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ANSWERS TO PROBLEMS
1. On December 1, Euphonia, a famous singer, contracted with Boito to sing at Boito's theater on
December 31 for a fee of $45,000 to be paid immediately after the performance.
(a) Euphonia, for value received, assigns this fee to Carter.
(b) Euphonia, for value received, assigns this contract to sing to Dumont, an equally famous
singer.
(c) Boito sells his theatre to Edmund and assigns his contract with Euphonia to Edmund.
State the effect of each of these assignments.
Answer: Rights That are Assignable.
(a) The assignment by Euphonia of her fee is valid, and Carter can collect it from Boito.
Euphonia has assigned her right to the payment of money, as represented by the fee to be paid to
her for singing at Boito’s theater. It makes no legal difference to Boito whether he pays the fee to
2. The Smooth Paving Company entered into a paving contract with the city of Chicago. The
contract contained the clause “contractor shall be liable for all damages to buildings resulting
from the work performed.” In the process of construction, one of the bulldozers of the Smooth
Paving Company struck and broke a gas main, causing an explosion and a fire that destroyed the
house of John Puff. Puff brought an action for breach of the paving contract against the Smooth
Paving Company to recover damages for the loss of his house. Can Puff recover under this
contract? Explain.
Answer: Intended Beneficiary. Yes, Puff can recover for the loss of his house. Even though the
contract did not clearly designate the party to whom the contractor was to be liable, the terms of
3. Anne, who was unemployed, registered with the Speedy Employment Agency. A contract was
then made under which Anne, in consideration of such position as the agency would obtain for
her, agreed to pay the agency one half of her first month’s salary. The contract also contained an
assignment by Anne to the agency of one half of her first month’s salary. Two weeks later, the
agency obtained a permanent position for Anne with the Bostwick Co. at a monthly salary of $1,
900. The agency also notified Bostwick Co. of the assignment by Anne. At the end of the first
month, Bostwick Co. paid Anne her salary in full. Anne then quit and disappeared. The agency
now sues Bostwick Co. for $950 under the assignment. Who will prevail? Explain.
Answer: Rights That Are Assignable. Decision for Bostwick Co. Bostwick Co. is not liable under
the assignment because at the time the assignment was made by Anne she had no employment
4. Georgia purchased an option on Greenacre from Pamela for $10,000. The option contract
contained a provision by which Georgia promised not to assign the option contract without
Pamela’s permission. Georgia, without Pamela’s permission, assigned the contract to Michael.
Michael now seeks to exercise the option, and Pamela refuses to sell Greenacre to him. Must
Pamela sell the land to Michael?
Answer: Express Prohibition Against Assignment. Yes. Decision for Michael. A provision in a
contract prohibiting an assignment of the contract, unless a different intention is manifested, gives
5. Julia contracts to sell to Hayden, an ice cream manufacturer, the amount of ice Hayden may
need in his business for the ensuing three years to the extent of not more than 250 tons a week at
a stated price per ton. Hayden makes a corresponding promise to Julia to buy such an amount of
ice. Hayden sells his ice cream plant to Clark and assigns to Clark all Hayden’s rights under the
contract with Julia. Upon learning of the sale, Julia refuses to furnish ice to Clark. Clark sues
Julia for damages. Decision?
Answer: Assignments and Delegations. The contract between Julia and Hayden is bilateral and
executory, involving rights and duties on each side. Only rights are assignable. Duties are never
6. Brown enters into a written contract with Ideal Insurance Company under which, in
consideration of her payment of the premiums, the insurance company promises to pay State
College the face amount of the policy, $100,000, on Brown’s death. Brown pays the premiums
until her death. Thereafter, State College makes demand for the $100,000, which the insurance
company refuses to pay upon the ground that State College was not a party to the contract. Can
State College successfully enforce the contract?
Answer: Gift Promise. Yes. Decision for State College. This is an intended third party donee
beneficiary type of contract. Privity of contract between the promisor Ideal and the donee
7. Grant and Debbie enter into a contract binding Grant personally to do some delicate
cabinetwork. Grant assigns his rights and delegates performance of his duties to Clarence.
