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Contracts • Third Parties
K#188
Legal Definition
Payment by the obligor to the assignor is effective until the obligor knows of the assignment. Thus, the assignee cannot sue the obligor for paying the assignor because he did not know of the assignment.
Plain English Explanation
When an assignee can sue an obligor for payments to the assignor boils down to whether the obligor knew about the assignment.
In a contract, the obligor is the person who owes money or some other obligation, while the assignor is the person who originally had the right to receive that payment. When the assignor transfers this right to an assignee, the assignee now has the right to collect the payments.
However, if the obligor makes a payment to the assignor before they know about the assignment, that payment is considered valid. Essentially, the obligor is off the hook for that payment because they didn’t know they were supposed to pay the assignee instead. This is why the assignee cannot sue the obligor for those payments that were made before the assignment was communicated.
Once the obligor is informed about the assignment, any future payments must be made to the assignee. If the obligor continues paying the assignor after knowing about the assignment, the assignee can then sue the obligor for those payments.
In a contract, the obligor is the person who owes money or some other obligation, while the assignor is the person who originally had the right to receive that payment. When the assignor transfers this right to an assignee, the assignee now has the right to collect the payments.
However, if the obligor makes a payment to the assignor before they know about the assignment, that payment is considered valid. Essentially, the obligor is off the hook for that payment because they didn’t know they were supposed to pay the assignee instead. This is why the assignee cannot sue the obligor for those payments that were made before the assignment was communicated.
Once the obligor is informed about the assignment, any future payments must be made to the assignee. If the obligor continues paying the assignor after knowing about the assignment, the assignee can then sue the obligor for those payments.
Hypothetical
Hypo 1: Bob owns a home. Bob leases his home to Sam. Sam is obligated to pay Bob $500 per month. Bob decides to sell his property to Amy. Bob assigns his right to receive rent from Sam to Amy. No one tells Sam that Amy is the new owner of the building and he needs to pay her. On the first of the month, Sam sends a check to Bob. Amy sues Sam. Result: The burden is on Bob to sign the check over to Amy, or to cash it and pay Amy, because Sam isn't aware anything has changed. Had Bob or Amy notified Sam of the assignment and then Sam sent a check to Bob instead of Amy, Amy could sue Sam for failure to pay her.
Visual Aids
Related Concepts
In a third-party beneficiary situation, who is the third-party beneificiary, who is the promisor, and who is the promisee?
What are the implied warranties of an assignor in an assignment for consideration?
What defenses may a promisor assert against a third-party beneficiary?
What duties are not delegable?
What is a delegatee?
What is a delegator, delegatee, and obligee?
What is an assignee?
What is an assignment?
What is an assignor?
What is an obligee?
What is an obligor?
What is a promisee?
What is a promisor?
What is the difference between an assignment and a delegation?
What is the difference between an incidental and intended beneficiary?
What is the effect of a clause prohibiting assignment?
What is the effect of a contract containing no language about assignment rights?
What is the effect of consideration on assignment rights?
What is the effect of invalidation language on assignment?
What two types of intended beneficiaries are there?
When are modification agreements between the obligor and assignor effective?
When do a third party's rights to enforce the contract vest?
When does delegation of duties occur?
Who can sue whom in a suit involving beneficiaries, promisees, and promisors?
Who can sue whom in a suit involving the assignment of rights?
Who can sue whom in a suit involving the delegation of duties?
Who prevails when the same rights have been assigned to multiple parties?
