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5. If the collector immediately sues the broker for his breach of the broker-hoarder contract, which of the following will the court probably decide?
Later that day, after learning by chance of the broker's dealing with the collector, the hoarder telephoned the collector and said: «Listen, the broker probably owes me at least $2,000 in damages for refusing wrongfully to buy my coin for $10,000 on February 1 when the market was down to $8,000. But I'm in good shape in view of the market's recovery since then, and I think you ought to get after the so-and-so.»
On February 25, the market in such coins suddenly reversed and had stabilized at $12,000 on March 1. The broker, however, had failed to obtain a specimen of the coin and repudiated his agreement with the collector when she tendered the $12,000 agreed price on March 1.
On December 1, a broker contracted with a collector to sell her one of a certain type of rare coin for $12,000, delivery and payment to occur on the next March 1. To fulfill that contract, and without the collector's knowledge, the broker contracted on January 1 to purchase for $10,000 a specimen of that type of coin from a hoarder, delivery and payment to occur on February 1. The market price of such coins had unexpectedly fallen to $8,000 by February 1, when the hoarder tendered the coin and the broker repudiated.
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Incidental third-party beneficiaries are those who may benefit from the contract, but that is not the primary purpose of the contract. They unintentionally or inadvertently benefit from the contract, but they have no standing to enforce contract rights.
When one of the parties to a contract seeks to transfer his rights and/or duties under the contract to a third party, this is called an «assignment.» To be effective, an assignment requires at least an oral agreement, although some circumstances require a writing to be effective. A valid assignment requires the assignor to manifest an intent to transfer his rights under the contract completely and immediately to the assignee. This intent may be determined by examining the terms or language used to effectuate the assignment. Using the word «assign» is not necessary, and alternative words such as convey, sell, or transfer will suffice.
A is correct. The collector will lose because he was nothing more than an incidental third-party beneficiary of the contract between the hoarder and the broker. When the hoarder initially agreed to sell the specimen to the broker for $10,000, the hoarder had no knowledge of the collector's interest in the deal. The primary purpose of the contact between the hoarder and the broker had nothing to do with the collector, who would have only benefitted incidentally.
B is incorrect. This answer reaches the correct answer with the wrong reasoning. The broker will win, but not because based on the amount of damages incurred (or not incurred) as of March 1. Not only is the collector an incidental beneficiary and therefore will lose, but the UCC dictates that damages would be calculated from the time the hoarder learned of the broker's repudiation on February 1, when the market price had fallen below the contract price.
C is incorrect. This is an incorrect application of the law to these facts. An intended beneficiary is a third party who is conferred rights or duties under a contract or when a party officially transfers rights or duties to a third party via assignment or delegation. These circumstances do not apply here, where the collector's interest was irrelevant to the contract between the hoarder and the broker, and he would have been merely an incidental beneficiary.
D is incorrect. The collector did not receive an official assignment of any rights. In order to be effective, an assignment of contract rights requires language of present transfer, which must manifest the intent to assign rights completely and immediately. This is determined by looking at the language used by the supposed assignor. Here, the phrase «I think you ought to get after the so-and-so» was insufficient to establish manifest intent by the hoarder to assign any rights under the hoarder-broker contract.