(a) On being informed of this, Debbie agrees with Clarence, in consideration of Clarence’s
promise to do the work, that Debbie will accept Clarence’s work, if properly done, instead of the
performance promised by Grant. Later, without cause, Debbie refuses to allow Clarence to
proceed with the work, though Clarence is ready to do so, and makes demand on Grant that
Grant perform. Grant refuses. Can Clarence recover damages from Debbie? Can Debbie recover
from Grant?
(b) Instead, assume that Debbie refuses to permit Clarence to do the work, employs another
carpenter, and brings an action against Grant, claiming as damages the difference between the
contract price and the cost to employ the other carpenter. Explain whether Debbie will prevail.
Answer: Assignment of Rights. a) The facts indicate that the parties have entered into a novation.
By so doing, Grant has been discharged from his contract with Debbie, and Debbie has entered
8. Rebecca owes Lewis $2,500 due on November 1. On August 15, Lewis assigns this right for
value received to Julia, who gives notice on September 10 of the assignment to Rebecca. On
August 25, Lewis assigns the same right to Wayne, who in good faith gives value and has no prior
knowledge of the assignment by Lewis to Julia. Wayne gives Rebecca notice of the assignment on
August 30. What are the rights and obligations of Rebecca, Lewis, Julia, and Wayne?
Answer: Successive Assignments of the Same Right. The majority rule provides that the first
assignee in point of time prevails over subsequent assignees. Under this approach, Julia prevails
9. Lisa hired Jay in the spring, as she had for many years, to set out in beds the flowers Lisa had
grown in her greenhouses during the winter. The work was to be done in Lisa’s absence for $300.
Jay became ill the day after Lisa departed and requested his friend, Curtis, to set out the flowers,
promising to pay Curtis $250 when Jay received his payment. Curtis agreed. On completion of
the planting, an agent of Lisa’s, who had authority to dispense the money, paid Jay, and Jay paid
Curtis. Within two days, it became obvious that the planting was a disaster. Because he did not
operate Lisa’s automatic watering system properly, everything set out by Curtis had died of water
rot. May Lisa recover damages from Curtis? May she recover damages from Jay? If so, does Jay
have an action against Curtis?
Answer: Intended Beneficiary. Lisa may maintain an action against Curtis for breach of the contract
between Jay and Curtis. Lisa is an intended beneficiary of the contract between Jay and Curtis.
10. Caleb, operator of a window-washing business, dictated a letter to his secretary addressed to
Apartments, Inc., stating, “I will wash the windows of your apartment buildings at $4.10 per
window to be paid on completion of the work.” The secretary typed the letter, signed Caleb’s
name, and mailed it to Apartments, Inc. Apartments, Inc., replied, “Accept your offer.”
Caleb wrote back, “I will wash them during the week starting July 10 and direct you to pay the
money you will owe me to my son, Bernie. I am giving it to him as a wedding present.” Caleb
sent a signed copy of the letter to Bernie.
Caleb washed the windows during the time stated and demanded payment to him of $8,200
(2,000 windows at $4.10 each), informing Apartments, Inc., that he had changed his mind about
having the money paid to Bernie. What are the rights of the parties?
Answer: Requirements of an Assignment. The right to receive the money was assigned to Bernie.
There is no required form by which an assignment must be made. What is required is a
11. McDonald's has an undeviating policy of retaining the absolute control over who receives new
franchises. McDonald’s granted to Copeland a franchise in Omaha, Nebraska. In a separate
letter, it also granted him a right of first refusal for future franchises to be developed in the
Omaha-Council Bluffs area. Copeland then sold all rights in his six McDonald’s franchises to
Schupack. When McDonald’s offered a new franchise in the Omaha area to someone other than
Schupack, he attempted to exercise the right of first refusal. McDonald’s would not recognize the
right in Schupack, claiming that it was personal to Copeland and, therefore, nonassignable
without its consent. Schupack brought an action for specific performance, requiring McDonald’s
to accord him the right of first refusal. Is Schupack correct in his contention?
Answer: Rights that Are Not Assignable. No, Schupack is not correct. Judgment for McDonald's.
