Deck 16: Third Parties to Contracts

Question 1

An intended donee beneficiary may enforce the contract only against the promisor.

Answer 1

True

Question 2

A promisor and a promisee may provide that the benefits under a contract will never vest in a third person.

Answer 2

True

Question 3

Some states have statutes which prohibit an employee from assigning his future wages.

Answer 3

True

Question 4

When the assignee gives consideration in exchange for an assignment, there is a contract between the assignor and the assignee that prevents the assignor from revoking the assignment without the assent of the assignee.

Question 5

In a novation, the delegator is discharged and the third party becomes directly bound upon his promise to the obligee.

Question 6

Consideration is required in order to have a valid assignment.

Question 7

In some states, the vesting of a third party's rights occurs only when the third party learns of the contract and assents to it.

Question 8

An assignor normally guarantees that the obligor will pay the assigned debt.

Question 9

Though contractual duties generally are delegable; a delegation will not be permitted if the nature of the duties is personal in that the obligee has a substantial interest in having the delegator perform the contract.

Question 10

A valid assignment requires that notice be given to the obligor.

Question 11

Arthur enters into a contract with Bob as a result of Bob's fraud in the inducement.Under the contract, Bob has the right to the payment of $100.Bob assigns the right to the $100 to Carl.Arthur may assert the defense of fraud in the inducement to avoid paying Carl the $100.

Question 12

An incidental beneficiary has no right to enforce a contract.

Question 13

The right to property other than money, such as goods or land, is not assignable.

Question 14

After an assignment, only the assignee has a right to the obligor's performance.

Question 15

Ben promises to sell five acres of his land to Tomas for $8,000.If Ben transfers his right to the $8,000 to Firewood
Financial, Ben is the assignee and Tomas is the obligor.

Question 16

Alma sells her car to Ervin.Since she still has four months left on her automobile insurance policy, she tells Ervin he will be covered for this four-month period under the policy.This purported assignment of her policy is effective as long as she notifies her insurance company about the change of insureds.

Question 17

A contract in which a party (the promisor) promises to render a certain performance not to the other party (the promisee) but to a third person (the beneficiary) is called a third party beneficiary contract.

Question 18

The delegation of a duty still leaves the delegator responsible for the performance of the duty.

Question 19

The general rule is that an assignee stands in the shoes of the assignor.He acquires the rights of the assignor but no new or additional rights.

Question 20

A gratuitous assignment is generally valid and enforceable.

Question 21

In England and in a minority of states, the first of two or more assignees to give notice to the obligor is entitled to the assigned performance.

Question 22

The law governing assignments arises solely from the common law of contracts.

Question 23

The UCC prohibits assignments of $5,000 or more.

Question 24

Generally, rights under an option contract are not assignable.

Question 25

The UCC imposes a writing requirement on all assignments of $500 or more.

Question 26

The Restatement and Article 2 of the Code provide that, unless circumstances indicate the contrary, a contract term that prohibits the assignment of a contract bars only the delegation to the assignee of the assignor's duty of performance and does not bar the assignment of contract rights.

Question 27

An assignor is bound by any express warranties he makes to the assignee with respect to the right assigned.

Question 28

In a third­party beneficiary contract, the third party's rights arise after the contract is made.

Question 29

Rick has a contract with a home repair company to paint his house and landscape his yard.When he realizes that he will have some unexpected medical expenses, he calls the home Repair Company to cancel the contract.Rick's next door neighbor can sue Rick to enforce the contract, because if Rick improves his own property, his neighbor's property will also be worth more money.

Question 30

A creditor beneficiary is a type of incidental beneficiary.

Question 31

The student government of State University has a contract with a famous rock band to perform at the university on homecoming weekend.The band cannot assign its rights and delegate its duties under this contract.

Question 32

The Restatement adopts the majority American rule and provides that, where there are successive assignments of the same right, the first assignee in point of time prevails.

Question 33

Donee beneficiaries and incidental beneficiaries are called intended beneficiaries.

Question 34

Third party rights in contracts can arise by assignment of rights, delegation of duties, or express terms in third party beneficiary contracts.

Question 35

Lauren received a $1,500 scholarship to attend the local community college.She decides not to attend college that year, so she can assign her right to the scholarship to her friend, Sean.

Question 36

Assignment of rights is the voluntary transfer to a third party of the rights arising from a contract.

Question 37

Ron owes Lloyd $500 due March 1.Lloyd assigns his right to the money to Lou, but neither Lloyd nor Lou notifies Ron.On March 1, Ron pays Lloyd the $500.Ron is not discharged from his obligation, but is liable to Lou for the money.

Question 38

Pedro has a contract to build a garage.He delegates the wiring job to a local electrician who improperly performs it.
Pedro is responsible, even though he delegated the duty.

Question 39

In an assignment or delegation, the third parties' rights or duties arise after the contract is made.

Question 40

Contractual duties are assignable.

Question 41

Courts will enforce contracts for the benefit of all but which of the following?

