Deck 17: Rights of Third Parties

Question 1

All contract rights are assignable.

Answer 1

False

Question 2

Josh acquires beneficiary rights under a contract between Sunny and James. Any modification to that contract which discharges Josh of his rights under the contract will not be enforceable by the court.

Answer 2

True

Question 3

Anne induces Ben's consent to contract under duress. Anne later assigns her rights under the contract to Carl. Ben may assert the doctrine of duress against Anne as a ground for avoiding the contract.

Answer 3

False

Question 4

An assignee can notify the obligor of the assignment at any point of time that he/she desires.

Question 5

The transfer of a right under a contract is called a(n):

A) assignment.
B) delegation.
C) affidavit.
D) bilateral contract.

Question 6

Most states have passed statutes prohibiting or regulating a wage earner's assignment of future wages.

Question 7

Which of the following transfers will generally be valid without the consent of the other parties?

A) The assignment by the lessee of a lease contract where rent is a percentage of sales.
B) The assignment by a purchaser of goods of the right to buy on credit without giving security.
C) The assignment by an architect of a contract to design a building.
D) The assignment by a patent holder of the right to receive royalties.

Question 8

In order for an assignment to be valid, the assignee must give some consideration to the assignor.

Question 9

Once a party properly delegates a duty to the delegatee, that party is relieved of any obligation to perform the duty.

Question 10

Antiassignment clauses in contracts are not enforceable.

Question 11

The sources of assignment law today are the common law of contracts and provisions of the UCC.

Question 12

Deborah owes a debt to Casey. Sean contracts with Deborah to pay her debt to Casey. Casey is a creditor beneficiary of the contract between Sean and Deborah.

Question 13

A donee beneficiary of a contract can recover under that contract.

Question 14

The assignor impliedly warrants to the assignee that the obligor has capacity to contract.

Question 15

The appointment of another person to perform a duty under a contract is called a(n):

A) assignment.
B) delegation.
C) affidavit.
D) bilateral contract.

Question 16

With regard to an assignment, the person to whom the right has been transferred is called the:

A) obligor.
B) obligee.
C) assignor.
D) assignee.

Question 17

An incidental beneficiary of a contract cannot recover under that contract.

Question 18

An obligor:

A) owes a duty to perform under a contract.
B) is owed a duty.
C) is one to whom a right has been transferred.
D) facilitates a contract.

Question 19

A delegator can be discharged from his/her obligation to perform his/her duty to the original promisee by a contract of novation.

Question 20

Under the "American rule" governing successive assignments, the first assignee in time has the superior right.

Question 21

It is important to promptly notify the obligor that an assignment has occurred. Why?

A) It is a necessary requirement for a valid assignment.
B) The obligor might perform to the assignor rather than the assignee.
C) The obligor's duty to perform is completely discharged.
D) If the obligor neither knew nor had reason to know about the assignment, the obligor remains liable to the assignee.

Question 22

Which of the following characterizes assignability?

A) An assignment is ineffective if it occurs in the present.
B) An assignment is ineffective in the case of land rights.
C) An assignment is ineffective when contrary to public policy.
D) An assignment is mostly effective in the case of wage earners.

Question 23

Apple assigns the same contract rights to Enzo, and then to Sam. Sam immediately notifies the obligor of the assignment to him; Enzo never notifies the obligor. When Sam notified the obligor, he did not know about the earlier assignment to Enzo. Sam will have the better right under the:

A) "American rule."
B) "English rule."
C) Restatement (Second) of Contracts.
D) common law.

Question 24

A valid assignment always requires:

A) consideration.
B) writing.
C) filing with a local court.
D) an intention to assign.

Question 25

Al hires Bob to move his furniture to his new house. On the day of the move, Bob does not feel like moving furniture, so he asks his friend Chuck to move the furniture. Chuck decides to leave before completing the move in order to watch a football game on TV. Al has to delay his move and hire another mover at a higher price. Al wants to sue Bob to recover for his damages. Given these facts, Al will most likely:

A) lose, because it was Chuck, not Al, who failed to fulfill his duty to Al.
B) win, because Bob's duty to Al was not delegable.
C) win, because Bob is liable to Al.
D) lose, because he failed to insist on Bob's performance.

