Deck 17: Third Parties

Question 1

Once a duty is delegated, it relieves the delegator of his or her own liability to perform the contract.

Answer 1

False

Question 2

An assignment is valid from the moment it is made, regardless of whether the assignor notifies the obligor.

Answer 2

True

Question 3

Lawrence took out a life insurance policy in which his daughter, Madeline, is named as a beneficiary. Madeline is

A) a promisor.
B) an obligor.
C) an intentional beneficiary.
D) an incidental beneficiary.

Answer 3

C

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 held by Casey.

Question 5

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 6

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 7

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 8

Martina hired Alexander to renovate her home and specifies that Alexander use Spiffy Painting for all the painting because of Spiffy's excellent reputation. In this case, Spiffy is a(n)

A) creditor beneficiary.
B) incidental beneficiary.
C) intended beneficiary.
D) debtor beneficiary.

Question 9

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 10

Claims for personal injury are generally assignable.

Question 11

An assignment for consideration is irrevocable.

Question 12

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

Question 13

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 14

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 15

Most, but not all, contract rights are assignable.

Question 16

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

Question 17

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 18

Assignment is prohibited when the obligor is agreeing to perform personal services.

Question 19

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 20

Most types of duties may be delegated.

Question 21

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 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

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 24

Which statement regarding assignment is accurate?

A) Gratuitous assignments are generally revocable regardless of whether they are oral or written.
B) An assignment for consideration is irrevocable.
C) An assignment becomes valid when the obligor receives notice of the assignment.
D) An assignment must be written and follow all legal formalities.

Question 25

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 26

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 27

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 28

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 29

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 30

When is an assignment valid and enforceable against an obligor?

A) from the moment the assignment is made
B) from the moment the obligor signs the contract
C) from the moment the assignee gives consideration
D) from the moment the obligor is notified of the assignment

Question 31

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(n)

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

Question 32

Harris, who owes Nathan $4,000, sells Bethany a used car for $5,000, payable in 30 days. Harris immediately tells Nathan that she doesn't have the money she owes him, but she is willing to give him her claim to Bethany's $5,000. Nathan agrees and gives up his claim against Harris for $4,000, and Harris notifies Bethany of the assignment. In this case, Bethany is best described as the

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

Question 33

Meyer's Grocery signed a contract to build a store in Richmond, Kentucky. Soon afterward, Meyer's breached the contract. Which of the following can sue Meyer's to enforce the contract?

A) a local home improvement store that hoped to sell building materials to the construction crew
B) neighborhood residents who were looking forward to shopping at Meyer's
C) the operator of a food truck, who intended to sell lunch to the construction crew
D) None of these are correct.

Question 34

Lincoln has a $100,000 life insurance policy and names his daughter Venus as the beneficiary. When Lincoln dies, the insurance company refuses to pay Venus the $100,000. Can she sue them to recover the money?

A) No, because she is the promisor.
B) Yes, because she is an intended beneficiary.
C) Yes, because she is the assignee.
D) No, because incidental beneficiaries cannot enforce contracts.

Question 35

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(n)

A) donee beneficiary who has rights to enforce the policy once Susan dies.
B) creditor beneficiary who has rights to enforce the policy once Susan dies.
C) incidental beneficiary because Jessica did not give any consideration for the policy and therefore cannot enforce the policy even when Susan dies.
D) promisor in the contract with no enforcement rights.

Question 36

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

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

Question 37

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 38

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 39

Linda assigns to Ben a right to receive rent payments. In terms of Linda's warranty as the assignor, the law implies which of the following?

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

Question 40

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 41

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 42

Briefly discuss the enforceability of contracts by third parties.

Question 43

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 $2,500 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 written 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. Discuss the conditions in which a right may not be assigned and assess if this was a valid assignment.

Question 44

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

Question 45

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?