Deck 13: Third Party Rights and Discharge

Question 1

Eagle Company contracts to build a house for Frank. The contract states that "any assignment of this contract renders the contract void." After Eagle builds the house, but before Frank pays, Eagle assigns its right to payment to Good Credit Company. Can Good Credit enforce the contract against Frank? Why or why not?

Answer 1

In this bilateral agreement Company E decides to assign the right to payment to Company GC whereas the contract clearly mentions that the right cannot be assigned otherwise the contract is rendered void. This rule has several exceptions (for example the right to negotiable funds) however the present cast cannot be classified as an exception. So in this case Company GC cannot force the contract against Mr F as Company E did not have the right to assign the right to payment to Company GC as per the contract.

Question 2

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is an assignment? What is the difference between an assignment and a delegation?

Answer 2

The difference between an assignment and a delegation:
In a contract where there are two parties and both have equal rights and duties. There is requirement by one party for the other to complete a specific task and the other party has a duty to complete the task. In some cases one of the parties might want to transfer her or his legal rights to some other person under the contract. The transferring of the rights by one person to another person is known as the assignment. The importance of the assignment can be judged by the fact that it is used intensively in the financing of the businesses. Therefore when the rights are transferred by one party to another person it is known as assignment, just similarly to this even duties can be transferred. Generally duties are not assigned they are said to be delegated. Therefore delegation of duties can be referred to as the transfer of duties either in part or completely to a third person.

Question 3

Third Party Beneficiaries.
Wilken owes Rivera $2,000. Howie promises Wilken that he will pay Rivera the $2,000 in return for Wilken's promise to give Howie's children guitar lessons. Is Rivera an intended beneficiary of the Howie-Wilken contract? Explain.

Answer 3

Third party beneficiaries:
An individual for whose sake an agreement is made but still who is not a part of the contract which is formed is the third party beneficiary. Such a beneficiary has the right to take legal action in case there is any violation in the contract. In the present situation Mr H makes a promise to pay the debt that Mr W has contracted to Ms R. So Ms R is the intended beneficiary. She can be known as the creditor beneficiary.

Question 4

Val's Foods signs a contract to buy 1,500 pounds of basil from Sun Farms, a small organic herb grower, as long as an independent organization inspects the crop and certifies that it contains no pesticide or herbicide residue. Val's has a contract with several restaurant chains to supply pesto and intends to use Sun Farms' basil in the pesto to fulfill these contracts. When Sun Farms is preparing to harvest the basil, an unexpected hailstorm destroys half the crop. Sun Farms attempts to purchase additional basil from other farms, but it is late in the season and the price is twice the normal market price. Sun Farms is too small to absorb this cost and immediately notifies Val's that it will not fulfill the contract. Using the information presented in the chapter, answer the following questions.
1. Suppose that Sun Farms supplies the basil that survived the storm but the basil does not pass the chemical-residue inspection. Which concept discussed in the chapter might allow Val's to refuse to perform the contract in this situation?
2. Under which legal theory or theories might Sun Farms claim that its obligation under the contract has been discharged by operation of law? Discuss fully.
3. Suppose that Sun Farms contacts every basil grower in the country and buys the last remaining chemical-free basil anywhere. Nevertheless, Sun Farms is able to ship only 1,475 pounds to Val's. Would this fulfill Sun Farms' obligations to Val's? Why or why not?
4. Now suppose that Sun Farms sells its operations to Happy Valley Farms. As part of the sale, all three parties agree that Happy Valley will provide the basil as stated under the original contract. What is this type of agreement called?

Question 5

Ready Foods contracts to buy two hundred carloads of frozen pizzas from Speedy Distributors. Before Ready or Speedy starts performing, can the parties call off the deal? What if Speedy has already shipped the pizzas? Explain your answers.

Question 6

Answers for the even-numbered questions in this For Review section can be found on this text's accompanying Web site at www.cengage.com/blaw/blt. Select "Chapter 13" and click on "For Review."
What rights can be assigned despite a contract clause expressly prohibiting assignment?