Contracts for personal services or involving relations of personal confidence and trust are not
assignable without the consent of the other party to the contract.
12. In 1952, the estate of George Bernard Shaw granted to Gabriel Pascal Enterprises, Limited, the
exclusive rights to produce a musical play and a motion picture based on Shaw's play
Pygmalion. The agreement contained a provision terminating the license if Gabriel Pascal
Enterprises did not arrange for well-known composers, such as Lerner and Loewe, to write the
musical and produce it within a specified time. George Pascal, owner of 98 percent of the
Gabriel Pascal Enterprise's stock, attempted to meet these requirements but died in July 1954
before negotiations had been completed. In February 1954, however, while the license had two
years yet to run, Pascal sent a letter to Kingman, his executive secretary, granting to her certain
percentages of his share of the profits from the expected stage and screen productions of
Pygmalion. Subsequently, Pascal's estate arranged for the writing and production of the highly
successful My Fair Lady, based on Shaw's Pygmalion. Kingman then sued to enforce Pascal's
gift assignment of the future royalties. Decision?
Answer: Requirements of an Assignment. Judgment for Kingman affirmed. Assignments of rights
to sums that are expected to become due to the assignor are enforceable. To make a gift of such
13. Northwest Airlines leased space in the terminal building at the Portland Airport from the Port of
Portland. Crosetti entered into a contract with the Port to furnish janitorial services for the
building, which required Crosetti to keep the floor clean, to indemnify the Port against loss due to
claims or lawsuits based upon Crosetti’s failure to perform, and to provide public liability
insurance for the Port and Crosetti. A patron of the building who was injured by a fall caused by
a foreign substance on the floor at Northwest’s ticket counter brought suit for damages against
Northwest, the Port, and Crosetti. Upon settlement of this suit, Northwest sued Crosetti to recover
the amount of its contribution to the settlement and other expenses on the grounds that Northwest
was a third-party beneficiary of Crosetti’s contract with the Port to keep the floors clean and,
therefore, within the protection of Crosetti’s indemnification agreement. Will Northwest prevail?
Why?
Answer: Creditor Beneficiary. No. The court held that only two types of third party beneficiaries
are entitled to recover; and that Northwest was not a creditor beneficiary as it was not a creditor
14. Tompkins-Beckwith, as the contractor on a construction project, entered into a subcontract with
a division of Air Metal Industries. Air Metal procured American Fire and Casualty Company to
be surety on certain bonds in connection with contracts it was performing for Tompkins-Beckwith
and others. As security for these bonds, on January 3, Air Metal executed an assignment to
American Fire of all accounts receivable under the Tompkins-Beckwith subcontract. On
November 26 of that year, Boulevard National Bank lent money to Air Metal. To secure the loans,
Air Metal purported to assign to the bank certain accounts receivable it had under its
subcontract with Tompkins-Beckwith.
In June of the following year, Air Metal defaulted on various contracts bonded by American Fire.
On July 1, American Fire served formal notice on Tompkins-Beckwith of Air Metal’s assignment.
Tompkins-Beckwith acknowledged the assignment and agreed to pay. In August, Boulevard
National Bank notified Tompkins-Beckwith of its assignment. Tompkins-Beckwith refused to
recognize the bank’s claim and, instead, paid all remaining funds that had accrued to Air Metal
to American Fire. The bank then sued to enforce its claim under Air Metal’s assignment. Is the
assignment effective? Why?
Answer: Successive Assignment of Same Right. No, the bank’s assignment is not effective. There
15. The International Association of Machinists (the union) was the bargaining agent for the
employees of Powder Power Tool Corporation. On August 24, the union and the corporation
executed a collective bargaining agreement providing for retroactively increased wage rates for
the corporation’s employees effective as of the previous April 1. Three employees who were
working for Powder before and for several months after April 1, but who were not employed by
the corporation when the agreement was executed on August 24, were paid to the time their
employment terminated at the old wage scale. The three employees assigned their claims to
Springer, who brought this action against the corporation for the extra wages. Decision?
