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One tricky issue with third-party beneficiaries arises in the context of public service contracts. Members of the public are generally held to not be intended beneficiaries, for public rog80328_06_c06_111-133.indd 114 10/26/12 5:37 PM CHAPTER 6 Section 6.1 Third Parties policy reasons. For example, if the city of New York has a contract with Transit Union for
Transit to supply bus and subway service, and Transit breaches by going on strike, can
the several million people who had to take taxis while the strike was on sue Transit for
breach? The law generally says no, because to allow the public here to be intended third
parties would mean that the courts could potentially be clogged up with this one type of
lawsuit, and also the cost of defending could bankrupt Transit, which potentially once
again leaves the city without bus and subway service! Thus as a matter of public policy,
only the city of New York can sue Transit for breach. Assignments
An assignment occurs when after the contract is made, one of the parties transfers rights
to a third person.
Example 6.4. Peter contracts to paint Harry’s house for $3,000. Then Peter
assigns the contract to Ann. Peter is called the assignor, Ann is the assignee,
and Harry the obligor, because he is obligated to give the benefit of the
$3,000 now to Ann (see Figure 6.2). Figure 6.2: Assignment of a contract
In the original contract, Harry has agreed to pay Peter $3,000 and in exchange Peter has agreed to paint
Harry’s house. Then Peter assigns the right to the money to Ann.
Harry The Assignment
Peter Obligor Assignor
Paints house $3,000 Paint house the right to
the benefit $3,000 Assignee rog80328_06_c06_111-133.indd 115 10/26/12 5:37 PM Section 6.1 Third Parties CHAPTER 6 Contract rights can generally be assigned, unless it would materially affect the obligor’s
obligation. Paying money to one person is really no different than paying it to another,
so Harry is obligated to pay Ann whether he likes it or not. Bu...
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This test prep was uploaded on 04/09/2014 for the course BUS 311 taught by Professor Parker during the Spring '10 term at Ashford University.
- Spring '10
- Business Law