5. Third-Party Problems

Question 1

Third-party beneficiary

Answer 1

Not a party to the contract. Able to enforce contract others made for her benefit.

Question 2

Promisor

Answer 2

Look for person who is making the promise that benefits the third party.

Question 3

Promisee

Answer 3

Look for person who obtains the promise that benefits the third party.

Question 4

Do incidental beneficiaries have contract law rights?

Answer 4

No, only intended beneficiaries do.

Question 5

When may a contract for a third party beneficiary be cancelled or modified?

Answer 5

The test is whether the third party knows of and has relied on or assented as requested. If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.

Question 6

Who can recover from a promisor?

Answer 6

Either the Promisee or the Third Party beneficiary

Question 7

When is the only time a beneficiary may recover from a promisee?

Answer 7

Creditor beneficiary can recover from

promisee BUT ONLY on pre-existing debt

Question 8

What an assignment is:

Answer 8

Assignment is a transfer of rights under a contract.

Question 9

Assignment involves two separate steps:

Answer 9

1. Contract between only two parties; and

2. One of the parties later transfers rights under that contract to a third party.

Question 10

Can you assign an offer?

Answer 10

No

Question 11

Assignor:

Answer 11

Party to the contract who later transfers rights under the contract to another.

Question 12

Assignee:

Answer 12

Not a party to the contract. Able to enforce the contract because of the assignment.

Question 13

Obligor:

Answer 13

Other party to the contract.

Question 14

If there is a contract provision regarding assignment:

Answer 14

If the fact pattern includes language of contract regarding assignability, determine whether the contract (a) prohibits assignments or (b) invalidates assignments.

Question 15

Prohibition of Assignments:

Answer 15

Language of prohibition takes away the right to assign but not the power to assign, which means that the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment.

Question 16

Batman-Gotham contract provides “rights hereunder are not assignable.”
Notwithstanding this contract provision, Batman assigns the right to the $300,000 payment to Robin who does not know about the contract provision. Can Robin collect from Gotham?

Answer 16

Yes

Question 17

Invalidation of Assignments:

Answer 17

Language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.

Question 18

Batman-Gotham contract provides “all assignments of rights under this contract are void.” Notwithstanding this contract provision, Batman assigns the right to the $300,000 payment to Robin, who does not know about the contract provision. Can Robin collect from Gotham?

Answer 18

No

Question 19

If there is nothing in fact pattern about contract language regarding assignability:

Answer 19

Even if a contract does not in any way limit the right to assign, common law bars an assignment that substantially changes the duties of the obligor.

Question 20

Batman assigns his rights to payment under the contract with Gotham to Robin, i.e., Gotham is to pay Robin, not Batman. Does this substantially change the duty of the obligor so that the assignment is not enforceable?

Answer 20

No, there is not a substantial change

Question 21

Gotham assigns its rights to security services under the contract with Batman to
Metropolis, i.e. Batman is to defend Metropolis, not Gotham. Does this substantially change the duty of the obligor so that the assignment is not enforceable?

Answer 21

Yes, there is a substantial change

Question 22

Who can sue whom if there has been an assignment?

Answer 22

Assignee can recover from the obligor.

Question 23

When is it permissible for an obligor to pay an assignor?

Answer 23

Payment by obligor to assignor is effective until obligor knows of assignment.

Question 24

Implied warranties of assignor in an assignment for consideration:

Answer 24

In an assignment for consideration, the assignor warrants

(1) the right assigned actually exists, and
(2) the right assigned is not subject to any then existing defenses by the obligor, and
(3) the assignor will do nothing after the assignment to impair the value of the assignment.

Question 25

X signs a contract promising to pay Y $1,000. Y assigns the contract to Z for $800. X was an infant when he signed the contract with Y and refuses to pay Z. Can assignee Z recover from assignor Y?