A)Donee beneficiaries
B)Creditor beneficiaries
C)Incidental beneficiaries
D)Intended beneficiaries

Question 42

A(n) is a third party who obtains possible benefits but no rights under a contract.

A)incidental beneficiary
B)intended beneficiary
C)assignor
D)donee beneficiary

Question 43

Stark enters into a contract with a contractor to build a large shopping mall in River City.Donner will benefit from this contract since his restaurant is adjacent to the planned mall.Donner in this instance is a(n):

A)implied beneficiary.
B)partial beneficiary.
C)donee beneficiary.
D)incidental beneficiary.

Question 44

Theresa has a contract to teach eighth grade at Washington Middle School.She decided she could make more money writing a book, so she assigns her teaching contract to her friend, Stephanie, who is also a licensed teacher.The duties under the teaching contract:

A)are nondelegable.
B)which Theresa has attempted to delegate are personal in nature.
C)would no longer be required of Theresa if the school district agrees to accept Stephanie's services, because a novation would occur, which would relieve Theresa of her obligation to the school district.
D)All of these are correct.

Question 45

Professor Dought has a life insurance policy on his own life that provides that in the event of his death, his mother will receive the proceeds.Professor Dought's mother is a(n):

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

Question 46

Betty owes Agatha $1,000.On March 1 Agatha, for value, assigned the debt to Clara.Thereafter, on March 30, Agatha assigned the same right to Diane.Under the:

A)American rule, Clara will prevail over Diane.
B)American rule, the first assignee to notify Betty will prevail.
C)Restatement rule, the first assignee to notify Betty will prevail.
D)English rule, Clara will prevail over Diane.

Question 47

Annette entered into a contract with a local truck dealer to have a new truck delivered to her daughter, Sue, as a graduation present.In this contract, Sue is:

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

Question 48

Which of the following duties would not be delegable?

A)John has a contractual duty to pay Isaac $50.
B)Karl has a contractual duty to deliver 50 bushels of corn to Michael by October 1.
C)Jeffrey has a duty to mow Georgia's lawn at least once a week.
D)Arthur has a duty to teach an accounting class at a community college during the fall semester.

Question 49

A promisor may assert the defense of contractual modification or rescission, even if an intended beneficiary's rights
have vested.

Question 50

The party to whom a contractual duty of performance is owed is known as the:

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

Question 51

Anita owes Brad $75,000.Brad signs a written statement granting Glen a gratuitous assignment of his rights from Anita.Brad delivers the signed statement to Glen before Brad dies.The assignment is:

A)irrevocable because of the delivery of the statement.
B)terminated upon Brad's death.
C)irrevocable because of the signing of the statement.
D)invalid because it is revocable.

Question 52

A(n)

A)assignment
B)delegation
C)partial assignment
D)novation

Question 53

Bill wants to buy a new car.He goes to the bank to get a loan for the purchase, and signs an agreement to pay $10.00 per month in premiums on a term life insurance policy which names the bank as the recipient of the policy proceeds in the event of his death before the loan is repaid.The bank is a(n):

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

Question 54

As a general rule, most contract rights are assignable.

Question 55

Bill has a right against Heather and assigns it for $100 to Dan.Later, Bill grants Heather a release.Bill:

A)is liable to Dan for damages because he breached an implied warranty.
B)has no liability to Dan because he did not expressly warrant that he would not impair the assignment.
C)has no liability to Dan because the only implied warranty he made was that the assigned right actually existed at the time of the assignment.
D)was acting contrary to public policy by assigning a contractual right for money.

Question 56

Unless otherwise provided by statute, an assignment may be oral.

Question 57

The voluntary transfer of a contractual right to a third party is known as a(n):

A)implied warranty.
B)assignment.
C)delegation.
D)novation.

Question 58

As a general rule, partial assignments of contract rights are not enforceable.

Question 59

A partial assignment is a transfer of a portion of the contractual rights to one or more assignees.

Question 60

A(n) is an intended beneficiary of a contract who receives the benefits of the contract as a gift.

A)incidental beneficiary
B)intended beneficiary
C)assignor
D)donee beneficiary

Question 61

Lynne is the intended beneficiary of a third-party contract.Her rights have vested.In an action by Lynne to enforce the promise, the promisor may assert the defense of:

A)rescission.
B)contractual modification.
C)fraud.
D)All of these.

Question 62

Mary goes to a stockbroker, purchases 50 shares of a certain stock, and instructs the broker to register the stock in her husband Warren's name.If this stock is intended as a Valentine's Day gift, Warren becomes a(n):

A)donee beneficiary.
B)transferee.
C)delegatee.
D)assignee.

Question 63

Name four nonassignable contract rights found in Restatement (Second) of Contracts, Section 317(2).

Question 64

Notice of an assignment:

A)must be given to the obligor.
B)cuts off any defenses based on prior agreements between the obligor and assignor.
C)precludes subsequent setoffs and counterclaims of the obligor that arise out of entirely separate matters.
D)All of these.

Question 65

Which of the following involves an invalid assignment that a court would not enforce?

