Contracts Flashcards
Summary
The homeowner’s rights against the painter can be assigned to the neighbor because the substitution of neighbor for homeowner will not materially change the painter’s duty or increase the painter’s burden. Because those rights have been assigned, the neighbor can enforce them against the painter. The retiree cannot enforce those rights because he is not a party to the contract (either initially or by assignment) and does not qualify as a third-party beneficiary of it. The assignment of rights to the neighbor does not relieve the homeowner of his payment obligation; if the painter paints the neighbor’s house and the neighbor does not pay the painter, the painter will have causes of action against both homeowner and neighbor.
May a contractual right to the performance of services be assigned without the obligor’s consent, giving the assignee the right to enforce the contract, when the assignment would not change the obligor’s duty in any material respect? Rule
While contract rights are generally assignable, a contract is not assignable if the assignment (i) would materially change the duty of the obligor (here, the painter), (ii) would materially increase the burden or risk imposed on the obligor, (iii) would materially impair the obligor’s chance of obtaining return performance or materially reduce the value of that return performance to the obligor, (iv) is forbidden by statute or precluded by public policy, or (v) is validly precluded by contract. RESTATEMENT (SECOND)OFCONTRACTS § 317(2). In this case, there is no indication of a statute or public policy that would forbid or preclude the assignment, and no contractual provision prohibiting assignment. Thus, the only questions are whether the assignment would materially change the duty of the painter or increase the burden imposed on the painter, and whether the assignment would materially impair the painter’s chance of obtaining return performance or materially reduce the value of that return performance to the painter.
Application
Under these facts, which specify that there is no difference in magnitude or difficulty between the work required to paint the homeowner’s house and the work required to paint the neighbor’s house, the assignment from the homeowner to the neighbor does not materially increase the painter’s duty or risk. The facts specify that the exterior of the neighbor’s house is identical to the exterior of the homeowner’s house, that both are peeling, and that the labor to paint each house would be comparable in magnitude and difficulty. Moreover, the neighbor’s house is next door to the homeowner’s house, so no additional travel burden would be placed on the painter by painting the neighbor’s house rather than the homeowner’s house. Thus, a court would likely conclude that the assignment from the homeowner to the neighbor would neither materially change the painter’s duty nor materially increase the burden imposed on the painter.
There is no indication under these facts that the assignment would materially impair the painter’s chance of obtaining return performance (the agreed $6,000 payment), or materially reduce the value of the contract to the painter. Id. § 317(2)(a). None of these factors is present here, particularly in light of the fact that the assignor (here, the homeowner) remains liable to pay the painter if the painter fulfills his obligation and the assignee (here, the neighbor) will be liable as well. (See Point Four below.)
All that is generally necessary for an effective assignment is (a) that the assignor manifest his or her intent to transfer the right to the assignee, without reserving any right to confirm or nullify the transfer (RESTATEMENT (SECOND)OFCONTRACTS § 324), and (b) that the assignee manifest assent to the assignment. Id. § 327(1). Here, both conditions are satisfied by the conversation between the homeowner and the neighbor. No action or manifestation of assent is required from the obligor. No particular form is required for the assignment. With minor exceptions not relevant here, the relevant manifestations of assent may be made either orally or in writing. Id. § 324.
If the painter does not paint the neighbor’s house, the neighbor has a cause of action against the painter. Id. § 317(1) (by virtue of the assignment, “the assignor’s right to performance by the obligor is extinguished . . . and the assignee acquires a right to such performance
If the obligor does not perform, may a third party who would have benefitted from performance enforce the contract?
The retiree has no cause of action for the painter’s breach. The homeowner’s rights under the contract have been assigned to the neighbor, not to the retiree; therefore, the retiree may not enforce the contract as an assignee. Moreover, the retiree does not qualify as a third-party beneficiary who can enforce the contract. While the retiree would benefit from the painter’s performance of his obligations, not all who benefit from performance of a promise may enforce it. Rather, contract law distinguishes between “incidental” beneficiaries and “intended” beneficiaries, and only the latter can enforce a promise of which he or she is not the promisee. The retiree is not an intended beneficiary inasmuch as there is no indication that benefitting him was in the contemplation of any of the parties when the contract was entered into
If the obligor performs the services for the assignee pursuant to the assigned contract, is the assignee liable for payment? Is the assignor liable for payment?
The transaction between the homeowner and the neighbor is not only an assignment to the neighbor of the homeowner’s rights against the painter, but also a delegation to the neighbor of the homeowner’s obligation to the painter. This is shown by the fact that the neighbor assented to the homeowner’s idea of the neighbor paying the painter. See also RESTATEMENT (SECOND)OF CONTRACTS § 328(1) (assignment in general terms includes “a delegation of [the assignor’s] unperformed duties under the contract”). As a result, if the painter completes the paint job and is not paid in accordance with the terms of the contract, then he has a cause of action against the neighbor, even though the neighbor was not a party to the original contract.
The homeowner’s delegation to the neighbor of the duty to pay the painter does not, however, relieve the homeowner of that payment responsibility in the absence of the painter’s agreement to the discharge of the homeowner. See id. § 318(3). As a result, if the painter is not paid in accordance with the terms of the contract, then the painter retains a cause of action against the homeowner as well.
