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1
CHAPTER 17
THIRD PARTY RIGHTS
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 17.1—CRITICAL THINKING
LEGAL ENVIRONMENT
Do borrowers benefit from the fact that lenders may freely assign their rights under loan
agreements? If so, how? Borrowers certainly benefit when lenders can freely assign their
WHAT IF THE FACTS WERE DIFFERENT?
Suppose that Hosch had sold the equipment financed by the loans from Citicapital to a
third party. Would Hosch still have been liable to Colonial Pacific? Why or why not? Yes,
Hosch would have been liable to Colonial Pacific even if the borrower had sold the financed
CASE 17.2—CRITICAL THINKING
ECONOMIC
The repairs to the bus cost $1,341.50. Who should pay this amount? Why? In the
negotiations between Cipriani and Allie for the sale of the bus, the parties presumably offset the
2 UNIT THREE: CONTRACTS AND E-CONTRACTS
CASE 17.3—LEGAL REASONING QUESTIONS
1. What did the lower court rule with respect to the plaintiff’s complaint in this case?
Why? In the Bozzio case, the lower court dismissed the plaintiff’s complaint. The court based
this ruling on the reasoning that the plaintiff, as a third party beneficiary, could not maintain the
action because the promisee was a suspended corporation, thereby lacking the capacity to
2. Did the appellate court agree or disagree with the lower court’s ruling? Why? The
appellate court did not agree with the ruling of the lower court in the Bozzio case.
The lower court (a federal district court) ruled that the plaintiff could not maintain this suit
and dismissed the complaint. This ruling was based on reasoning that the plaintiff, as a third
CHAPTER 17: THIRD PARTY RIGHTS 3
3. Which issues remain to be determined in this case? Which court will make those
determinations initially? Why? Two important issues that remain to be resolved on the
remand of this case to the lower court are whether the plaintiff was in fact a third-party
beneficiary of the contract between the promisee and promisor, and if so, whether she forfeited
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Delegation
Jackson can delegate the duty to Dunn because she cannot perform all tasks related to her
property, but that does not necessarily relieve her of liability.
2A. Liability
Jackson had an obligation to McCall, and thereby his customers, to maintain the building. Her
3A. Beneficiary
The purpose of the contract was to have business premises that would be frequented by clients
4A. Assignment
The assignment of income that is owed from other parties to help satisfy a debt is a normal
4 UNIT THREE: CONTRACTS AND E-CONTRACTS
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
As a matter of public policy, personal injury tort claims cannot be assigned. This
public policy is wrong and should be changed. If it’s not against public policy to allow
attorneys to take cases in which, if won, the attorneys obtains contingency fees of, say, one
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Brian owes Jeff $100. Ed tells Brian to give him the $100 and he will pay Jeff. Brian
gives Ed the $100. Ed never pays Jeff. Can Jeff successfully sue Ed for the $100? Yes.
When one person makes a promise with the intention of benefiting a third person, the third per-
2A 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
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
17-1A. Third party beneficiary
Thrift is a creditor beneficiary. To be a creditor beneficiary one must be the creditor in a
previously established debtor-creditor relationship, and then the debtor’s subsequent contract
CHAPTER 17: THIRD PARTY RIGHTS 5
terms with a third party must confer a benefit on the creditor. The contract made between the
debtor and third party is not made expressly for the benefit of the creditor (as is required for a
donee beneficiary). Rather, it is made for the benefit of the contracting parties. In this case, the
mortgage.
17-2A. Assignment
As a general rule any right(s) flowing from a contract can be assigned. There are, however,
exceptions, such as when the contract expressly and specifically prohibits or limits the right of
17–3A. Third party beneficiaries
An intended beneficiary is one who can sue the promisor directly for breach of a contract made
for the beneficiary’s benefit. It must be clear from the contract that the parties intended the third
17-4A. Delegation
The contract to build the boat created a set of duties. Whether these duties can be assigned or
delegated without Inez’s consent depends on whether the contractual duties are personal in
6 UNIT THREE: CONTRACTS AND E-CONTRACTS
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
17–5A. Duties that cannot be delegated
No. As a general rule, any duty can be delegated. Delegation is prohibited, however, when the
contract expressly prohibits delegation. An attempted delegation will render the contract void.
But the other party to the contract can consent to the delegation by accepting the delegatee’s
17–6A . Notice of assignment
Yes. When an assignment is made, the assignee should notify the obligor of the assignment.
Notice is not necessary to establish the validity of the assignment—the assignment is effective
immediately, whether or not notice is given. But until the obligor has notice of the assignment,
the obligor can discharge his or her obligations by performance to the assignor. This
performance constitutes a discharge to the assignee. Once the obligor receives proper notice,
17–7A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Third party beneficiary
Yes, the Kincaids can bring an action against the Desses for breach of their contract with Sirva.
A third person becomes an intended third party beneficiary of a contract when the original
parties to the contract expressly agree that the performance should be rendered to or directly
CHAPTER 17: THIRD PARTY RIGHTS 7
17–8A. Third party beneficiaries
Yes, Jessyka has standing to bring a claim against Jones and Farmers as a third party to her
parents’ contract for auto insurance. The original parties to a contract can agree that its
performance will be rendered to or directly benefit a third person. In that circumstance, the third
person is an intended third party beneficiary of the contract. As an intended beneficiary, the third
17-9A. A QUESTION OF ETHICS—Assignment and delegation
(a) Premier Building is not relieved of its contractual obligations. By its terms, the
listing agreement said that it was binding on the parties and “their . . . assigns.” Nevertheless,
duties are delegated, not assigned, and a delegation does not relieve a delegator of his or her
8 UNIT THREE: CONTRACTS AND E-CONTRACTS
(b) Cobblestone probably did behave unethically. Premier Building and Cobblestone
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
17–10A. Assignment
(a) Until the obligor has notice of an assignment, the obligor can discharge his or her
obligation by performance to the assignor (the obligee). Performance by the obligor to the
assignor (obligee) constitutes a discharge to the assignee. In this problem, the Smiths are not
for the amount, however.)
(b) When a borrower obtains a loan, he or she may later receive a notice from the
lender stating that it has transferred (assigned) its rights to receive payments on the loan to
another firm. When it is time to repay the loan, the borrower must make the payments to that
other firm. This is common among financial institutions that make mortgage loans. Giving notice
(c) When a borrower obtains a loan, he or she must make the payments on the loan
to discharge it. And once the obligor receives notice of an assignment of those payments, only
