Deck 11: Privity of Contract and the Assignment of Contractual Rights

Question 1

Parker owes money to both Gregory and Williams.He agrees with Williams to assign to him the whole of his property if Williams will pay the debt due to Gregory.The property is duly assigned,but Williams fails to pay Gregory.Gregory and Parker sue in equity to compel performance of Williams's promise.In this situation

A)the lawsuit by Parker and Gregory will succeed.
B)Gregory acquired an equitable right through the mediation of Parker's agreement.
C)Parker will be regarded as trustee for Gregory.
D)Parker need not have joined Gregory in the law suit.
E)all of the above

Answer 1

E

Question 2

Which of the following is TRUE?

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

Answer 2

D

Question 3

The general rule is that a contract does NOT give any benefits to or impose any obligations on which of the following

A)the original promisor.
B)the original promisee.
C)a seller of goods.
D)a third party to the contract.
E)a manufacturer of goods.

Answer 3

D

Question 4

A Company contracts to build a house for B,and the contract expressly states that the contractor may from time to time use the services of subcontractors.In the course of performing the contract,one of the subcontractors negligently builds a wall,which falls over,destroying B's car.In this situation

A)the damage to the car is too remote and neither A Company nor the subcontractor can be sued.
B)only the subcontractor can be sued.
C)only the contractor,A Company,can be sued.
D)both the subcontractor and A Company can be sued.
E)none of the above

Question 5

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

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

Question 6

A Co.is a carrier of goods.A Co.uses a standard form contract that contains a provision which states that the risk of loss is to be borne by the owner of the goods and that A Co.will not be held liable for its negligence or the negligence of its employees.In the course of carrying B's goods,one of A Co.'s employees is negligent and the goods are damaged.In this situation

A)only the employee who was negligent will get the benefit of the provision in the contract.
B)both A Co.and the employee who is negligent will get the benefit of the provision in the contract.
C)neither A Co.nor the employee will get the benefit of the provision in the contract.
D)only A Co.gets the benefit of the provision in the contract.
E)the provision in the contract is void as against public policy.

Question 7

Peter was a coal merchant.In March 1962,he contracted to sell the business to his nephew John in consideration (1)that for the rest of Peter's life John should pay him $20.00 a week and (2)that if Peter's wife survived him,John should pay her an annual annuity of $15.00 a week.John took over the business and paid Peter the agreed sum until Peter died in November 1963.He then paid Peter's widow $15.00 for one week and refused to pay any more.The widow in both her personal capacity and as administratrix of Peter's estate brought an action against John in which she claimed all arrears under the annuity not paid her and asked for specific performance of the contract regarding the annuity.In this case

A)the widow will succeed,but in her capacity as administratrix of Peter's estate only.
B)the widow will succeed,but in her personal capacity only.
C)the widow will not succeed because only Peter could enforce the contract with John.
D)the widow will not succeed because there is no privity between her and John.
E)none of the above

Question 8

A enters into a contract with B whereby in consideration of the intended marriage of A's daughter to B's son,each of A and B will pay B's son a sum of money.A fails to pay the money and now B's son sues A.In this situation

A)B's son will succeed because he is a party to the contract between A and B.
B)B's son will not succeed because there is no privity between B's son and A.
C)B's son will not succeed because an intended marriage is no consideration at all.
D)B's son will succeed because a trust relationship was created.
E)B's son will succeed because the consideration was the marriage of B's son to A's daughter.

Question 9

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

Question 10

A third party can perform contractual obligations on behalf of the promisor (who of course remains responsible for proper performance)EXCEPT in circumstances where

A)personal performance is required.
B)the contract is silent on the issue of performance.
C)a business has taken on more work than it can complete.
D)the original promisor goes bankrupt.
E)the original promisor dies.

Question 11

A policy of life insurance provided that the insurers would pay to the insured or his assignees the sum of $1000.00 if he died before July 31,1926.The insured assigned the benefit of the policy to his wife and gave written notice of the assignment to the insurers.The policy was later extended,on the payment of an additional premium,for a further three months,but the benefit of the extension was not assigned to the wife.The insured died within the three-month extension period and the matter went to court on the issue of whether or not the wife benefited from the extension of the policy so as to be entitled to the insurance money.In this case

A)the rule regarding notice of an assignment was not followed.
B)the extension of the policy was for the benefit of the wife and a trust had been created in her favour so as to entitle her to the insurance money.
C)the intention of the insured was not to benefit his wife,so she gets nothing.
D)the normal rule of privity applies and the wife gets nothing.
E)none of the above

Question 12

Dunlop sold a number of their tires to Dew & Co.on the terms that Dew & Co.would not resell them below certain listed prices and that,in the event of a sale to trade customers,Dew & Co.would get a similar undertaking not to sell below the listed prices.Dew & Co.sold the tires to Selfridge,who agreed to observe the restrictions and to pay Dunlop the sum of $5.00 for each tire sold in breach of this agreement.Selfridge in fact supplied tires to two of their own customers below the listed price.Dunlop now sues Selfridge to recover the two sums of $5.00 as liquidated damages and asks for an injunction to restrain further breaches of the agreement.In this situation

A)there is a no contract between Dew & Co.and Dunlop.
B)Dunlop has no contractual connection to the contract between Selfridge and Dew & Co.
C)Selfridge is not in breach of the contract between Dew & Co.and Dunlop.
D)Selfridge has a contract with Dunlop.
E)there is a contract between Dunlop and Selfridge.