Question 7

Anticipatory Repudiation. ABC Clothiers, Inc., has a contract with Taylor Sons, a retailer, to deliver one thousand summer suits to Taylor's place of business on or before May 1. On April 1, Taylor senior receives a letter from ABC informing him that ABC will not be able to make the delivery as scheduled. Taylor is very upset, as he had planned a big ad campaign. He wants to fi le a suit against ABC immediately (April 2). Taylor's son, Tom, tells his father that fi ling a lawsuit is not proper until ABC actually fails to deliver the suits on May 1. Discuss fully who is correct, Taylor senior or Tom.

Question 8

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What factors indicate that a third party beneficiary is an intended beneficiary?

Question 9

Question with Sample Answer-Assignment.
Aron, a college student, signs a one-year lease agreement that runs from September 1 to August 31. The lease agreement specifies that the lease cannot be assigned without the landlord's consent. In late May, Aron decides not to go to summer school and assigns the balance of the lease (three months) to a close friend, Erica. The landlord objects to the assignment and denies Erica access to the apartment. Aron claims that Erica is financially sound and should be allowed the full rights and privileges of an assignee. Discuss fully whether the landlord or Aron is correct.

Question 10

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
How are most contracts discharged?

Question 11

Impossibility of Performance. Millie contracted to sell Frank 1,000 bushels of corn to be grown on her farm. Owing to a drought during the growing season, Millie's yield was much less than anticipated, and she could deliver only 250 bushels to Frank. Frank accepted the lesser amount but sued Millie for breach of contract. Can Millie defend successfully on the basis of objective impossibility of performance? Explain.

Question 12

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is a contractual condition, and how might a condition affect contractual obligations?

Question 13

Material Breach. Kermit Johnson formed FB I Building Products, Inc., in Watertown, South Dakota, to sell building materials. In December 1998, FB I contracted with Superior Truss Components in Minneota, Minnesota, "to exclusively sell Superior's open-faced wall panels, floor panels, roof trusses and other miscellaneous products." In March 2000, FB I agreed to exclusively sell Component Manufacturing Co.'s building products in Colorado. Two months later, Superior learned of FB I's deal with Component and terminated its contract with FB I. That contract provided that on cancellation, "FB I will be entitled to retain the customers that they continue to sell and service with Superior products." Superior refused to honor this provision. Between the cancellation of FB I's contract and 2004, Superior made $2,327,528 in sales to FB I customers without paying a commission. FB I fi led a suit in a South Dakota state court against Superior, alleging, in part, breach of contract and seeking the unpaid commissions. Superior insisted that FB I had materially breached their contract, excusing Superior from performing. In whose favor should the court rule and why? [ FB I Building Products, Inc. v. Superior Truss Components, a Division of Banks Lumber, Inc., 727 N.W.2d 474 (S.D. 2007)]

Question 14

Case Problem with Sample Answer National Association for Stock Car Auto Racing, Inc. (NASCAR), sanctions stock car races. NASCAR and Sprint Nextel Corp. agreed that Sprint would become the Official Series Sponsor of the NASCAR NEXTEL Cup Series in 2004. The agreement granted sponsorship exclusivity to Sprint and contained a list of "Competitors" who were barred from sponsoring Series's events. Excepted were existing sponsorships: in "Driver and Car Owner Agreements" between NASCAR and the cars' owners, NASCAR promised to "preserve and protect" those sponsorships, which could continue and be renewed despite Sprint's exclusivity. RCR Team #31, LLC, owns the #31 Car in the Series. Cingular Wireless, LLC, a Sprint competitor, had been #31 Car's primary sponsor since 2001. In 2007, Cingular changed its name to AT T Mobility, LLC, and proposed a new paint scheme for the #31 Car that called for the Cingular logo to remain on the hood while the AT T logo would be added on the rear quarter panel. NASCAR rejected the proposal. AT T fi led a suit in a federal district court against NASCAR, claiming, in part, that NASCAR was in breach of its "Driver and Car Owner Agreement" with RCR. Can AT T maintain an action against NASCAR based on this agreement? Explain. [ AT T Mobility, LLC v. National Association for Stock Car Auto Racing, Inc., 487 F.Supp.2d 1370 (N.D.Ga. 2007)]

