the delegate).
What duties may be delegated?
Generally, all duties may be delegated.

Exceptions:

1. Duties involve personal judgment and skill;

2. Delegation would change the obligee's expectancy (e.g. requirements and outputs contracts)

3. Special trust was reposed in the delegator by the other party to the contract.

4. There is a contractual restriction on delegation.
What is necessary for delegation?
The delegator must manifest a present intention to make a delegation. There are no special formalities to be complied with to have a valid delegation. It may be written or oral.
What are the rights and liabilities of the parties in a delegation situation?
The obligee must accept performance from the delegate of all duties that may be delegated.

The delegator remains liable on the contract; thus, the obligee may sue the delegate for nonperformance, but can require the delegate to perform ONLY IF there has been an ASSUMPTION (i.e. the delegate promises he will perform the duty delegated and this promise is supported by consideration or its equivalent). This promise creates a contract between the delegator and the delegate in which the obligee is a third-party beneficiary.
What is the power of a person other than an owner to transfer good title to a purchaser?

Entrustment
Entrusting goods to merchant who deals in goods of that kind gives him the power (but not the right) to transfer all rights of the entruster to a buyer in the ordinary course of business.

Entrusting includes both delivering goods to the merchant and leaving purchased goods with the merchant for later pick up or delivery.

Buying in the ordinary course means buying in good faith from a person who deals in goods of the kind without knowledge that the sale is in violation of the ownership rights of third parties.
Voidable Title Concept
Generally, if a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer (i.e., it is a vodiable title).

However, the defrauded seller may not recover the goods from a good faith purchaser for value who bought from the fraudulent buyer. The rights of a defrauded seller are cut off both by a buyer and by a person who takes a security interest in the goods.
A thief generally cannot pass title
If a thief steals goods from the true owner and then sells them to a buyer, the thief is unable to pass title to the buyer (because his title is void).

Thus, even a good faith purchaser for value generally cannot cut off the rights of the true owner if the seller's title was void. An exception to this rule may apply, however, if the buyer has made accessions (valuable improvements) to the goods or the true owner is estopped from asserting title (the true owner expressly or impliedly represented that the thief had title).