Question 13

Which of the following best demonstrates the concept of vicarious liability?

A)Jack is employed by Jim as a trainee mechanic.Jack goes to a party on the weekend and is asked by a friend,Mary,to check her car that won't start.Jack checks the car.A few minutes after Mary drives away,the car's ignition explodes injuring Mary.
B)A man's dog runs out of the house and mauls a letter carrier.
C)A cow leaves its pasture,walks into the garden of another farmer and destroys all the farmer's crops.
D)Jack is employed by Jim as a trainee mechanic.Jim's sister,Maggie,brings her car to the shop.It has an engine problem.Jack has never worked on a car's engine before.Jim asks Jack to work on the engine.Jack works on the engine.Later when Maggie drives off in the car,the engine explodes,injuring Maggie.
E)Jack is injured on the job as a result of slipping on oil in the shop.

Question 14

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

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

Question 15

H owes C $700.00.By agreement between H and R,R promises to pay this debt in return for H's undertaking to convey a house to him.C now sues R on his promise.In this situation

A)there is no contract between H and C.
B)there is a contract between H and R.
C)privity of contract prevents C from succeeding.
D)there is no contract between R and C.
E)all of the above

Question 16

Vicarious performance is where

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

Question 17

The effect of the doctrine of privity of contract is that

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

Question 18

When it comes to a manufacturer who negligently manufactures goods

A)only the consumer who purchased the goods and suffered harm may sue the manufacturer.
B)only the family members who suffer harm can sue the manufacturer.
C)both the consumer and his or her family members who suffer harm can sue the manufacturer.
D)the family members cannot sue the manufacturer because there is no privity between them and the manufacturer.
E)none of the above

Question 19

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

Question 20

Where an assignment of a debt is equitable only

A)the assignee alone can sue the debtor to enforce payment.
B)both the assignor and assignee must sue together to enforce the payment.
C)the assignor alone can sue the debtor to enforce payment.
D)none of the above
E)all of the above

Question 21

Where a promisee has obtained a promise for the benefit of a third party,a constructive trust exists.

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

Which of the following is NOT a trust arrangement?

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

Question 24

Ted provides lawn care services to a number of customers.He cannot personally perform all of his obligations under each contract,so he arranges for third parties to do some of the work.In these circumstances,Ted cannot

A)assign his contractual obligations to the third parties.
B)pay the third parties any more than the contract price.
C)fail to advise his customers that third parties are performing the work.
D)take a vacation while the work is being performed.
E)hire his own employees to do the work.

Question 25

When the assignment is merely part of a debt,the assignment is an equitable and not statutory assignment.

Question 26

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

Question 27

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

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

Question 28

The rule regarding privity can be overcome by a finding of a collateral contract entered into by the same parties.

Question 29

Generally,a contract does not confer any benefit or impose any obligations on a stranger to the contract.

Question 30

Landlord and tenant entered into a five-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 assignee is bankrupt.
B)tenant.
C)tenant,but only if at the time of the assignment,tenant agreed to be bound.
D)assignee.
E)assignee and tenant.

Question 31

Liabilities may be assigned to a third party.

Question 32

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

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

Question 33

A negotiable instrument is

A)valuable documents that can be pledged as security to another.
B)an instrument that can be given in exchange for a promise of another.
C)an instrument that is used in negotiations.
D)a written promise by a party 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 34

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

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

Question 35

A receiving order is used in

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

Question 36

The right to intangible property is known as

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

Question 37

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

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

Question 38

An exemption clause is a provision in a contract that limits the liability of a party.

Question 39

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

Question 40

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

Question 41

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

Question 42

Explain the difference between negotiability and assignability.

Question 43

What is the defence of set off and why is it important in the context of an assignment of contractual rights?

Question 44

Briefly explain the general rule of contract that gives rise to the concept of privity of contract.

Question 45

An unscrupulous creditor might sell the right to collect the same debt to two different persons by assigning it to each of them.Which one of the two innocent assignees is entitled to payment and why?

Question 46

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

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

Vicarious performance is a necessity in the real world.Explain.

Question 49

When can intermediate carriers successfully claim the protection of an exemption clause?

Question 50

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

Question 51

Since contracts can benefit non-parties,should the rules relating to privity of contract be changed in Ontario?

Question 52

Who is an assignor?

Question 53

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

Question 54

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

Question 55

A debtor/promisor who continues to make payments to his original creditor after receiving notice of an assignment will not be required to pay the amount a second time.

Question 56

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

Question 57

A debtor/promisor ignores a notice of an assignment at her own risk.

Question 58

Explain the concept of a chose in action.

Question 59

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