A)An assignment of a savings account accompanied by the delivery of the passbook
B)An assignment lacking consideration
C)An assignment of an automobile liability insurance policy accompanied by the delivery of the policy
D)An assignment in writing signed by the assignor and delivered to the assignee

Question 66

Which of the following is NOT true concerning the requirements for an effective assignment?

A)The assignment must be voluntary.
B)Consideration is required.
C)There must be an intention to make the assignee the owner of the right.
D)The assignment may be either written or oral.

Question 67

Mr.Homayer hired Blake Painters to paint his house.Blake decides it has too many jobs and delegates the duties to the Andrews Company.Andrews does a poor job, and drips paint on the Homayers' flowers and windows.Mr.Homayer:

A)can sue both Blake and Andrews.
B)can sue Blake, but he cannot sue Andrews.
C)can sue Andrews, but he cannot sue Blake.
D)cannot sue, because he has accepted the benefits of the assignment.

Question 68

Under Section 2-210 of the Code, unless circumstances indicate to the contrary, a contract that prohibits an assignment:

A)prohibits both an assignment of rights and a delegation of duties under the contract.
B)prohibits only a delegation of the delegator's duty of performance and not the assignment of rights.
C)renders any subsequent assignment ineffective.
D)All of these.

Question 69

Which of the following is correct with regard to successive assignments of the same right?

A)It is impossible for an assignor to assign the same right more than once.
B)In England, the first assignee to notify the obligor prevails.
C)The Restatement does not recognize the validity of any successive assignments.
D)The majority rule in the United States is that the first assignee to notify the obligor prevails.

Question 70

Which of the following involves a creditor beneficiary relationship?

A)A contract where the insured names a bank with which he has a loan as the beneficiary of a life insurance policy
B)A contract between an employer and a union representing the employees, which contract is made for the benefit of the employees
C)A contract between the owner of a building and the contractor stating that the contractor will pay his employees at a stated rate
D)A contract between a governmental unit and business for services to be rendered to area citizens

Question 71

Notice of an assignment:

A)cuts off any defenses based on subsequent agreements between the obligor and assignor.
B)does not prevent subsequent setoffs of the obligor that arise out of separate matters.
C)does not bar subsequent counterclaims of the obligor that arise out of separate matters.
D)has no effect on defenses based on subsequent agreements between the obligor and assignor or on subsequent setoffs and counterclaims of the obligor that arise out of separate matters.

Question 72

Odessa owes Kevin $2,000.On July 1, Kevin assigns the right to the $2,000 to Troy.Thereafter, on July 15, Kevin assigns the same right to Donna, who in good faith gives value for it and knows nothing about the first assignee.In this case:

A)Troy has the right to the payment of $2,000.
B)Donna has the right to the $2,000.
C)neither Troy nor Donna can claim the $2,000.
D)the rule differs in different states.Depending on which rule a state follows, the answer will vary.

Question 73

The UCC permits a buyer under a contract of sale to agree as part of the contract that he will not assert against an assignee any claim or defense that the buyer may have against the seller under certain circumstances.Identify these circumstances, and discuss the reason the UCC permits such a provision and how the FTC deals with such waiver
of defense provisions.

Question 74

Give an example of an assignment of rights and explain the relationship of the parties.

Question 75

Brice owns a parcel of land that is encumbered by a mortgage held by the First National Bank.Brice agrees to sell the land to Paul for $50,000.Brice and Paul together go to the First National Bank to discuss the sale and purchase with the banker.Brice, Paul, and the banker sign an agreement stating that Paul will assume the mortgage and that Brice will be discharged from all further liability on the mortgage.In this case:

A)the bank is a third party donee beneficiary.
B)the bank can collect from Brice if Paul defaults.
C)Brice is a third party beneficiary of the agreement between Paul and the bank.
D)the agreement among the three is a novation.

Question 76

Barbara owes Arturo $2,000.On July 1, Arturo assigns the debt to Charles.Thereafter on July 15, Arturo assigns the same right to Dennis, who in good faith gives value for it and knows nothing about the first assignee.Dennis immediately notifies Barbara of the assignment.Under:

A)all of the rules, Charles has priority since he was the first assignee in time.
B)the majority rule, Dennis has priority.
C)the English Rule, Dennis has priority.
D)the English Rule, Charles has priority.

Question 77

Noel and Lyle have a contract whereby Noel is to perform routine construction services according to the blueprints that Lyle has provided.Noel assigns the contract to David.As a result of this assignment:

A)Lyle can bring suit based upon detrimental reliance.
B)Noel has no more rights or responsibilities with regard to the contract.
C)Noel no longer has any rights under the contract, but he remains responsible for the duties he agreed to perform.
D)Noel has all of his rights under the contract, but he has no responsibility for the performance of the duties.

Question 78

When contract terms prohibiting the assignment of rights exist, most courts will:

A)strictly construe them.
B)interpret a general term prohibiting assignments as rendering any assignment ineffective.
C)award the obligor no right to damages for breach of a general term prohibiting assignments.
D)All of these.