0

Let's suppose A provides some type of services to B in exchange for a monthly payment. A assigns the benefit of all payments it is entitled to receive from B, to C, in exchange for £1.

Under what circumstances could either A or B seek to recover any payments made to C by B? Assume the governing law is that of England and Wales.

My understanding..

Recovery by A: Upon A receiving the consideration of £1 from C, I'm assuming there are no legal grounds for A to recover any payments made by B to C.

Recovery by B: I'm assuming there are no legal grounds for B to recover any payments made by B to C, as C has no obligations to B under the agreement between A and B. I'm ignoring clawbacks in the event of insolvency.

If B was to stop making payments to C that were due and payable, I'm assuming only C has the right to take legal action against B for the late payments?

3
  • It is permitted, even encouraged, to answer one's own question on this site. It is better form to do that, rather than including an answer in a question. Dec 8, 2022 at 22:48
  • @DavidSiegel The OP is not embedding in the question an answer. For the most part, the latter half of the post is just a conjecture that the OP would like others to validate. Dec 10, 2022 at 20:13
  • @IñakiViggers Exactly, that was my intention, to show that I've researched the answer to the question and wasn't merely asking for the answer. Next time I'll try to structure the question and research differently. Dec 11, 2022 at 6:46

2 Answers 2

-2

Under what circumstances could either A or B seek to recover any payments made to C by B?

Your rationale about [non-]recovery by A is accurate. It appears that the closest A can get to that is to agree with B to modify the contract in a way that complies with section (2) of the Contracts (Rights of Third Parties) Act 1999. But that amendment would not revert or affect payments that B already made to C.

As for recovery by B, section 3(4) of the Act provides that B "shall also have available to him [...] by way of counterclaim any matter not arising from the contract that would have been available to him by way of defence or set-off or, as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract" unless, per subsection (5), an express term of contract excludes that scenario. This suggests that, at least under some circumstances that involve breach of contract, B might obtain recovery from C.

If B was to stop making payments to C that were due and payable, I'm assuming only C has the right to take legal action against B for the late payments?

Not just C is allowed to take legal action. Section 4 of the Act provides that party A, the promisee, retains the right "to enforce any term of the contract" short of double recovery (section 5).

18
  • 2
    I don’t think the Contracts (Rights of Third Parties) Act 1999 is relevant. There is no contract here which confers a benefit on a third party; an assignee is not a third party beneficiary.
    – sjy
    Dec 11, 2022 at 23:32
  • 2
    The OP is describing the situation post-assignment. The "contract," for the purposes of s 1 of the Contracts (Rights of Third Parties) Act 1999, is the original contract between A and B, which did not contemplate the assignment to C, and was not modified as a result of it. C has acquired the right to sue on the contract as an assignee, not a third party beneficiary referred to in the original contract.
    – sjy
    Dec 12, 2022 at 3:25
  • 2
    The distinction between a third party beneficiary contemplated by the terms of a contract, and an assignee of the contract (which must already exist in order to be assigned), is fundamental. We will have to ask the OP to confirm which was intended, but I have treated the OP's use of the legal term "assignee" as decisive.
    – sjy
    Dec 12, 2022 at 13:02
  • 1
    I concur with @sjy. The C(RTP)A is not of any relevance here because we're not talking about third party rights. An assignee is not a third party. An assignee effectively steps into the shoes of the original party for the purpose of rights (but not obligations) that the original party had. If C wanted to assert that they were a third party, they would have to either be expressly named as such in the contract, or the contract would have to purport a benefit to them. See Section 1(1). Assignment doesn't have these conditions.
    – JBentley
    Dec 12, 2022 at 13:05
  • 2
    @IñakiViggers I think we have some crossed wires. The original contract ("X") is the one between A and B in which B makes payments and A provides a service. The second contract ("Y") is between A and C where A assigns the the benefit of the original contract to C in return for £1. C is not a third party to contract X unless contract X purports a benefit on C or he is expressly named in it. After contract Y is agreed, C has rights derived directly from contract X and so is not a third party.
    – JBentley
    Dec 14, 2022 at 13:39
3

The question is a little confusing because it’s unclear why any of the payments should be refunded.

If A has not provided the services, and B wants a refund, then B can sue A for breach of contract. A assigned its right to be paid to C, but it cannot assign its obligations to C (this would be a novation rather than an assignment, which would require both B and C’s consent). If C also agreed with A to perform A’s obligations to B (a subcontract), then A could sue C for any damages A was liable to pay B, but B cannot sue C directly.

If A regrets its decision to assign the contract for £1, and wants to recover larger payments made by B to C in discharge of B’s contractual obligations to A, it can’t. A shouldn’t have assigned the benefit of the contract to C.

If B has not paid, B can be sued under the contract which still exists between A and B. C can file this claim as assignee of the contract. While A could also potentially file the claim, it would be inconsistent with the assignment for A to receive any benefit from it, which would be held on constructive trust for C.

2
  • "which would require B’s consent". But more important is that it would require also C's consent, who is unlikely to accept additional obligations for free. "even though B may not be aware of the assignment." That is inconsistent with the OP's repeated mentions of "payments made by B to C". A presumption that maybe B thought of C as merely a cashier on behalf of party A would be at odds with the substance of the OP's description. "it would fail if the assignment to C was found out". Section 4 of the Contracts Rights of Third Parties) Act 1999 provides the exact opposite. Dec 11, 2022 at 23:57
  • 2
    I have updated the answer to reflect that B is aware of the assignment (and has apparently agreed with A to discharge its obligations by paying C directly). I have still assumed that the contract was assigned to C, and there was no novation (which as you point out, would require the consent of all three). I have explained why I do not think the Contracts (Rights of Third Parties) Act 1999 is applicable elsewhere.
    – sjy
    Dec 12, 2022 at 3:33

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .