Law School Discussion

Contracts Question - Assignments

Contracts Question - Assignments
« on: May 07, 2009, 04:43:48 PM »
Max agrees to build a house for Dave for $375,000.00 and assigns the payment due on this to a car dealership he owes this money too. Max gives Dave notice that the money is to go to the car dealership. Upon completion of the house, Dave is dissatisfied and wants to deduct $1,250 from the contract price. The question is what does he have to do?

A.) Pay the $375,000.00 to the car dealership and go after Max for the $1,250 arising from minor defects in the house

B.) Pay the car dealership $373,750 (the difference between 375k and $1250)

Re: Contracts Question - Assignments
« Reply #1 on: May 07, 2009, 05:33:23 PM »
Is this about third-party beneficiaries?  I don't think I encountered a question like this in my Ks class.

Re: Contracts Question - Assignments
« Reply #2 on: May 07, 2009, 06:37:16 PM »
Our K's professor spent 10 minutes on the last day of class briefly mentioning assignments, but I don't remember anything about it.   Sorry!  :-\

Re: Contracts Question - Assignments
« Reply #3 on: May 07, 2009, 06:49:40 PM »
I took a quick look at Wikipedia and it seems that B is the correct answer.

The assignee (in this case,  the car dealership) is liable for "counterclaims and setoffs that the obligor [in this case, Dave] had against the assignor. [in this case, Max]."  I'm assuming, based on my quick reading, that this means that the obligor Dave can pay the money and B, and if they sent him to court he'll file the counterclaim with his expenses (if they're legitimate expenses and it's not an unreasonable complaint). 

Re: Contracts Question - Assignments
« Reply #4 on: May 07, 2009, 10:53:18 PM »
This assignment/delegation has created a "third party beneficiary" in the Dealership.  First, I would label my people:

Third Party beneficiary:  Car Dealership.
Promisor:  Dave.
Promisee:  Max.

As a general rule, the promisor is able to assert any defense to performing that he may have against the promisee.  In this case, Dave is alleging some sort of breach and that he is entitled to keep some of what he owes (basically alleging that the promisee committed some sort of breach).  The merits of his claim are obviously an issue up for analysis (but outside the scope of this question).  For this reason, he does NOT have to continue performing the contract and is entitled to not pay the dealership.

The dealership, though, still has a cause of action against the promisee, since he could be best classified as a "creditor beneficiary."  Further, when someone delegates a duty, the person delegating is still on the hook for performance (unless, he somehow gets the beneficiary to opt him out).