Deck 15: Third parties

Question 1

First Bank has agreed to loan Teresa $10,000 for use in her cosmetics business.If Teresa sells the business to Melissa before the loan is disbursed,Teresa can assign her right to the loan to Melissa.

Answer 1

False

Question 2

Generally,the assignment of the obligation to perform personal services is valid,as long as the services are equivalent in value.

Answer 2

True

Question 3

In the Schauer v.Mandarin Gems of California,Inc.case,the court held:

A)the plaintiff was entitled to proceed with her contract claim against the jeweler because the jeweler must have understood that she was an intended beneficiary of the sales contract.
B)both of the contracting parties must intend to benefit the third party to create a right to sue in the third party.
C)a specific manifestation by the promisor of an intent to benefit the third person is required to create a third party beneficiary contract.
D)the plaintiff was a donee beneficiary and,as such,she had no right to sue.

Answer 3

A

Question 4

If Casey assigns her rights to receive income from rental property to Errol,then Errol will legally acquire any rights to the income previously held by Casey.

Question 5

If Ray agrees to rake leaves for Michelle in exchange for Michelle's promise to pay off the debt Ray owes to Dean,then Dean is a donee beneficiary of the agreement between Ray and Michelle.

Question 6

A party may make either an assignment or a delegation,but cannot make both an assignment and a delegation simultaneously.

Question 7

A spouse who is named the beneficiary of a life insurance policy would ordinarily be:

A)a creditor beneficiary.
B)an incidental beneficiary.
C)a donee beneficiary.
D)a debtor beneficiary.

Question 8

A third party beneficiary's status occurs:

A)after an assignment and delegation.
B)when the third party is informed of the contract.
C)when the third party beneficiary agrees to the contract terms.
D)when the contract is created.

Question 9

Amanda buys a vacuum cleaner to use in her home from retailer Andy.Amanda promises to pay for it in six monthly installment of $50 each.Andy assigns the contract to Big Finance Co.who paid value and took without notice of any defense.Amanda has stopped making payments because the vacuum stopped working and Andy refuses to honor the express warranty he made to her at the time of the sale.Big Finance Co.sues Amanda for nonpayment.Generally,any defense that Amanda may have against Andy is good against Big Finance Co.

Question 10

Claims for personal injury are generally assignable.

Question 11

If Velma,as a birthday present,assigns to Jim her contractual right to collect $50 from Wood Co. ,this would be a gratuitous assignment.

Question 12

Brandon orally assigned his right to $100 from a lawn mowing contract to Will as a gift.This assignment is:

A)not valid because it was not in writing.
B)valid even though it was oral and there was no consideration from Will.
C)irrevocable once Brandon has told Will about the gift.
D)not valid because Will gave no consideration for the assignment.

Question 13

Most,but not all,contract rights are assignable.

Question 14

If Valley Bridge contracts with Rainbow Painters to paint a bridge and the contract requires that only Sherwin Williams paint be used,then Sherwin Williams,as third party beneficiary will be able to enforce the contract against either Valley Bridge or Rainbow Painters.

Question 15

Most types of duties may be delegated.

Question 16

Norm and Frank have a legal contract that is silent with regard to an assignment of the contract.In order for Norm to assign all or part of his rights under a contract,Frank must grant such permission to Norm.

Question 17

Contract prohibitions against assignments are invalid as a matter of public policy.

Question 18

An assignment is effective but not necessarily enforceable from the moment it is made,regardless of whether the assignor notifies the obligor.

Question 19

Char-Glo Industries contracted with Evergreen Lawn Service to mow and trim the company's lawn.In the contract,Char-Glo included a clause prohibiting Evergreen from delegating its duties.Courts will ordinarily not enforce such a clause.

Question 20

Robert hired James,a CPA,to prepare his tax returns.James was too busy and delegated the work to Sara,also a CPA.This delegation is:

A)enforceable,as Sara is also a CPA.
B)enforceable,as there was no expectation James would do the work.
C)not enforceable,as Robert hired James to perform personal services.
D)not enforceable,as this violates public policy.

Question 21

Linda assigns to Ben a right to receive rent payments.The law implies the following warranty on Linda's part:

A)the tenant is solvent.
B)Linda actually has a right to the rental payments.
C)the tenant will actually pay.
D)No warranties are implied by law in an assignment.

