Essex contracted with Green, a general contractor, for Green to pave a road on Essex's property. Green informed Essex that, due to a breakdown of Green's equipment, Green had assigned the duties under the contract to Free, who is in the road-paving business. Essex consented to the assignment and Free began work. In the middle of the job, Free stopped work, leaving the road half-completed. Which of the following statements is the best description of the rights and liabilities of the parties?
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In general, most contract rights and duties may be assigned to a third party (ie, assignee). When the duties in a contract are assigned, the assignee (eg, Free) becomes liable on the contract in addition to the obligor/assignor (eg, Green) remaining liable (Choice B). Therefore, if the assignee breaches A failure by a party in a binding contract to perform or honor one or more terms of the contract (eg, does not pay, fails to deliver goods). the contract, the obligee (eg, Essex) can sue both the obligor and the assignee.
The obligor is relieved of liability on the contract only if the parties agree to a novation. In a novation, the obligor, assignee, and obligee all agree that:
- the assignee will replace the obligor in the contract, and
- the original obligor will be released from liability.
The assignee then "steps into the shoes" of the original obligor and becomes the new obligor on the contract.
In this scenario, Essex agreed to accept Free as an assignee to perform the road-paving duties. Green's and Free's consent are implied. However, a novation did not occur because the parties did not agree to release Green from the contract (Choice A).
(Choice D) An assignment never eliminates liability for both the obligor and the assignee.
Things to remember:
In general, most contract rights and duties may be assigned to a third party. When the duties in a contract are assigned, the assignee becomes liable on the contract in addition to the obligor/assignor remaining liable. If the assignee breaches the contract, the obligee can sue both the obligor and the assignee.
Lecture References :
- REG 10.04 : Contracts: Other Contract Issues
