Deck 12: Privity of Contract and the Assignment of Contractual Rights

Question 1

A contracting party who, unknown to the other party, is represented by an agent, is called

A) a collateral agent.
B) a secondary agent.
C) a principal.
D) an undisclosed principal.
E) a collateral principal.

Answer 1

D

Question 2

Which of the following is true?

A) A trustee is the legal owner of the property that he is administering.
B) The beneficiary of a trust cannot enforce the trust in his or her favour.
C) The legal owner of trust property is the true owner of the property.
D) A trustee is not the legal owner of the property that he is administering.
E) A constructive trust is a relationship that exists between a trustee and beneficiary.

Answer 2

A

Question 3

A receiving order is used in

A) bankruptcy proceedings
B) legal proceedings for breach of a sales agreement where the promisee is to receive products from another.
C) proceedings involving negotiable instruments as a defence to an action on the negotiable instrument.
D) negotiations.
E) tort proceedings.

Answer 3

A

Question 4

A novation occurs

A) when two parties agree to terminate a contract and substitute a new contract.
B) when a contract is amended by agreement between the parties.
C) when a novel or new situation arises and the terms of a contract are changed.
D) when a stranger to the contract is permitted to obtain rights under the contract.
E) when a stranger to a contract enters into a new agreement with the parties that permits him or her to obtain rights under the original contract.

Question 5

A person or entity that administers a trust is called

A) a beneficiary.
B) a trust manager.
C) beneficial owner.
D) a trust administrator.
E) a trustee.

Question 6

A person who, although not the legal owner, may compel the trustee to provide benefits of a trust to him is called the

A) secondary beneficiary.
B) beneficial owner.
C) beneficiary.
D) trustee.
E) trust benefactor.

Question 7

Mary wants to be able to take care of her sons when she is away. She decides to give an amount of money to a friend, Melanie, with the instructions that she is to use that money to care for the children when she is away. Melanie is called a _ and the children are called _ .

A) caretaker; trustees
B) guardian; trustees
C) money caretaker; beneficiaries
D) trustee; beneficiaries
E) constructive trust; beneficiaries

Question 8

Which of the following is true?

A) A novation occurs when the parties to a contract agree to terminate it and substitute a new contract.
B) A novation occurs where one party leaves a contract and his or her place is taken by another person.
C) A novation occurs where parties to a contract change the subject matter of a contract.
D) C only
E) A, B, & C

Question 9

Which of the following is not an example of an exception to the privity of contract rule?

A) the undisclosed principal in an agency
B) a life insurance policy
C) collateral contracts
D) bilateral contracts
E) the trust

Question 10

Novation occurs when

A) one of the parties to the contract ends the contract.
B) both parties to the contract assign their obligations to a third party.
C) one of the parties to the contract assigns his or her obligations to a third party.
D) the parties to a contract agree to terminate the contract and substitute a new contract.
E) both parties to the contract agree to terminate the contract because of circumstances beyond their control.

Question 11

Vicarious performance is where

A) parties to a contract enter into another agreement which has the effect of transferring the liability to perform to a third party.
B) parties to a contract agree to terminate a contract and substitute a new contract in place of the old one.
C) an employer performs an obligation in place of its employee and is liable for proper performance.
D) a third party performs an obligation in place of another person who is ultimately liable for proper performance.
E) an employee performs an obligation in place of another employee and the performing employee is liable for proper performance.

Question 12

The right to intangible property is known as

A) a chose of property.
B) equitable assignment of property.
C) a chose in possession.
D) intangible property right.
E) a chose in action.

Question 13

Privity of contract is

A) the relationship between the parties to a contract and a third party.
B) the consideration that a third party may bring to a contract.
C) the relationship that exists between a third party and one of the parties to a contract.
D) the relationship that exists between parties to a contract.
E) the liability of parties to a contract to a stranger or third party.

Question 14

The effect of the doctrine of privity of contract is that

A) parties to a contract are protected by the law.
B) a person can obtain rights under a contract to which he is not a party.
C) a bilateral contract is unenforceable against a promisee.
D) a person who is not a party to a contract cannot obtain benefits or rights under it.
E) a unilateral contract is unenforceable against parties who have privity.

Question 15

Mary wants to be able to take care of her sons when she is away. She decides to give an amount of money to a friend, Melanie, with the instructions that she is to use that money to care for the children when she is away. The money given to Melanie is called and Melanie is a .

A) fund; trustee
B) trust; trustee
C) endowment; money caretaker
D) deposit; trustee
E) fund; constructive trust

Question 16

An implied contract that binds a party who made a representation or promise that induced a person to enter into a contract with another party is called,

A) a collateral contract.
B) a unilateral contract.
C) privity of contract.
D) a secondary contract.
E) a bilateral contract.

Question 17

Mary sets up a trust fund for her children. The money is placed into an account with Kids Money an organization that looks after money belonging to children. Which of the following is true?

A) Mary needs to find another impartial adult to review the arrangement before she can revoke it.
B) Mary has no authority over the money.
C) The children for whom the arrangement has been set up can go to Kids Money and request that the money be given to them.
D) Mary cannot revoke the arrangement without the consent of the children.
E) Mary can revoke the arrangement without the consent of the children.

