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Exam 19: Third-Party Rights to Contracts

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Question 21

True/False

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In determining whether a party is an incidental or intended beneficiary, one factor courts consider is whether the contract directly states that the third party is the benefiting party.

A) True
B) False

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Question 22

Multiple Choice

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[Painted House] Jamal had a contract to paint Stephanie's house for $800. His contractual obligations included cleaning up any debris. The contract between Jamal and Stephanie did not in any way address assignment. Jamal, who was very busy, assigned the contract to Greg who was interested in making some extra money and had experience painting. Jamal specified that the contract included the duty to paint the house and the right to receive the money. Jamal did not tell Stephanie about the assignment because he did not want any trouble. Greg also did not mention the assignment to Stephanie. In fact, Greg never met Stephanie because he painted her house while she was at work. After Greg did a good job painting the house, Stephanie sent a check to Jamal for $800. Jamal needed the money to pay some bills, so he spent it. He thought he would have money coming in with which to pay Greg, but that did not happen. Greg asked Stephanie for $800 when it was not forthcoming from Jamal. Stephanie refused. Greg said that he was going to sue her. Stephanie called Jamal and told him that he had no right to assign the contract. In addition, there was another problem involving the disposal of debris. Although Greg was a good, competent painter, he forgot and left some old paint cans at Stephanie's house. Stephanie demanded that Jamal come and properly dispose of the paint cans because they could not simply be put in the trash. Jamal refused and told her that she would have to get Greg to dispose of the paint cans because that was his responsibility. Stephanie called Greg who told her that he was busy and that clearing out the paint cans was Jamal's responsibility. -What would be the likely result of a lawsuit brought by Greg against Stephanie to recover the $800?

A) Greg will win because Stephanie accepted the risk that the contract would be assigned.
B) Greg will win only so long as Jamal has not been declared bankrupt because Stephanie will be able to recover the amounts at issue from Jamal.
C) Greg will win only so long as the assignment was for an amount under $1,000.
D) Stephanie will win because she had no notice that the contract had been assigned and could, therefore, legally satisfy her obligations by paying Jamal.
E) Stephanie will win only so long as the assignment was for an amount over $500.

F) B) and E)
G) B) and D)

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Question 23

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Lydia transfers her rights to a contract to Jamil, a third party. This is known as a(n) ________.

[Portraits] Tori, a famous portrait painter, agreed to paint Harry's portrait for $4,000. She also agreed to paint the portraits of Gabby's two Corgi dogs, Queenie and Prince. Gabby agreed to pay Tori $10,000 for the two Corgi portraits. Tori charged Gabby more because she met the spoiled dogs, and they really got on her nerves. Tori subsequently fell behind on finishing Harry's portrait, so she assigned the right to receive the money for the dog portraits to her assistant, Justin, and delegated the duty to Justin to paint the dog portraits. Justin eagerly accepted, and painted the portraits. Tori also assigned to Justin the right to receive payment from Harry to satisfy various payments she owed him for other duties. The contract Tori had with Gabby did not address assignment in any way. The contract Tori had with Harry, however, prohibited the right to assign payment for services received. Harry considered himself to be an experienced business person and insisted on that antiassignment clause because he had read somewhere that such a provision was a good idea. Tori finished the portrait of Harry and called him to come and pick it up. Meanwhile, a disgruntled secretary who disliked Tori told both Gabby and Harry about the assignments to Justin. Gabby was furious and refused to pick up the portrait or to pay anyone. Harry likewise refused to pay for his portrait. -What would be the most likely result if Justin sues Harry for the $4,000 payment?