Question 22

Ted and Alice own their recreational vehicle subject to a security agreement to Third U.S.Bank to secure the repayment of the purchase money loan.Ted and Alice sell their RV to Bob and Carol,who agree to take over the loan payments to the bank.There is no novation with the bank.Under these facts,if Bob and Carol do not make the loan payments,Third U.S.Bank:

A)can sue Bob and Carol only.
B)can sue Ted and Alice only.
C)can sue Bob,Carol,Ted,and Alice.
D)cannot sue anyone but can repossess the RV.

Question 23

Johann,a well-known musician,agrees to give ten guitar lessons to Elton for $2,000.Nothing in the contract itself prohibits a delegation.If Johann delegates his obligation to Eugene,a second-year musical student and enthusiastic guitar player,then the delegation will probably be:

A)permitted because contracts may be freely delegated.
B)permitted because the contract is just for music lessons.
C)prohibited because the contract is for service from a specific person.
D)prohibited by the UCC because this is a sale of services.

Question 24

Jerry purchased a laptop computer for his personal use from Computer City on an installment loan contract.The sales contract stated that in the event the contract is assigned to a third party,the purchaser (Jerry)promises he will not assert any claim or defense against the assignee which he might have against Computer City.Computer City immediately assigns the contract rights to Finance USA.The computer stops working within two weeks of the purchase.

A)This is a valid waiver of defense clause.Jerry signed the contract,so he can't raise a defense to Finance USA.
B)Finance USA is an intended third party beneficiary and may therefore enforce the contract.
C)In general,this type of waiver is not permitted in consumer contracts,so Jerry can raise his claim against Finance USA.
D)This is a delegation of Jerry's duties and the delegator remains liable on the contract unless a novation agreement is made.

Question 25

A rock group assigns its payment under a performance contract to the Costume Shop,a business that has supplied the group with outrageous stage outfits,and to which the group owes a great sum of money.Under this arrangement the rock group is the:

A)assignor.
B)assignee.
C)delegator.
D)delegatee.

Question 26

An assignment:

A)is generally revocable if it is gratuitous and is either oral or written.
B)for consideration is irrevocable.
C)becomes valid when the obligor receives notice of the assignment.
D)must follow formalities.

Question 27

A donee beneficiary:

A)is not entitled to enforce a contract against either party.
B)usually does not give consideration in return for the gift.
C)will generally become a creditor beneficiary after his or her rights vest.
D)is an incidental beneficiary.

Question 28

A rock group assigns its payment under a performance contract to the Costume Shop,a business that has supplied the group with outrageous stage outfits,and to which the group owes a great sum of money.This is:

A)a valid assignment because of the rule of freedom to contract.
B)a valid assignment because this is a simple transfer of the right to receive money.
C)an invalid assignment because it increases the burden of the payor.
D)an invalid assignment because this is a personal service contract.

Question 29

Which of the following duties can probably be delegated?

A)An agreement to perform an operation.
B)A contract to paint a picture.
C)An agreement by an attorney to draft a contract.
D)An agreement to paint a house.

Question 30

Which statement most accurately describes third party beneficiary rights?

A)A beneficiary may enforce a contract if the parties intended to benefit him and if enforcing the promise will satisfy a duty of the promisee to the beneficiary.
B)If a promisee intended to make a gift to the beneficiary,the beneficiary may not enforce the contract.
C)An intended third party beneficiary has no enforceable rights in a contract.
D)Incidental beneficiaries have enforceable rights against both contracting parties.

Question 31

Tyron purchased a vacant lot and entered into a contract with BZ Inc.to construct a shopping center on the site.Douglas heard about this contract and built a restaurant on an adjoining piece of property because of the planned shopping center.Tyron was unable to raise the necessary capital and was unable to perform the contract with BZ,Inc.Douglas sued Tyron for breach of contract as a third party beneficiary.Douglas will probably:

A)win as a third party creditor beneficiary.
B)win as a third party donee beneficiary.
C)lose as a third party incidental beneficiary.
D)lose as a third party creditor beneficiary.

Question 32

An assignment is valid and enforceable against all parties:

A)from the moment it is made.
B)from the moment the assignor notifies the obligor.
C)from the moment the assignee notifies the obligor.
D)from the moment the obligor is notified from any source.