Answer: Rights of Third Party Beneficiaries and Assignees. Decision for Springer as assignee of
16. In March, Adrian Saylor sold government bonds owned exclusively by him and with $6,450 of
the proceeds opened a savings account in a bank in the name of “Mr. or Mrs. Adrian M. Saylor.”
In June of the following year, Saylor deposited the additional sum of $2,132 of his own money in
the account. There were no other deposits and no withdrawals prior to the death of Saylor in May
a year later. Is the balance of the account on Saylor’s death payable wholly to Adrian Saylor’s
estate, wholly to his widow, or half to each?
Answer: Rights of Intended Donee Beneficiary. The entire account is payable to the widow. When
Mr. Saylor deposited money, a contract was created between Mr. Saylor and the bank. The
17. Linda King was found liable to Charlotte Clement as the result of an automobile accident. King,
who was insolvent at the time, declared bankruptcy and directed her attorney, Prestwich, to list
Clement as an unsecured creditor. The attorney failed to carry out this duty, and consequently
King sued him for legal malpractice. When Clement pursued her judgment against King, she
received a written assignment of King’s legal malpractice claim against Prestwich. Clement has
attempted to bring the claim, but Prestwich alleges that a claim for legal malpractice is not
assignable. Decision?
Answer: Assignability. Judgment against Clement. The court held that a claim for legal malpractice
18. Rensselaer Water Company contracted with the city of Rensselaer to provide water to the city for
use in homes, public buildings, industry, and fire hydrants. During the term of the contract a
building caught fire. The fire spread to a nearby warehouse and destroyed it and its contents. The
water company knew of the fire but failed to supply adequate water pressure at the fire hydrant to
extinguish the fire. The warehouse owner sued the water company for failure to fulfill its contract
with the city. Can the owner of the warehouse enforce the contract? Explain.
Answer: Incidental Third Party Beneficiaries. Judgment against the warehouse owner. The
19. While under contract to play professional basketball for the Philadelphia 76ers, Billy
Cunningham, an outstanding player, negotiated a three-year contract with the Carolina Cougars,
another professional basketball team. The contract with the Cougars was to begin at the
expiration of the contract with the 76ers. In addition to a signing bonus of $125,000,
Cunningham was to receive under the new contract a salary of $100,000 for the first year,
$110,000 for the second, and $120,000 for the third. The contract also stated that Cunningham
“had special, exceptional and unique knowledge, skill and ability as a basketball player” and
that Cunningham therefore agreed the Cougars could enjoin him from playing basketball for any
other team for the term of the contract. In addition, the contract contained a clause prohibiting
its assignment to another club without Cunningham’s consent. In 1971, the ownership of the
Cougars changed, and Cunningham’s contract was assigned to Munchak Corporation, the new
owners, without his consent. When Cunningham refused to play for the Cougars, Munchak
Corporation sought to enjoin his playing for any other team. Cunningham asserts that his
contract was not assignable. Was the contract assignable? Explain.
Answer: Rights that Are Assignable. Yes, the contract is assignable. Judgment for Munchak.
20. Pauline Brown was shot and seriously injured by an unknown assailant in the parking lot of
National Supermarkets. Pauline and George Brown brought a negligence action against
National, Sentry Security Agency, and T. G. Watkins, a security guard and Sentry employee. The
Browns maintained that the defendants have a legal duty to protect National’s customers, both in
the store and in the parking lot, and that this duty was breached. The defendants denied this
allegation. What will the Brown’s have to prove to prevail? Explain.
Answer: Rights of Intended Beneficiary. The Browns will prevail only if they prove that they are
21. Members of Local 100, Transport Workers Union of America (TWU), began an 11-day mass
transit strike that paralyzed the life and commerce of the city of New York. Plaintiffs are engaged
in the practice of law as a profession, maintaining offices in Manhattan. Plaintiffs sue both
individually and on behalf of all other professional and business entities (the class) that were
damaged as a consequence of the defendants’ willful disruption of the service provided by the
public transportation system of the City of New York. The law firm sought to recover as a
third-party beneficiary of the collective bargaining agreement between the union and New York
City. The agreement contains a no-strike clause and states that the TWU agreed to cooperate
with the city to provide a safe, efficient, and dependable mass transit system. As a member of the
public which depends on the public transit system and which employs dozens of persons who
need the public transit system to get to and from work, plaintiffs argue that they are within the
class of persons for whose benefit the TWU has promised to provide “dependable transportation
service.” Are the members of the class action suit entitled to recover? Explain.
