contract-law new-zealand
Enforcement of agreement by subsequent party
<p>I am trying to get my head around how the law perceives and deals with an element of how countries deal with contractual obligations where the contracting parties change.  The specific case is this</p>
<p>Party A limited trading as A enters into an agreement with party B to perform work for them.</p>
<p>Party A limited subsequently sells their business to party C (and stops trading).</p>
<p>Party C continues the business &quot;trading as&quot; A.   Party A neglects to send formal notice to party B advising that they have sold their business and obligations to party C</p>
<p>Party C works with party B and performs the obligations and of party A.  Party C then bills party B.   Party B refuses to pay (but does not specify the reason for their refusal) Party C sues party B for non payment in a disputes tribunal, and it is only at this point that party C discovers the reason for non-payment.</p>
<p>Party A and Party C are willing to work together to recover the debt from party B.   If Party C amends their filing, does party A become a joint applicant, a third party or something else?  Does Party A need to make a demand on party B and restart the whole application?</p>
<p>(As this is in New Zealand, a New Zealand perspective would be appreciated, otherwise how would this typically be handled in a commonwealth country?)</p>

<blockquote>
<p>If Party C amends their filing, does party A become a joint applicant, a third party or something else?</p>
</blockquote>
<p><em>A</em> is a non-party. It is unclear from your description why <em>C</em> would need to amend the filing, but there is no need for <em>A</em> to become a joint applicant. By virtue of <em>C</em>'s buyout of <em>A</em>, only <em>C</em> has standing to sue <em>B</em>.</p>
<p>Your description does not specify <em>B</em>'s reason for non-payment, but generally speaking that does not defeat's <em>C</em>'s standing for suing <em>B</em>.</p>
<p>Had <em>B</em>'s contract with <em>A</em> reflected that <em>B</em>'s intent is to not be in a contract relation with <em>C</em>, the matter might involve (1) rescinding <em>B</em>'s contract with <em>C</em>; (2) a judgment on grounds of equity; (3) <em>C</em>'s claim against <em>A</em> for the latter's omission; or (4) a combination of these. But the description has too many gaps in that regard, thereby precluding a more precise assessment.</p>
<blockquote>
<p>Does Party A need to make a demand from party C and restart the whole application?</p>
</blockquote>
<p>No. <em>A</em> has no viable claim against <em>C</em>. And <em>A</em>'s sale to <em>C</em> implies that <em>A</em> can no longer have a viable claim against <em>B</em> either.</p>

<p>You asked: how does the law deal with contractual obligations where the contracting parties change? As you have identified in the comments, the answer has to do with the concept of <a href="https://en.wikipedia.org/wiki/Novation" rel="nofollow noreferrer">novation</a> – that is, the formation of a new contract with different parties. The consent of all parties to the original contract is required to replace their rights and obligations with new rights and obligations defined in the novated contract.</p>
<p>The other answers appear to be discussing the concept of <a href="https://en.wikipedia.org/wiki/Assignment_(law)" rel="nofollow noreferrer">assignment</a>. Assignment should not be confused with a change of contracting parties, or a “transfer of contract” (which is not a meaningful concept at common law). It is often possible to unilaterally assign the rights accrued under a contract to a third party, but it is not possible to assign the obligations.</p>
<p>Specifically, the contractual right that can be assigned under New Zealand law is a “thing in action”: <a href="https://www.legislation.govt.nz/act/public/2007/0091/latest/DLM969198.html" rel="nofollow noreferrer">section 50 of the <em>Property Law Act 2007</em></a>. In other common law countries this is still called a <a href="https://en.m.wikipedia.org/wiki/Chose" rel="nofollow noreferrer">chose in action</a>, meaning the right to sue. For most businesses, a chose in action is more like an “invoice” than a “contract.”</p>
<p>If A does work under a contract with B and becomes entitled to payment, this entitlement is a chose in action that can (generally) be unilaterally sold to C. This commonly occurs where C is a debt recovery or factoring business. However, the contract between A and B which says that B must pay A when A does certain work is not a chose in action. It is a relationship that gives rise to a chose in action <em>only when A does the work</em>. Unless the contract is novated, C has no right to do the work and sue on the contract between A and B. This is the doctrine of <a href="https://en.wikipedia.org/wiki/Privity_of_contract" rel="nofollow noreferrer">privity of contract</a>.</p>
<p>If C has nevertheless done the work without a novation, there are two ways that C might get paid. One is for C to sue A, claiming that A subcontracted the work to C. In this situation, from B’s perspective, A is still responsible (and entitled to be paid) for the work. B does not have to pay C, and A is only required to pay C the amount agreed under the subcontract. It could be difficult to argue that a business sale agreement created this kind of subcontract.</p>
<p>The other way is for C to sue B on the basis of the equitable doctrines known as <a href="https://en.wikipedia.org/wiki/Unjust_enrichment" rel="nofollow noreferrer">unjust enrichment</a>, <a href="https://en.wikipedia.org/wiki/Quasi-contract" rel="nofollow noreferrer">quasi-contract</a> or <a href="https://en.wikipedia.org/wiki/Quantum_meruit" rel="nofollow noreferrer">quantum meruit</a>. These doctrines are complicated, but essentially based on the idea although B never agreed to pay C for the work, it would be unfair to allow B to benefit from the work. Again, C may not be entitled to the full amount of money that B agreed to pay A, because its rights are based on the court’s assessment of what equity requires, not the terms of the contract between A and B.</p>

<h2>Contracts can be transferable … or not</h2>
<p>By default, in common law countries (like New Zealand) contracts are <a href="https://www.lexology.com/library/detail.aspx?g=9c7a4d5c-beba-4a60-869e-12942979f668" rel="nofollow noreferrer">transferable</a> unless they are for personal services (e.g. employment contracts from the employee).</p>
<p>However, particular contracts can be explicitly non-transferable.</p>
<p>When a contract <em>is</em> transferred, there is no requirement (legally) to advise the other party although there are administrative reasons to do so - like they will be getting invoices from someone else.</p>
<p>If the contract is transferable then party A Is not involved (except as a witness), if it isn’t, then party B isn’t.</p>