Question 33

The status of a third party is determined by:

A)the type of contract.
B)whether the third party gave consideration.
C)the reasonable expectations of the third party.
D)the intent of the contracting parties.

Question 34

Generally,in comparison to a donee beneficiary,a creditor beneficiary has:

A)about the same legal rights.
B)substantially greater rights.
C)substantially fewer legal rights.
D)virtually no legal rights.

Question 35

A nonparty to a contract may enforce the contract if the person is:

A)a donee beneficiary.
B)an incidental beneficiary.
C)a creditor beneficiary.
D)Both a andc

Question 36

Cheryl enters into a contract with Gabe.In this contract,Cheryl asks Gabe to pay the money he owes her from the contract to her friend Leah because Leah is having financial troubles.Leah is:

A)a third party creditor beneficiary.
B)a third party donee beneficiary.
C)a third party incidental beneficiary.
D)the promisee in the contract.

Question 37

Molly and Craig are the original parties to a contract.Craig is obligated to design a Website for Molly.They subsequently make an agreement with Eric that Eric should take the place of Craig and assume all of Craig's rights and duties under the contract.The agreement releases Craig from his obligations under the contract.This agreement is:

A)a novation.
B)an accord and satisfaction.
C)an assignment.
D)a nullification.

Question 38

Wright Company contracted with the city of St.Louis to train and employ disadvantaged youths.If Wright fails to fulfill the contract and is sued by one of the disadvantaged youths,the youth would:

A)win,as he is an intended beneficiary.
B)win,as he is a donor beneficiary.
C)lose,as he is a creditor beneficiary.
D)lose,as he is an incidental beneficiary.

Question 39

Garth's Imports sold a car to Wally on credit for $30,000.Garth assigned to Cassandra all of his rights to receive money from Wally.Cassandra did not inform Wally of the assignment.Therefore,Wally continued to make the next three payments directly to Garth.Shortly thereafter,Garth left the country with the money.If Cassandra sues Wally for the missing three payments:

A)Cassandra will not be able to collect the money from Wally.
B)Wally is not liable for the three payments because an assignment is not valid unless the obligor is notified.
C)Wally is liable for the three payments because Cassandra paid consideration for the assignment rights.
D)Wally cannot raise the defense of previous payment.

Question 40

Susan took out a life insurance policy on herself,paying all of the premium payments.She named her daughter,Jessica,as the beneficiary under the policy.Jessica has not given anything in consideration for the policy.Jessica is:

A)a donee beneficiary who has rights to enforce the policy once Susan dies.
B)a creditor beneficiary who has rights to enforce the policy once Susan dies.
C)an incidental beneficiary because Jessica did not give any consideration for the policy and therefore cannot enforce the policy even when Susan dies.
D)None of the above.

Question 41

Andrew Durham was injured in a job-related accident that resulted in a workers' compensation settlement agreement with the employer's insurance carrier,Traveler's Indemnity Company.The settlement agreement required Traveler's to pay Durham $2500 per month for the rest of his life.To finance its obligation,Traveler's purchased an annuity in its name.The settlement agreement required Traveler's approval or consent prior to an assignment of the annuity payments.Durham later decided to open a business and went to a credit union for a $214,000 loan.The credit union loaned the money,taking a security interest in Durham's monthly annuity payments.Traveler's consent was never secured.Was this a valid assignment?

Question 42

Discuss the potential liability differences between a delegation and a novation.

Question 43

Shirley is an actress under contract with Twentieth Century.Shirley agreed to perform the lead role in a musical to be filmed in Hollywood by Twentieth Century.At the last minute,Twentieth Century decided to scrap the musical and assigned its rights in Shirley to MGM.MGM was planning to film a western in Australia requiring Shirley to spend six months filming in Australia.Can Shirley successfully prevent this assignment?

Question 44

Kirk purchases a sailboat on credit from Lakefront Sales,and Lakefront keeps a security interest in the boat.Lakefront then assigns the security interest to First Finance Co.Explain what having a security interest means.Under the UCC,what defenses can Kirk assert against First Finance?

Question 45

Briefly discuss the enforceability of contracts by third parties.