Contracts 7.txt

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  1. What is the rule on ENTRUSTMENT?
    Art. 2: An owner who entrusts goods to a MERCHANT who deals in goods of the kind has NO RIGHTS against a bona fide purchaser. Only remedy is for owner to sue merchant for conversion.

    • Facts to watch for
    • 1) Merchant who
    • 2) Deals in goods
    • 3) of the kind
    • Thus, if any of those three are missing, the owner has rights against the third-party

    When can a TPB enforce a contract?
    an INTENDED beneficiary can enforce the contract once his/her RIGHTS HAVE VESTED


    • 1) rights become vested when TPB knows about the K and relies on it OR when he/she benefits from it
    • 2) only the INTENDED TPB has rights
    • 3) once vested, the intended TPB must consent to any modifications or recessions of the K
  3. THIRD PARTY BENEFICIARY: Liability: Who can sue whom?
    • (1) Promisor is liable to intended TPB for breach, even though there is no privity of K.
    • (2) Promisee (person who secures the promise) is liable to intended TPB for promisor's breach ONLY IF TPB was also a CREDITOR beneficiary (i.e., promisee's purpose was to satisfy debt to TPB) [rare]
    • (3) Promisor is liable to promisee, just as in any other K.

    1) What is the general rule?
    2) What are the exceptions?
    Can delegate without consent of obligee (person to whom performance is owed)

    • EXCEPTIONS (delegation w/o consent will be a breach of K)
    • 1) contrary language in K, or
    • 2) special skills or reputation

    EXAM TIP: If K prohibits assignment, then there is no delegation either!
    • Need language of a PRESENT ASSIGNMENT (mere promise to assign in the future is not effective)
    • Can't SUBSTANTIALLY increase obligor's duties
    • Last-in-time GRATUITOUS assignment prevails**
    • FIRST-in-time PAID-FOR assignment prevails against all others EXCEPT where subsequent assignee for consideration (i) does not know of prior assignment, and (ii) is first to get payment or a judgment against obligor.

    **NY: A gift assignment is irrevocable if it is in a signed writing.
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Contracts 7.txt
Third Party
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