Answer 25

Yes, because the right assigned was subject to an existing defense

Question 26

Epstein assigns the right to royalties from his splendid West contracts casebook to Sharon Stone for $1,000. Later Epstein writes West and releases it from any obligation to pay royalties. West does not pay Ms. Stone. Can Ms. Stone collect from Epstein for breach of implied warranty of assignment?

Answer 26

Yes, because the assignor did something after the assignment to impair the value of the assignment

Question 27

Epstein assigns the right to royalties from his splendid West contracts casebook to Sharon Stone for $1,000. Later, West files for bankruptcy and receives a discharge. Can Ms. Stone collect from Epstein for breach of implied warranty of assignment?

Answer 27

No, Epstein did nothing wrong

Question 28

Batman gives the right to the $300,000 payment from Gotham to the University of
Richmond Law School on January 15. On April 5, Batman makes a gift of the same payment right to the UJA. Which assignee has greater rights?

Answer 28

UJA

Although, in N.Y., gratuitous assignments in writing are irrevocable.

Question 29

What is the general rule for determining who has greater rights when there are multiple gratuitous assignments?

Answer 29

Last assignee generally wins

Question 30

What is the general rule for determining who has greater rights when there are multiple assignments for consideration?

Answer 30

First assignee for consideration wins

Question 31

On February 2, Batman assigns his rights under the contract with Gotham to Robin for $1. On March 3, Batman assigns his rights under the same contract with Gotham to Conviser for $250,000. Whom should Gotham pay?

Answer 31

Robin, because he was first

Question 32

Batman assigns to Robin for consideration and then assigns to Conviser for consideration. Conviser does not know of the assignment to Robin and Conviser is the first to notify Gotham that he is an assignee. Gotham learns of the earlier assignment to Robin before it pays Conviser. To whom should Gotham make the payment?

Answer 32

Being first to notify is irrelevant, so the payment is to be made to Robin

Question 33

Delegation

Answer 33

Party to a contract transferring work under that contract to third party. For example, P contracts to paint O’s house for $1,000. P (delegating party) and X (delegatee) agree that X will paint O’s (obligee) house.

Question 34

P contracts with O to paint O’s house for $1,000. P and X agree that X will do the painting and collect the $1,000 from O. Is this an assignment, a delegation or both an assignment and a delegation?

Answer 34

Both

Question 35

Which duties are delegable?

Answer 35

Generally, contractual duties are delegable. The limitations on delegation are very limited.

Delegations are permitted unless either

(1) contract prohibits delegations or prohibits assignments or
(2) “personal services contract” that calls for VERY SPECIAL skills.

Question 36

What if, after delegation, the third-party delegatee does not perform?

Answer 36

1. Delegating party always remains liable.

2. Delegatee liable only if she receives consideration from delegating party.

Question 37

P contracts to paint O’s house for $1,000. X then agrees with P that she (X) will do the painting for P, because P is a good friend. X does not do the work. Can O recover from P?

Answer 37

Yes, because P did not receive consideration

Question 38

P contracts to paint O’s house for $1,000. X then agrees with P that she (X) will do the painting for P, because P is a good friend. X does not do the work.
Can P recover from X?

Answer 38

No, the delegatee was not liable because he did not receive consideration

Question 39

P contracts to paint O’s house for $1,000. X then agrees with P that she (X) will do the painting for P, because P is a good friend. X does not do the work.
Can O recover from X?

Answer 39

No

Question 40

P contracts to paint O’s house for $1,000. P and X then agree that X will do the work and P will pay X $900. X does not do the work. Can O recover from P?

Answer 40

Yes, because the delegating party is always liable

Question 41

P contracts to paint O’s house for $1,000. P and X then agree that X will do the work and P will pay X $900. X does not do the work. Can P recover from X?

Answer 41

Yes

Question 42

P contracts to paint O’s house for $1,000. P and X then agree that X will do the work and P will pay X $900. X does not do the work. Can O recover from X?

Answer 42

Yes, because X received consideration