Business Law Chapter 16 Homework Landlord Landlords Sole discretion Any Such Assignment Encumbrance

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Chapter 16

THIRD PARTIES TO CONTRACTS

A. Assignment of Rights

1. Law Governing Assignments

2. Requirements of an Assignment

a. Revocability of Assignments

b. Partial Assignments

3. Rights that Are Assignable

4. Rights that Are Not Assignable

a. Assignments That Materially

Increase the Duty, Risk, or Burden

b. Assignments of Personal Rights

c. Express Prohibition against Assignment

d. Assignments Prohibited by Law

5. Rights of the Assignee

a. Obtains Rights of Assignor

b. Notice

6. Implied Warranties of Assignor

7. Express Warranties of Assignor

8. Successive Assignments of the Same Right

B. Delegation of Duties

1. Delegable Duties

2. Duties of the Parties

C. Third-Party Beneficiary Contracts

1. Intended Beneficiary

a. Donee Beneficiary

b. Creditor Beneficiary

c. Rights of Intended Beneficiary

d. Vesting of Rights

e. Defenses Against Beneficiary

2. Incidental Beneficiary

Cases in This Chapter

Reiser v. Dayton Country Club Company

Aldana v. Colonial Palms Plaza, Inc.

Mountain Peaks Financial Services, Inc. v. Roth-Steffen

Public Service Commission of

Maryland v. Panda-Brandywine, L.P.

Stine v. Stewart

Chapter Outcomes

After reading and studying this chapter, the student should be able to:

Distinguish between an assignment of rights and a delegation of duties.

Identify (a) the requirements of an assignment of contract rights and (b)

those rights that are not assignable.

Identify those situations in which a delegation of duties is not permitted.

Distinguish between an intended beneficiary and an incidental beneficiary.

Explain when the rights of an intended beneficiary vest.

TEACHING NOTES

Third parties become involved with contracts due to: (1) an assignment of the

rights of one party, (2) a delegation of the duties of one party, or (3) the express

terms of a contract entered into for the benefit of a third person.

*** Chapter Outcomes ***

Distinguish between assignment of rights and delegation of duties.

Identify the requirements of an assignment of contract rights and those rights that are not

assignable.

A. ASSIGNMENT OF RIGHTS

Voluntary transfer to a third party of the rights arising from the contract; the

assignor transfers her rights to the assignee. The transfer may be by a gift or a

sale.

Law Governing Assignments

Comes primarily from the common law of contracts, Article 2 of the UCC (which

applies to assignment of rights under a contract for a sale of goods), and Article

9 of the UCC (which applies to all assignments made to secure performance of

an obligation and all assignments involving rights to payment of goods sold or

leased or for services rendered).

Requirements of an Assignment

There is no particular form required to e,ect an assignment; courts are more

concerned with the intent of the assignor. Consideration is not necessary, but

where it is given by the assignee the assignment cannot be revoked.

Rights that Are Assignable

Most contract rights, including rights under an option contract, are assignable,

including the right to the payment of money and other property, such as land or

goods.

Rights that Are Not Assignable

In order to protect the obligor or the public interest, some contract rights are not

assignable. Nonassignable contract rights include:

1. Assignments that Materially Increase the Duty, Risk, or Burden —

An assignment is ine,ective if it would significantly change the nature or

extent of the obligor’s duty.

2. Assignments of Personal Rights — When the rights under a contract

are highly personal, in that they are limited to the person of the obligee,

such rights are not assignable.

CASE 16-1

REISER v. DAYTON COUNTRY CLUB COMPANY

United States Court of Appeals, Sixth Circuit, 1992

972 F.2d 689

http://scholar.google.com/scholar_case?case=6023421001644754391&q=972+F.2d+689&hl=en&as_sdt=2,34

Joiner, J.

[The Dayton Country Club Company (the Club) offers many social activities to its members. The

privilege to play golf at the Club, however, is reserved to a special membership category for

which additional fees are charged. The Club chooses golfing memberships from a waiting list of

members according to detailed rules, regulations, and procedures. Magness and Redman were

golfing members of the Club. Upon their filing for bankruptcy, their trustee sought to assign by

sale their golf rights to (1) other members on the waiting list, (2) other members not on the

waiting list, or (3) the general public, provided the purchaser first acquired membership in the

* * *

* * * [T]he contracts involve complex issues and multiple parties: the members of the club,

in having an orderly procedure for the selection of full golfing members; the club itself, in

demonstrating to all who would become members that there is a predictable and orderly method

of filling vacancies in the golfing roster; and more particularly, persons on the waiting list who

have deposited substantial sums of money based on an expectation and a developed procedure

that in due course they, in turn, would become full golfing members.

If the trustee is permitted to assume and assign the full golf membership, the club would be

required to breach its agreement with the persons on the waiting list, each of whom has

contractual rights with the club. It would require the club to accept performance from and render

performance to a person other than the debtor. * * *

* * *

The contracts creating the complex relationships among the parties and others are not in any

way commercial. They create personal relationships among individuals who play golf, who are

waiting to play golf, who eat together, swim and play together. They are personal contracts and

* * *

Therefore, we believe that the trustee’s motion to assign the full golf membership should be

denied. We reach this conclusion because the arrangements for filling vacancies proscribe

assignment, the club did not consent to the assignment and sale, and applicable law excuses the

club from accepting performance from or rendering performance to a person other than the

debtor.

CASE 16-2

ALDANA v. COLONIAL PALMS PLAZA, INC.

