Exam 16: Third Parties to Contracts

In a third­party beneficiary contract, the third party's rights arise after the contract is made.

The Restatement adopts the majority American rule and provides that, where there are successive assignments of the same right, the first assignee in point of time prevails.

When contract terms prohibiting the assignment of rights exist, most courts will:

Which of the following involves an invalid assignment that a court would not enforce?

Barbara owes Arturo $2,000. On July 1, Arturo assigns the debt to Charles. Thereafter on July 15, Arturo assigns the same right to Dennis, who in good faith gives value for it and knows nothing about the first assignee. Dennis immediately notifies Barbara of the assignment. Under:

Odessa owes Kevin $2,000. On July 1, Kevin assigns the right to the $2,000 to Troy. Thereafter, on July 15, Kevin assigns the same right to Donna, who in good faith gives value for it and knows nothing about the first assignee. In this case:

Arthur enters into a contract with Bob as a result of Bob's fraud in the inducement. Under the contract, Bob has the right to the payment of $100. Bob assigns the right to the $100 to Carl. Arthur may assert the defense of fraud in the inducement to avoid paying Carl the $100.

In a novation, the delegator is discharged and the third party becomes directly bound upon his promise to the obligee.

An assignor normally guarantees that the obligor will pay the assigned debt.

Annette entered into a contract with a local truck dealer to have a new truck delivered to her daughter, Sue, as a graduation present. In this contract, Sue is:

A partial assignment is a transfer of a portion of the contractual rights to one or more assignees.

Generally, rights under an option contract are not assignable.

Which of the following involves a creditor beneficiary relationship?

Theresa has a contract to teach eighth grade at Washington Middle School. She decided she could make more money writing a book, so she assigns her teaching contract to her friend, Stephanie, who is also a licensed teacher. The duties under the teaching contract:

An incidental beneficiary has no right to enforce a contract.

Ron owes Lloyd $500 due March 1. Lloyd assigns his right to the money to Lou, but neither Lloyd nor Lou notifies Ron. On March 1, Ron pays Lloyd the $500. Ron is not discharged from his obligation, but is liable to Lou for the money.

As a general rule, most contract rights are assignable.

An intended donee beneficiary may enforce the contract only against the promisor.

Though contractual duties generally are delegable; a delegation will not be permitted if the nature of the duties is personal in that the obligee has a substantial interest in having the delegator perform the contract.

The law governing assignments is found in Articles well as the common law.