Question 15

Breach of Contract. Roger Bannister was the director of technical and product development for Bemis Co. He signed a covenant not to compete that prohibited him from working for a "conflicting organization" for eighteen months following his termination, but required Bemis to pay his salary if he was unable to find a job "consistent with his abilities and education." Bemis terminated Bannister. Mondi Packaging, a Bemis competitor, told him that it would like to offer him a job but could not do so because of the noncompete agreement. Bemis released Bannister from the agreement with respect to "all other companies than Mondi" and refused to pay his salary. Nine months later, Bannister accepted a position with Bancroft Bag, Inc., another Bemis competitor. He fi led a suit in a federal district court against his former employer. Do these facts show a material breach of contract? If so, what is the appropriate remedy? Explain. [ Bannister v. Bemis Co., 556 F.3d 882 (8th Cir. 2009)]

Question 16

A Question of Ethics King County, Washington, hired Frank Coluccio Construction Co. (FCCC) to act as general contractor for a public works project involving the construction of a small utility tunnel under the Duwamish Waterway. FCCC hired Donald B. Murphy Contractors, Inc. (DBM), as a subcontractor. DBM was responsible for constructing an access shaft at the eastern end of the tunnel. Problems arose during construction, including a "blow-in" of the access shaft when it filled with water, soil, and debris. FCCC and DBM incurred substantial expenses from the repairs and delays. Under the project contract, King County was supposed to buy an insurance policy to "insure against physical loss or damage by perils included under an 'All Risk' Builder's Risk policy." Any claim under this policy was to be fi led through the insured. King County, which had general property damage insurance, did not obtain an all-risk builder's risk policy. For the losses attributable to the blow-in, FCCC and DBM submitted builder's risk claims, which the county denied. FCCC filed a suit in a Washington state court against King County, alleging, among other claims, breach of contract. [Frank Coluccio Construction Co. v. King County, 136 Wash.App. 751, 150 P.3d 1147 (Div. 1 2007)]
1 At the county's request, King County's property damage policy specifically excluded coverage of tunnels. The county drafted its contract with FCCC to require the all-risk builder's risk policy and authorize itself to "sponsor" claims. When FCCC and DBM fi led their claims, the county secretly colluded with its property damage insurer to deny payment. What do these facts indicate about the county's ethics and legal liability in this situation?
2 Could DBM, as a third party to the contract between King County and FCCC, maintain an action on the contract against King County? Discuss.
3 All-risk insurance is a promise to pay on the "fortuitous" happening of a loss or damage from any cause except those that are specifically excluded. Payment usually is not made on a loss that, at the time the insurance was obtained, the claimant subjectively knew would occur. If a loss results from faulty workmanship on the part of a contractor, should the obligation to pay under an all-risk policy be discharged? Explain.

Question 17

Critical Legal Thinking.
The concept of substantial performance permits a party to be discharged from a contract even though the party has not fully performed her or his obligations according to the contract's terms. Is this fair? Why or why not? What policy interests are at issue here?

Question 18

Video Question Go to this text's Web site at www.cengage.com/blaw/blt and select "Chapter 13." Click on "Video Questions" and view the video titled Third Party Beneficiaries. Then answer the following questions.
1 Discuss whether a valid contract was formed when Oscar and Vinny bet on the outcome of a football game. Would Vinny be able to enforce the contract in court?
2 Is the Fresh Air Fund an incidental or an intended beneficiary? Why?
3 Can Maria sue to enforce Vinny's promise to donate Oscar's winnings to the Fresh Air Fund?