District Court of Appeal of Florida, Third District, 1991

591 So.2d 953, rehearing denied

http://scholar.google.com/scholar_case?case=1977050164764776625&q=591+So.2d+953&hl=en&as_sdt=2,34

Per Curiam

The appellant, Robert Aldana, appeals an adverse summary judgment in favor of appellee,

Colonial Palms Plaza, Inc. and an order awarding Colonial Palms Plaza, Inc. attorney’s fees

pursuant to the offer of judgment rule. We reverse.

Colonial Palms Plaza, Inc. [Landlord], entered into a lease agreement with Abby’s Cakes On

Dixie, Inc. [Tenant] for commercial space in a shopping center. The lease included a provision in

which Landlord agreed to pay Tenant a construction allowance of up to $11,250 after Tenant

satisfactorily completed certain improvements to the rented premises.

Prior to the completion of the improvements, Tenant assigned its right to receive the first

$8,000 of the construction allowance to Robert Aldana [Assignee]. In return, Assignee loaned

The trial court also awarded Landlord attorney’s fees pursuant to the offer of judgment rule,

[citation], and costs pursuant to [citation].

Landlord relies on an anti-assignment clause in the lease agreement to argue that the

assignment was void and unenforceable. The clause states in part:

TENANT agrees not to assign, mortgage, pledge, or encumber this Lease, in whole or in part,

or to sublet the whole or any part of the DEMISED PREMISES, or to permit the use of the

whole or any part of the DEMISED PREMISES by any licensee or concessionaire, without

first obtaining the prior, specific written consent of LANDLORD at LANDLORD’S sole

discretion. * * * Any such assignment, encumbrance or subletting without such consent shall

be void and shall at LANDLORD’S option constitute a default.

* * *

Unless the circumstances indicate the contrary, a contract term prohibiting assignment of “the

contract” bars only the delegation to an assignee of the performance by the assignor of a duty

or condition.

As a rule of construction, in other words, a prohibition against assignment of the contract (or

in this case, the lease) will prevent assignment of contractual duties, but does not prevent

assignment of the right to receive payments due—unless the circumstances indicate the contrary.

[Citations.]

Rights of the Assignee

Obtains Rights of Assignor — The assignee acquires the rights of the

assignor, but no new or additional rights. The assignee takes the assigned rights

with all of the defenses, defects, and infirmities that could be asserted against

the assignor.

Notice — To be valid, notice of an assignment does not have to be given to the

obligor, though this is a recommended practice to avoid payment being made to

the assignor.

CASE 16-3

MOUNTAIN PEAKS FINANCIAL SERVICES, INC. v.

ROTH-STEFFEN

Court of Appeals of Minnesota, 2010

778 N.W.2D 380

http://scholar.google.com/scholar_case?

q=778+N.W.2d+380&hl=en&as_sdt=2,34&case=11662901939297878943&scilh=0

Bjorkman, J.

In May 1998, appellant Catherine Roth-Steffen graduated from law school with over $100,000 in

school loans from more than a dozen lenders. Of this total, Roth-Steffen received $20,350 from

the Missouri Higher Education Loan Authority (MOHELA) CASH Loan program through loans

In February 2003, MOHELA assigned ownership of the MOHELA loan to Guarantee

National Insurance Company (GNIC), which, in turn, assigned the loan for collection to

respondent Mountain Peaks Financial Services, Inc. (Mountain Peaks). [Mountain Peaks

commenced a collection action claiming that it holds the MOHELA loan and that it is entitled to

judgment in the amount of the outstanding balance, $23,120.52, and additional interest at the rate

of 2.54% from July 19, 2007. In response, Roth-Steffen asserted that the action is barred by

Minnesota’s six-year statute of limitations for collection on promissory notes. The district court

* * *

(B) a guaranty agency that has an agreement with the Secretary under section 1078(c) of

this title that is seeking the repayment of the amount due from a borrower on a loan made

under part B of this subchapter after such guaranty agency reimburses the previous holder

of the loan for its loss on account of the default of the borrower; * * *

[Citation.] For convenience, we refer to the entities described in this statute as “named lenders.”

Mountain Peaks argues that it is exempt from Minnesota’s statutes of limitation because it

is a valid assignee of MOHELA, a lender that has an agreement with the Secretary of Education

under [section] 1091a(a)(2)(B). Roth-Steffen acknowledges that MOHELA is a named lender but

argues that because Congress did not expressly identify assignees as named lenders, section

1091a does not preempt state statutes of limitation for claims asserted by assignees of named

lenders.

* * *

Restatement (Second) of Contracts § 317 (1981) (Assignment of a Right). Contractual rights and

duties are generally assignable, including the rights to receive payment on debts, obtain

nonmonetary performance, and recover damages. Restatement (Second) of Contracts § 316

(1981). But an assignor may not transfer rights that are personal, such as recovery for personal

injuries or performance under contracts that involve personal trust or confidences. [Citation]; see

generally Restatement (Second) of Contracts § 317 cmt. c. Under the common law, a contractual

right to recover student-loan debt is assignable and does not fall within the personal-rights

exclusion to the assignment rule.

Implied Warranties of Assignor

An implied warranty is an obligation imposed by law upon the transferor of

property or contract rights. Usually an assignor who receives value makes the

following implied warranties to the assignee with respect to the assigned right:

1. that he will do nothing to defeat or impair the assignment;

2. that the assigned right actually exists and is subject to no limitations or

defenses other than those stated or apparent at the time of the

assignment;

Express Warranties of Assignor

An express warranty is an explicitly made contractual promise regarding the

property or contract rights being transferred. The assignor is also bound by any

express warranties he makes to the assignee regarding the right assigned.

Successive Assignments of the Same Right

The owner of a right could conceivably make successive assignments of the

same claim to di,erent persons. Although morally and legally inappropriate, it

raises the question of what rights successive assignees have. The majority rule