Answer: Intended Beneficiary. Judgment for the TWU. A third party beneficiary must have been
22. On behalf of himself and other similarly situated options investors, Rick Lockwood sued
defendant, Standard & Poor’s Corporation (Standard & Poor’s), for breach of contract.
Lockwood alleged that he and other options investors suffered lost profits on certain options
contracts because Standard & Poor’s failed to correct a closing stock index value. Standard &
Poor’s compiles and publishes two composite stock indexes, the “S&P 100” and the “S&P 500”
(collectively the S&P indexes). The S&P indexes are weighted indexes of common stocks
primarily listed for trading on the New York Stock Exchange (NYSE). Standard & Poor’s
licenses its S&P indexes to the Chicago Board Options Exchange (CBOE) to allow the trading
of securities options contracts (S&P index options) based on the S&P indexes (the license
agreement). S&P index options are settled by the Options Clearing Corporation (OCC). The
exercise settlement values for S&P index options are the closing index values for the S&P 100
and S&P 500 stock market indexes as reported by Standard & Poor’s to OCC following the
close of trading on the day of exercise.
In his complaint, Lockwood alleged that at approximately 4:12 P.M. on Friday, December 15,
1989, the last trading day prior to expiration of the December 1989 S&P index options contracts,
the NYSE erroneously reported a closing price for Ford Motor Company common stock. Ford
Motor Company was one of the composite stocks in both the S&P 100 and S&P 500. At
approximately 4:13 P.M., Standard & Poor’s calculated and disseminated closing index values
for the S&P 100 and S&P 500 stock market indexes based on the erroneous price for Ford stock.
The NYSE reported a corrected closing price for Ford Motor at approximately 4:18 P.M.
Standard & Poor’s corrected the values of the S&P 100 and S&P 500 stock market indexes the
following Monday, December 18, 1989. In the meantime, however, OCC automatically settled all
expiring S&P index options according to the expiration date of Saturday, December 16, 1989.
OCC used the uncorrected closing index values to settle all expiring S&P index options. Due to
the error, Lockwood alleges that the S&P 100 index was overstated by 0.15 and he lost $105.
Lockwood claimed investors in S&P 500 index options suffered similar losses. Lockwood filed a
class action on behalf of “all holders of long put options and all sellers of short call options on
the S&P 100 or S&P 500 *** which were settled based on the closing index values for December
15, 1989, as reported by Standard & Poor’s,” claiming that the options holders could recover in
contract as third-party beneficiaries of the license agreement between Standard & Poor’s and the
CBOE. Are the members of the class action suit entitled to recover? Explain.
Answer: Rights of Intended Beneficiary. . No. Lockwood's first allegation is that options
investors, via their settlement agent the OCC, are third-party beneficiaries of the license
ANSWERS TO “TAKING SIDES” PROBLEMS
Pizza of Gaithersburg and The Pizza Shops (Pizza Shops) contracted with Virginia Coffee Service
(Virginia) to install vending machines in each of their restaurants. One year later, the Macke
Company (a provider of vending machines) purchased Virginia’s assets, and the vending machine
contracts were assigned to Macke. Pizza Shops had dealt with Macke before but had chosen
Virginia because they preferred the way it conducted its business. When Pizza Shops attempted to
terminate their contracts for vending services, Macke brought suit for damages for breach of
contract.
(a) What arguments would support Pizza Shop’s termination of the
contracts?
(b) What arguments would support Macke’s suit for breach of contract?
(c) Which side should prevail? Explain.
ANSWER:
(a) The Pizza Shop could argue that (i) when they contracted with Virginia, they relied on
Virginia’s skill, judgment and reputation; (ii) the nature of the duties is personal in that they
have a substantial interest in having Virginia perform the contract; (iii) they were justified in