Question 18

A negotiable instrument is

A) valuable documents that can be pledged as security to another.
B) a written promise by a party given in exchange for a promise of another.
C) an instrument that is used in negotiations.
D) an instrument that can be given in exchange for a promise of another.
E) a written contract containing a promise, express or implied, to pay a specific sum of money to the order of a designated person or to bearer.

Question 19

The right to tangible property that can be possessed is known as

A) equitable assignment.
B) assignment of rights.
C) chattel property rights
D) a chose in possession.
E) a chose in action.

Question 20

Vicarious performance is not allowed when

A) the third party has no interest in the contract.
B) personal performance is required under the contract.
C) the parties to a contract are related to the third party who is supposed to perform the contract..
D) the relationship between the parties is not that of employer and employee.
E) the third party supposed to perform the contract has an interest in the contract.

Question 21

Landlord and Tenant entered into a 5- year lease. One year later, Landlord sold the premises to Purchaser. Purchaser is bound by the lease.

Question 22

Mary gives Jack an amount of money to be used to look after her children while she is away. Jack is the legal owner of the money given to him.

Question 23

An undisclosed principal is a contracting party who unknown to the other party is represented by an agent.

Question 24

The effect of the doctrine of privity of contract is that a unilateral contract is unenforceable against the promisee.

Question 25

Mary sets up a trust fund for her children. The money is placed into an account with Kids Money and organization that looks after money belonging to children. Mary cannot revoke the arrangement without the consent of the children.

Question 26

Which of the following situations does not involve a third party playing a role in a contract to which it is not a party?

A) In a situation of vicarious performance when an employee carries out the duties of another.
B) In an assignment where rights of a party to a contract are assigned to a third party.
C) A novation when a third party becomes a substitute for one of the original parties.
D) In a tort situation where not only the retailer of a product, but the wholesaler of the product.
E) In an agency relationship where an agent makes an contract on behalf of an undisclosed principal.

Question 27

A novation occurs when two parties agree to terminate a contract and substitute a new contract.

Question 28

A trustee is the legal owner of the property that he is administering.

Question 29

Liabilities may be assigned to a third party.

Question 30

Once created a trust cannot be revoked by the persons who created it without the consent of the beneficiary.

Question 31

A collateral contract is not an example of an exception to the privity of contract rule.

Question 32

To be effective, notice of an assignment must be given to the promisor.

Question 33

Ordinarily, a debtor/promisor must consent to an assignment.

Question 34

Landlord and Tenant entered into a 5- year lease. One year after the lease began, Tenant assigned its rights under the lease to Assignee. Two years after taking possession of the premises, Assignee stopped paying rent to Landlord. In order to recover rent due, Landlord has a right to sue:

A) Tenant, but only if at the time of the assignment, Tenant agreed to be bound.
B) Assignee
C) Tenant
D) Assignee and Tenant
E) Tenant only if Assignee is bankrupt

Question 35

A stranger to a contract is the same as

A) a promisor.
B) a third party.
C) a foreigner.
D) an intruder.
E) an outsider.

Question 36

A person who assigns his right of payment to a third party is

A) the bankrupt.
B) the assignor or the promisee.
C) the assignee.
D) the trustee.
E) the promisor.

Question 37

As a general rule regarding assignments, one may assign _ to a third party.

A) obligations but not benefits
B) rights and liabilities
C) rights but not liabilities
D) liabilities but not rights
E) obligations and benefits

Question 38

The legal owner of trust property is the true owner of the property.

Question 39

Which of the following is not a trust arrangement?

A) A corporation transferring the title to fixed assets to a trustee for bondholders as security for the payment of the bonds.
B) A mother transferring assets to provide for her infant should she pass away.
C) Your broker requiring sufficient funds in your account to cover a deficit.
D) Property of a bankrupt being transferred to a trustee.
E) Parents setting up a fund for the education of their children.

Question 40

The statement that an assignee "takes subject to the equities" between the parties means:

A) the assignee gets no greater rights against the debtor/promisor than the assignor had
B) the court must decide whether it is fairer for the assignor or the assignee to be paid under the assignment
C) before an assignee can enforce an assignment against the debtor/promisor it must demonstrate fairness
D) for the assignment to be enforced it must be an equitable assignment
E) the debtor/promisor can enforce any rights it has against the assignor against the assignee

Question 41

Explain the phrase "an assignee takes subject to equities."

Question 42

Explain the difference between negotiability and assignability.

Question 43

What is vicarious performance? What types of contracts cannot be vicariously performed?

Question 44

What is a statutory assignment?

Question 45

An assignee of a contract takes the contract subject to equities. Explain the meaning of this phrase with the use of examples.

Question 46

Explain the concept of a chose in action.

Question 47

Explain how a transferee of rights under a negotiable instrument may obtain greater rights against the maker of the instrument than an assignee of contractual rights might have against the debtor/promisor under an assignment.

Question 48

How has the privity of contract rule been modified with respect to insurance?

Question 49

Who is an assignee?

Question 50

Who is an assignor?

Question 51

In an assignment, the assignee takes subject to equities. Explain.

Question 52

Who is a holder in the law on negotiable instruments?