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D is corrent because even though an assignee is not required to give the obligor notice of assignment, his/her failure to do so may affect his/her recovery on the contract right. If an obligor has no knowledge of an assignment, s/he may discharge the obligation by paying the assignor rather than the assignee. In addition, if under a separate dispute or contract the assignor owes the obligor a debt, the obligor may set off this separate debt, if it was incurred prior to the obligor receiving notice of the assignment. Therefore Frost has the right to set off the $5,000 against the $160,000 owed Lane. In this case, since Frost had no knowledge of the assignment, he fully discharged his obligation when he paid Lane $155,000, and he has no liability to Reid Bank.
A is incorrect because the case involves an assignment of rights under a contract rather than a third-party beneficiary contract. Reid is an assignee, not a third-party beneficiary.
B is incorrect because Frost did not receive notice of the assignment. Reid’s failure to notify Frost of the assignment allows Frost to totally discharge his obligation by paying $155,000 to Lane.
C is incorrect because Frost fully discharged his obligation when he paid Lane $155,000. This occurs because Reid failed to give Frost notice of the assignment prior to Frost’s payment to Lane.