Question 26

Which of the following is true of assignments?

A) Early common law recognized assignments.
B) Contract rights have always been considered transferable.
C) Article 2 of the UCC deals with assignments of rights.
D) The laws regarding assignment have gradually become stricter.

Question 27

Which of the following is a type of substituted contract in which the obligee agrees to discharge the original obligor and to substitute a new obligor in his/her place?

A) Assignment
B) Delegation
C) Certification
D) Novation

Question 28

Selena delegates her rights under a contract. The clause delegating her rights are termed: "All my rights under the contract are hereby effectively delegated to…". This language shows that the contract is of:

A) delegation only.
B) assignment only.
C) assignment and delegation.
D) a third-party beneficiary.

Question 29

Antiassignment clauses in contracts generally are:

A) enforceable but read narrowly.
B) enforceable but not covered by the UCC.
C) unenforceable because they are unconscionable.
D) unenforceable because they are void.

Question 30

Which of the following is true of delegation?

A) It requires special, formal language.
B) It covers all duties stated in a contract.
C) It is often confused with assignment.
D) It automatically places all legal responsibilities on the delegatee.

Question 31

On August 1, Neptune Fisheries contracted in writing with West Markets to deliver to West 3,000 pounds of lobsters at $4 a pound. Delivery of the lobsters was due October 1 with payment due November 1. On August 4, Neptune entered into a contract with Deep Sea Lobster Farms which provided as follows: "Neptune Fisheries assigns all the rights under the contract with West Markets dated August 1 to Deep Sea Lobster Farms." The best interpretation of the August 4 contract would be that it was:

A) only an assignment of rights by Neptune.
B) only a delegation of duties by Neptune.
C) an assignment of rights and a delegation of duties by Neptune.
D) an unenforceable third-party beneficiary contract.

Question 32

Melanie owes $250 to Jessica. Jessica gifts the right to receive the money from Melanie to her daughter Kelly in writing. This assignment is:

A) unenforceable since a beneficiary modification is prohibited.
B) enforceable despite the lack of consideration.
C) unenforceable because contractual rights cannot be assigned.
D) enforceable because the gift is made in writing.

Question 33

Quick Corp. has $270,000 of outstanding accounts receivable. On March 10, 1988, Quick assigned a $30,000 account receivable due from Pine, one of Quick's customers, to Taft Bank for value. On March 30, Pine paid Quick the $30,000. On April 5, Taft notified Pine of the March 10 assignment from Quick to Taft. Who is Taft is entitled to collect the $30,000 from?

A) Either Quick Corp. or Pine
B) Quick Corp. only
C) Pine only
D) Taft Bank cannot claim any money because it notified Quick Corp. too late

Question 34

On May 2, Kurtz Co. assigned its entire interest in a $70,000 account receivable due in 60 days from Long to City Bank for $65,000. On May 4, City notified Long of the assignment. On May 7, Long informed City that Kurtz had committed fraud in the transaction out of which the account receivable arose and that payment would not be made to City. If City commences an action against Long, and Long is able to prove that Kurtz acted fraudulently:

A) Long will be able to successfully assert fraud as a defense.
B) City will be entitled to collect $65,000, the amount paid for the assignment.
C) City will be entitled to collect $70,000 since fraud in the inducement is a personal defense which was lost on May 2.
D) City will be entitled to collect $70,000 since Long's allegation of fraud arose after notice of the assignment.

Question 35

In an assignment/delegation, which party remains secondarily liable on the obligation that has been delegated?

A) Assignor/delegator
B) Assignee/delegatee
C) Third party
D) Obligee

Question 36

Once an assignment occurs, the assignee acquires:

A) greater obligations to fulfill the contract.
B) greater rights than the assignor.
C) same rights as the assignor had prior to assignment.
D) no rights at all.

Question 37

Which of the following is NOT one of the implied warranties that the assignor gives to the assignee?