[Third-Party Woes] Jaya owed Bobby $40 for a book she purchased from him. Jaya mowed Laura's yard for $40 and made an agreement with Laura that Laura would pay Bobby for the book. Bobby was not aware of the assignment. Laura did not pay anyone. Jaya also mowed Ken's yard for $40. She agreed with Ken that Ken would give the payment to Bianca, representing Jaya's birthday present to Bianca. Ken later refuses to do so, saying that promises to give gifts are not enforceable. Ken then moved out of town. Jaya told both Bobby and Bianca that she was broke and that they would have to recover any amounts due directly from Laura and Ken, respectively. Bianca was very unhappy because she wanted to buy a new pair of sandals with the money. -Which of the following is the likely result if Bobby sues Laura for the $40 that Jaya owes him for the book?

A creditor beneficiary is the third-party beneficiary who is in the strongest legal position to enforce a contract.

[Portraits] Tori, a famous portrait painter, agreed to paint Harry's portrait for $4,000. She also agreed to paint the portraits of Gabby's two Corgi dogs, Queenie and Prince. Gabby agreed to pay Tori $10,000 for the two Corgi portraits. Tori charged Gabby more because she met the spoiled dogs, and they really got on her nerves. Tori subsequently fell behind on finishing Harry's portrait, so she assigned the right to receive the money for the dog portraits to her assistant, Justin, and delegated the duty to Justin to paint the dog portraits. Justin eagerly accepted, and painted the portraits. Tori also assigned to Justin the right to receive payment from Harry to satisfy various payments she owed him for other duties. The contract Tori had with Gabby did not address assignment in any way. The contract Tori had with Harry, however, prohibited the right to assign payment for services received. Harry considered himself to be an experienced business person and insisted on that antiassignment clause because he had read somewhere that such a provision was a good idea. Tori finished the portrait of Harry and called him to come and pick it up. Meanwhile, a disgruntled secretary who disliked Tori told both Gabby and Harry about the assignments to Justin. Gabby was furious and refused to pick up the portrait or to pay anyone. Harry likewise refused to pay for his portrait. -What would be the most likely result if Tori sues Gabby for the $10,000 payment?

When modifying its Civil Code, Russia duplicated the freedom of assignments found in the American Uniform Commercial Code.

Halle and Rose enter into a contract in which Rose agrees to sell her property to Halle so Halle can build a hotel. Maria owns the restaurant next door and will benefit from the opening of the hotel because it will bring in many new customers. Rose subsequently breaches the contract so Halle cannot buy the property and build the hotel. Can Maria sue Rose for breach of contract?

Which of the following is an exception to the general rule that rights to a contract cannot be assigned when a contract is personal in nature?

Nadine is transferred the duty to paint an office building from Thomas. Nadine would be known as a(n) ________.

Leila and Bradford enter into a contract in which Bradford will pay Leila to mow his lawn and Leila will mow the lawn weekly. Leila has to move far away and cannot mow, but she transfers her duty to mow Bradford's lawn to Ursula. This is an example of:

William received an assignment of contractual rights from his uncle's contract. William would be considered a(n) ________

Jason is excited because a developer plans a subdivision full of high-priced homes that will adjoin his property, and he believes that the subdivision will significantly increase the value of his property. Jason is so pleased that he puts in a new swimming pool to celebrate. However, the developer changes his mind and decides not to develop the subdivision. Jason is angry and asks if he can sue the developer, particularly since he can establish reliance. What would you tell Jason and why? Discuss whether you agree with the law on this issue and why or why not.

Privity of contract is usually required in order for a party to be bound to a contract or have rights under a contract.

Gregory and Philip are contracting to buy and sell mortgages for their respective banks. In order to limit their ability to assign their rights under the contract, the parties will want to include a(n) ________

Which of the following is true regarding assignment of rights in China?

Which of the following was the result in the case in the text Wesley Locke v. Ozark City Board of Education, in which an umpire was injured by an angry parent and sued, claiming that he was an intended third-party beneficiary of a contract between the defending Board of Education and the Alabama High School Athletic Association concerning police protection which the umpire claimed was required but not provided?

In Australia a third party can sue for breach of contract.

Why do parties who are not in privity of contract usually not have rights to a contract?