Updating a contract

Question

Lets say there are 3 entities: X ,Y ,Z

• X owes money to Y stipulated in a contract named C
• Y wants to change the contract , so that X now owes money to Z - we will call this contract C1

What needs to happen for the creation of C1?

• -Does C need to be terminated ?

• -Is C attached from now on as an annex to C1 ?

• There is no need for C1 , we just update in C the side that is owed money (Y->Z)

I do not understand how the update of a contract happens if you want to update just one side , in our case the one that is owed money - from Y to Z

Update

Thank you all for your responses.I will give this update to clarify what i want to ask.

The question is not rlly about whatX owes ( the right/value) or what type of contract it is.What i am interested is how can the paperwork be reduced and generalised lets say digitally when the contract changes hands.

Can I , as a digital service provider , get Y's original contract (as a source of Right/Value) , provide a generalised form for him and Z to complete and sign (digitally) as seller and buyer , put them together (initial contract and form) and voila now Z legally owns the Right/Value ?

I do not want to rewrite the part of the contract that remains constant (the right/source of value)

I want to know what is the simplest way to preserve the part of the contract that remains constant - the right/value- while minimizing the paperwork needed when changing hands.

X owes Y stipulated in contract C

Y->Z1->Z2->Z3....`

When the contract changes hands from Z1 to Z2 to Z3 etc can i keep the original contract as the source of right/value and just provide a form between the buyer and seller of the right ?

I want to reuse the source of value part/paperwork/contract.

So if Z has the original contract ( X to Y) and also a contract that says (Y gave to Z) is it enough legally ? Can Y do malicious activity and say : i have the original contract that says X owes me.In this case which contract gets priority ?

Answer 1

how the update of a contract happens if you want to update just one side , in our case the one that is owed money - from Y to Z

Obligee Y only needs to notify debtor X that the money shall be paid to Z instead of Y. To that effect, Y could append to contract C the notification, and secure some proof or evidence that X is aware of the assignment.

The timing for notification to X determines whether or not "the right of the assignee [Z] is subject to any defense or claim of the obligor [X]". See Restatement (Second) of Contracts at § 336 (brackets added).

If the assignment is gratuitous, you might want to take a look at Restatement at 332(2): the causes for revocability of such assignment of rights. Perhaps most surprising is the notion that Y's death or incapacity would terminate the assignee's right, since that means that the outcome contravenes Y's intent. Item (5) of this section of the Restatement defines the concept of gratuitous assignment.

Lastly, there are exceptions to the validity of an assignment of rights. See, for instance, Restatement at 317(2)(a)-(c).

Answer 2

There is something that isn't entirely clear, so I'll assume that:

X owes money (debt) to Y (which you state)
Y owes a debt to Z (which you do not state)
Y wants X to pay the debt to Z on Y's behalf

As Dale said, this requires a contract between Y and Z, because they are transferring the debt from Y to X, or X could make payments on behalf of Y without a contract. This does not alleviate Y's obligation to Z however, if X were to default on that debt, Y would be held responsible.

Depending on the contract with Z though, this may not be universal, let's take the following scenario:

John buys a house and obtains credit from BigBank for some amount of money. BigBank looks at Johns credit and determines that he is worthy of a X% interest rate and extends the credit to John. Larry can't go to John and say "I want to take over your house loan" and John can't just "notify" BigBank of the transfer of the debt to Larry.

Larry could make payments on behalf of John, BigBank doesn't care where the money comes from, but they do care who is on the line for the debt. BigBank didn't extend credit to Larry, and John can't just transfer his debt to another person without BigBank agreeing to the terms. John is the debtor and unless BigBank relieves him of that burden he will be responsible for the loan no matter where the money is coming from.

So if Larry and John have a contract for Larry to pay John's mortgage that wouldn't be an issue (technically, there are a lot of terms when you sign a mortgage that may prevent this, but putting that aside), however Larry and John can't decide without BigBank approval to transfer that debt or any portion thereof to Larry.

On the same note, John can't call up BigBank and say "you know, I have this friend Larry that I want to have him take over this debt" without Larry's approval, so all 3 parties need to agree to that. BigBank can, however, say that "John, we sold your loan to BiggerBank, you now pay them" because it's in the contract that they are allowed to do that.

So in the end...

If you just want X to pay Z on Y's behalf, this does not require a contract with Z, but Y is still responsible for the debt. X and Y can make whatever contract they want to transfer that responsibility but if X defaults, Z will go after Y, not X, you can't make them a party to a contract.

If you want X to assume Y's debt to Z, this requires a contract between all the parties involved.

Answer 3

Y and Z need to form a contract (or Y needs to properly gift their rights to Z)

Rights and obligations under a contract are transferable unless:

1. The contract is for personal service (e.g. an employment contract),
2. The contract prohibits or restricts transfer.

A loan contract is neither and banks transfer them all the time.

Y just needs to make the arrangements with Z. They don’t need to tell X if they don’t want to, Y can continue to collect the payments as Z’s agent, or they can tell X and from a given date X pays Z instead of Y.