A tortfeasor tortiously injured a victim in an auto accident. While the victim was consequently hospitalized in a hospital, the tortfeasor’s liability insurer settled with the victim for $5,000. The victim gave the insurer a signed release and received a signed memorandum, wherein the insurer promised to pay the victim $5,000 by check within 30 days.
When the victim left the hospital two days later, the hospital demanded payment of its $4,000 stated bill. The victim thereupon gave the hospital his own negotiable promissory note for $4,000, payable to the hospital’s order in 30 days; as security, the victim also assigned to the hospital the settlement memorandum from the insurer. The hospital promptly assigned for value the settlement memorandum and negotiated the note to a holder, who took the note as a holder in due course. Subsequently, the victim misrepresented to the insurer that he had lost the settlement memorandum and needed another. The insurer issued another memorandum identical to the first, and the victim assigned it to a furniture store to secure a $5,000 credit sale contract. The furniture store immediately notified the insurer of this assignment. The tortfeasor was an irresponsible minor.
If the victim starts an action against the insurer 40 days after the insurance settlement agreement, can the victim recover?
A. Yes, because his attempted assignments of his claim against the insurer were ineffective, inasmuch as the insurer’s promise to pay by check created a right in the victim that was too personal to assign.
B. No, because he no longer has possession of the insurer’s written memorandum.
C. No, because the tortfeasor’s minority and irresponsibility vitiated the settlement agreement between the victim and the insurer.
D. No, because he has made at least one effective assignment of his claim against the insurer, who has notice thereof.
{ 12 comments… read them below or add one }
Answer D is correct. The victim in this case effectively assigned all of his rights in the settlement contract at least once and maybe twice; he therefore has no rights left in the contract. Once an owner of a claim makes an assignment, he then has no rights against the obligor with respect to the assigned claim. Therefore, the victim cannot recover from the insurer.
Answer A is incorrect. The obligation which was assigned in this case was the obligation to pay money derived from a tort settlement. Such actions are freely assignable. This choice attempts to confuse the assignment of a completed settlement with the assignment of a tort claim that has not yet matured. The latter cannot be assigned for public policy reasons. An assignment can be prohibited if an obligor’s obligation would be changed significantly by an assignment, and the obligor would have a greater duty. Here, it is no greater an obligation for the insurer (the obligor) to make a check out to the hospital or to the furniture store than it would be to make it out to the victim. Since the insurer’s duty to pay by check was not changed, the victim’s assignment did not impose a greater duty on the insurer. Therefore, the victim’s right was not too personal to assign, and the assignment was effective.
Answer B is incorrect. The assignment is effective in this case regardless of whether Victim has possession of Insurer’s memorandum. The memorandum is not the chose in action; it is simply evidence of the obligation of the insurance company to issue a check to Victim. Victim is not assigning the memorandum. He is assigning the obligation. Possession of the memorandum is unimportant, except as evidence in the case.
Answer C is incorrect. Minority is a defense only to the tortfeasor and might allow him to disaffirm the insurance contract with the insurer. Until that time, the insurer has a contractual obligation to the tortfeasor to pay the victim’s claim. That argument is strengthened here where the victim has given up his right to sue in exchange for a promise to pay $5,000. Thus, the insurer now has a separate contractual obligation to the victim which is not affected at all by the tortfeasor’s minority.
answer D. nice breakdown Jared. thanks
D.
Its hard to follow what happened here but I’ll try to break it down for everyone so the story makes sense more.
Here’s what happened:
V got hurt in an tort caused by a tortfeasor. The tortfeasor’s insurance gives V a signed memorandum, wherein the insurer promised to pay the victim $5,000 by check within 30 days in exchange for a waiver.
The hospital wants V to pay the $4,000 hospital bill. V gives the hospital a negotiable promissory note for $4,000, payable to the hospital’s order in 30 days. In the event he doesn’t pay, he assigns to the hospital the settlement memorandum from the insurer as collateral in the event V doesn’t pay the $4,000 V owes to the hospital.
It is important to note that Hospital NEVER gives notice to the insurer that V had assigned the settlement memorandum from the insurer to the Hospital. There’s nothing in the fact pattern to suggest Hospital gave Insurer notice of the assignment.
Subsequently, V lies to the insurer saying he doesn’t have a copy of the settlement memorandum. They give him another copy. We now have second copy of the settlement memorandum.
V now uses the second copy by assigning it to a furniture store to secure a $5,000 credit.
Unlike the hospital, who didn’t give the insurance notice that V had assigned the memorandum to them, the furniture store DOES give the insured notice that V had assigned the settlement memorandum to them.
As a result, V has made at least one effective assignment of his claim against the insurer, who has notice thereof.
Hence, the answer is D.
Thank you! This actually helped a lot. I understand the pattern and what the issue was now (notice). If the answer isn’t D though, I’m just going to be confused!!!
Seeing the official answer given by Dina Allam, it appears that the answer is essentially stating that notice isn’t the issue here.
The issue appears to be who has the right to get the the insurance payment of $5,000: The victim, the hospital or the furniture store?
The applicable rule is that once an owner of a claim makes an assignment, he then has no rights against the obligor with respect to the assigned claim. Therefore, the victim cannot recover from the insurer because he can’t undo the assignment.
However, Dina Allam, in explaining why answer B is wrong states that “the possession of the memorandum is unimportant, except as evidence in the case.” In other words, the possession of the memo is usually unimportant except when it becomes evidence to show that the insurer had notice that one or more assignments had been made.
So, the issue does appear also to be notice too, correct?
I agree with you that it does not appear that the main issue was notice. Although I’m not sure that the evidence of the memorandum would be used to prove notice. It seems that it would be simply to prove that the memorandum existed. My understanding from reading Dina Allam’s answer, is that, with respect to answer B, if victim had not assigned his memorandum, he would still have a claim against the insurer. Possession of the memorandum was not what gave him the right to recover against the insurer; it was the insurer’s obligation to issue the check to victim that gives him the right to recover. So without assignment, victim still would have had that right. Though, if he didn’t have possession of the memorandum, it may be hard to prove in court that it even existed (if insurer tried to deny it). But possession in and of itself is not what gave the victim the right to recover to begin with. Does this make sense, or am I even answering your question? I appreciate this discussion–I (hopefully) have an even better understanding of this now. I’m just not sure now what part notice plays at all. If insurer did not have notice of the assignment–well, I’m guessing that just means that if the insurer didn’t have notice, it would have no reason (that it knew of) to refuse to issue the check to victim. But with notice, it knew that it no longer had to issue the check to victim.
My eyes are glazing over trying to read this question. I have no idea.
Haha! Sometimes you’ll get questions like this on the MBE and you have to force yourself to concentrate on the fact pattern to get through it and move on!
Lol! You’re right, Dina. I will truly work on that:-) Although, I think as a strategy, if I get a question like this on the exam, I will save it for last. Hopefully, there won’t be too many of these! But I will work on getting better at them, just in case. Thanks.
Answer – D.
D.
D.