A) That the obligor has capacity to contract.
B) That the contract is not voidable for any other reason known to the assignor.
C) That the assignor has good title to the rights assigned.
D) That the obligor is solvent.

Question 38

The effect of a valid delegation of duties is that it:

A) discharges the delegator from any further liability.
B) is an automatic novation.
C) discharges the obligee from any further liability.
D) appoints the delegatee to perform the delegator's duty to the obligee.

Question 39

Edna is a leading brain surgeon in the United States. She enters into a contract to perform a complicated brain surgery on Ben. However, since Edna is very busy, she wants to assign this contract to a less experienced surgeon, Charles. This would be Charles' first operation of this type. Ben can object to this assignment and prevent it because the contract between Ben and Edna is a(n):

A) contract for services to be performed in the future.
B) contract involving personal skill.
C) services contract.
D) employment contract.

Question 40

Jim's contract with Frank obligated Jim to pay Frank $10,000. Frank properly assigns the contract to Abel. At that time, Abel notifies Jim about the assignment. Jim, however, forgets and pays the $10,000 to Frank. By this time, Abel is screaming for his money. However, by then, Frank goes into bankruptcy. In this case:

A) Jim is liable to Abel for $10,000.
B) Abel is out of luck because Jim performed his obligation by paying Frank.
C) Jim is liable to Abel not for the $10,000, but for his breach of the implied warranty that the assignor is solvent.
D) Abel is out of luck because his notification was oral rather than written.

Question 41

Rice contracted with Locke to build an oil refinery for Locke. The contract provided that Rice was to use United Pipe Fittings. Rice did not do so. United learned of the contract and, anticipating the order, manufactured additional fittings. United sued Locke and Rice. United is:

A) entitled to recover from Rice only, because Rice breached the contract.
B) entitled to recover from either Locke or Rice because it detrimentally relied on the contract.
C) not entitled to recover because it is a donee beneficiary.
D) not entitled to recover because it is an incidental beneficiary.

Question 42

Courts have held that a beneficiary's rights cannot be lost by modification or discharge. This is known as:

A) assignment.
B) dissociation.
C) malfeasance.
D) vesting.

Question 43

Denise contracts with Long Life Insurance Co., agreeing to pay premiums in return for which the company agrees to pay $500,000 to Denise's husband Barn when Denise dies. Barn is a(n):

A) creditor beneficiary.
B) donee beneficiary.
C) incidental beneficiary.
D) delegatee.

Question 44

Martha purchases a book from Just Books on credit and later sells the book to her friend, Christina. Christina in turn sells the book to David, who agrees to pay the balance to Just Books. Who is the creditor beneficiary in this exchange?

A) Martha
B) Christina
C) David
D) Just Books

Question 45

Why is it important for an assignee to immediately notify the obligor of the assignment?

Question 46

For a third person to have the right to enforce a contract, he/she must necessarily prove that:

A) he/she was a party to the contract.
B) he/she had been given a promise.
C) the contract was made to benefit him/her.
D) the contract provides him/her incidental benefit.

Question 47

Stella buys a car from Marble Sales for $10,000 on credit. Joel's daughter likes the car and so Joel buys the car from Stella. Joel also agrees to pay the balance due to Marble Sales, on behalf of Stella. Joel defaults. Marble Sales can bring a suit for breach of contract against:

A) Stella only.
B) Joel only.
C) Stella and Joel.
D) Joel and his daughter.

Question 48

Mike has a three-year lease on the apartment he occupies. He has lived there one year. He now wants to leave and go to Aspen, Colorado to be a ski instructor. However, Mike's landlord will not release him from the lease, and threatens to sue him if he breaks his lease. Mike finds Paul to take over the last two years of the lease, but Mike is worried that Paul might cause damage or in other ways inflict loss and that he, Mike, might be held financially responsible. In order to assure Mike that he will be completely discharged from all obligations under his lease, Mike should attempt to bring about:

A) an assignment.
B) a novation.
C) either an assignment or novation - it will not affect Mike's future liability.
D) neither an assignment nor a novation - both will not accomplish Mike's objective.

