10. In an action by the miller against the baked goods producer for the contractual amount of the first installment, who will most likely prevail?

When one person enters into a valid contract with a second person, this contract does not contemplate performance to or by a third party. However, if one of the parties seeks to transfer her rights and/or duties under the contract to a third party, this is called an «assignment.»

An assignment establishes privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor (the original contracting parties). The assignee then replaces the assignor as the real party in interest, and he alone is entitled to performance under the contract. Once the obligor has knowledge of the assignment, he must render performance to or pay the assignee. If the obligor renders performance to or pays the assignor, he does so at his own risk. Typically, one of the parties (usually the assignee) will notify the obligor of the assignment.

Generally speaking and under the Uniform Commercial Code (UCC) § 2-210(1), «A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract.»

For a third party to be an intended beneficiary, as a threshold matter, allowing him to sue must have the effect of carrying out the original intentions of the parties. Then, one of two scenarios must apply: (i) if the promise is performed, it will satisfy some obligation of money owed to the third party; or (ii) circumstantial facts indicate that one of the parties intends to give the third party the benefit of a promised performance.

D is correct. The flour wholesaler validly assigned his rights and delegated his duties from the original contract to the miller. This contract concerns a sale of goods and is therefore governed by the UCC. Under the UCC and generally as a rule, a party may perform his duty through a delegatee unless the other party has a substantial interest in having the original party perform the contract. Because the miller is comparable to the flour wholesaler in terms of reputation and experience, the baked goods producer should not have a particular interest in having the flour wholesaler perform the contract.

A is incorrect. Performance of the contract by the delegatee ordinarily does not require the assent of the other party to the contract. When the flour wholesaler sold its business and assigned its contracts of sale to the miller, the baked goods producer's agreement to the delegation was not necessary.

B is incorrect. Once the other party to the contract (the baked goods producer) has received notice of an assignment of rights, she can discharge her obligation only upon payment to the assignee (the miller). Payment to the assignor will not discharge the obligation.

C is incorrect. This answer reaches the correct answer with the wrong reasoning. The miller will prevail, but not because he was a third-party beneficiary. A third-party beneficiary situation arises when two parties enter into a contract that has an intention of some performance benefitting an outside third party. The parties to the contract must have had the intent to benefit a third party. In this case, when the contract was formed, there was no intent to benefit the miller or any other third party. Rather, the miller became an assignee, not a third party beneficiary.