Question 49

Union Bank lent $200,000 to Wagner. Union required Wagner to obtain a life insurance policy naming Union as beneficiary. While the loan was outstanding, Wagner stopped paying the premiums on the policy. Union paid the premiums, adding the amounts paid to Wagner's loan. Wagner died and the insurance company refused to pay the policy proceeds to Union. Union may:

A) recover the policy proceeds because it is a creditor beneficiary.
B) recover the policy proceeds because it is an incidental beneficiary.
C) not recover the policy proceeds because it is not in privity of contract with the insurance company.
D) not recover the policy proceeds because one cannot claim insurance for oneself.

Question 50

A contract may be enforced by a third-party beneficiary if that beneficiary:

A) is an incidental beneficiary.
B) is a witness to the contract.
C) is the intended beneficiary.
D) has given some consideration.

Question 51

The Mandarin City contracts with the Zoid Construction Company to construct a new sewer system for the city. Later, Zoid breaches the contract. George, a resident of the city, sues Zoid for its breach of contract. Can George recover? Why or why not?

Question 52

Jada owned an insurance policy in her life, on which she paid all the premiums. Shaun was named the beneficiary. Jada died and the insurance company refused to pay the insurance proceeds to Shaun. An action by Shaun against the insurance company for the insurance proceeds will be:

A) successful because Shaun is a third-party donee beneficiary.
B) successful because Shaun is a proper assignee of Jada's rights.
C) unsuccessful because Shaun is not the owner of the policy.
D) unsuccessful because Shaun did not pay any of the premiums.

Question 53

Amelia contracts to have her portrait painted by Hamilton for $10,000. Hamilton assigns the contract to Drew, another artist. Has there been a valid delegation of duties here? Why or why not?

Question 54

Barry and Andrew contract for the sale of 100 widgets (goods) from Barry to Andrew for $1,000. The contract contains a clause prohibiting assignment of "the contract." Nonetheless, Andrew assigns "the contract" to Smith. Is there a valid assignment of contract rights here? Is there a delegation of duties?

Question 55

In a novation:

A) the original obligor is completely discharged from his/her obligations under the contract.
B) the original obligee is completely discharged from his/her obligations under the contract.
C) the original obligor remains secondarily obligated.
D) both the original obligee and the original obligor remain obligated.

Question 56

What is the purpose of vesting?

Question 57

As a general rule, members of the public are held to be _____ of contracts entered into by their municipalities or other governmental units in the regular course of carrying on governmental functions.

A) promisees
B) incidental beneficiaries
C) donee beneficiaries
D) creditor beneficiaries

Question 58

A third party is categorized as a donee beneficiary when:

A) the promisee's primary purpose in contracting is to make a gift of the agreed-on performance to the third party.
B) the benefit derived by the third party was merely an unintended by-product of a contract that was created for the benefit of those who were parties to it.
C) he/she is unable to establish that the contract was made with the intent to benefit him/her.
D) the promisor's performance is intended to satisfy a legal duty that the promisee owes to the third party.

Question 59

Fiona owed Lutz $5,000. As the result of an unrelated transaction, Lutz owed Bing that same amount. The three parties signed an agreement that Fiona would pay Bing instead of Lutz and Lutz would be discharged from all liability. The agreement among the parties is:

A) unenforceable for lack of consideration.
B) voidable at Bing's option.
C) an accord and satisfaction.
D) a novation.

Question 60

Ted Nix purchased two acres of land from Sally Pine. Nix paid 15 percent at the closing and gave his note for the balance secured by a 30-year mortgage. Five years later, Nix found it increasingly difficult to make payments on the note and finally defaulted. Pine threatened to accelerate the loan and foreclose if Nix continued in default. Pine told Nix either to get the money or obtain an acceptable third party to assume the obligation. Nix offered the land to Quick Co. for $4,000 less than the equity Nix had in the property. This was acceptable to Pine and at the closing, Quick paid the arrearage, executed a new mortgage and note, and had title transferred to its name. Pine surrendered Nix's note and mortgage to him. The transaction in question is a(n):

A) third-party beneficiary contract.
B) novation.
C) purchase of land subject to a mortgage.
D) assignment and delegation.