Deck 16: Third Parties to Contracts

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Carlos voluntarily transfers to Opal his right to receive a payment of $125 due to him from Scott. Scott is the assignee.

Answer 3

False

Question 4

Under Article 2 of the UCC, a right to damages for breach of the whole contract can be assigned despite a contractual provision to the contrary.

Question 5

A person who owes a duty under a contract is an obligee.

Question 6

To protect the obligor or the public interest, some contract rights are not assignable.

Question 7

UCC Article 9 requires certain assignments to be in writing.

Question 8

A gratuitous assignment is revocable by the assignor.

Question 9

A party delegating his duty to a third party is known as a delegator.

Question 10

If a contract explicitly provides that it may be assigned, then rights under it are assignable even if the assignment would change the duty, risk, or burden of performance on the obligor.

Question 11

In a third-party beneficiary contract, the third party's rights arise at the time the contract is formed.

Question 12

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

Question 13

When a partial assignment is made, the obligor may require all the parties entitled to the promised performance to litigate in one action any issues concerning the contract performance.

Question 14

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

Question 15

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 16

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 17

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 18

In general, an assignment includes an implied warranty that the assignor who receives value will do nothing to defeat or impair the assignment once it is delivered.

Question 19

An incidental beneficiary has no right to enforce a contract.

Question 20

An assignee's assent is required for any assignment to be valid.

Question 21

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

Question 22

Sandra purchases a life insurance policy naming her husband as beneficiary. His rights as a donee beneficiary vest at the time she purchases the policy, even though the policy permits her to cancel the policy or change beneficiaries.

Question 23

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

Question 24

Donee beneficiaries and incidental beneficiaries are called intended beneficiaries.

Question 25

Assignments that materially increase the risk, duty, or burden on the obligor will nonetheless remain effective and enforceable.

Question 26

The State Opera Company has a contract with a famous tenor to perform in its production of La Boheme . If the tenor chooses, he may delegate his duties under the contract to an equally well-known tenor.

Question 27

A gratuitous assignment is revocable even after the assignor has made an effective delivery of the assignment to the assignee.

Question 28

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 29

Consideration must be received for an assignment to be effective.

Question 30

Contract rights are generally assignable.

Question 31

The obligor need not receive notice for an assignment to be valid.

Question 32

When the rights under a contract are highly personal, they are not assignable.

Question 33

Article 9 of the UCC makes ineffective any term in a contract prohibiting the assignment of a security interest arising out of a sale of any right to payment for goods sold.

Question 34

Article 9 of the UCC makes waiver-of-defense clauses effective against assignees in consumer transactions.

Question 35

Assignments of future wages are subject to statutes that sometimes prohibit them altogether.

Question 36

An obligor may assert rights of setoff arising out of entirely separate matters that he might have against the assignor, as long as the matters arose before he had notice of the assignment.

Question 37

A duty may not be delegated if there is an express provision in a contract against delegation.

Question 38

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

Question 39

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

Question 40

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 41

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

A) If effective, this would be both an assignment and a delegation.
B) The duties which Theresa wants to delegate are personal in nature.
C) If the school district agrees to accept Stephanie's services, a novation would occur, which would relieve Theresa of her obligation to the school district.
D) All of these are correct.

Question 42

Sean has a right against Tanner and assigns it for value to Megan. Later, Sean gives Tanner a release. Megan:

A) will be unaffected by Sean's action.
B) may recover damages from Sean for breach of an implied warranty.
C) may recover damages from Tanner for breach of an implied warranty.
D) has lost her right and has no remedy.

Question 43

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 44

Unless otherwise provided by statute, an assignment may be made orally.

Question 45

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 46

Hiram, when he assigns to Tim his right to receive the next four rent payments on an apartment he owns, warrants that the tenant will make the assigned payments to Tim.

Question 47

If Randall and Gale agree to an assignment of Randall's contract with Doug:

A) there is no ambiguity; this is an assignment of rights only.
B) there is no ambiguity; this is a delegation of duties only.
C) under both the Code and the Restatement, unless circumstances or language indicate the contrary, an assignment of "the contract" means the assignment of rights and a delegation of duties.
D) the language is ambiguous and, therefore, the assignment is unenforceable.

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

Question 50

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 51

Professor Doright 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 Doright's mother is a(n):

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

Question 52

Marlene owes Bailey $750 due June 1. Bailey assigns the debt to Greg on May 1, but neither Bailey nor Greg informs Marlene. On June 1, Marlene pays Bailey. Marlene is fully discharged from her obligation.

Question 53

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

A) strictly construe them.
B) interpret a general term prohibiting assignments as a mere promise not to assign.
C) award the obligor a right to damages for the breach of the terms forbidding the assignment.
D) All of these.

Question 54

Stark enters into a contract with a contractor to build a large shopping mall in River City. Donner will greatly benefit from this contract since his convenience store is adjacent to the mall. Donner in this instance is:

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

Question 55

A(n) __________ is a method of discharging a contract in which a third party becomes bound upon a promise to the obligee.

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

Question 56

A transfer to a third party of a contractual obligation is known as a(n):

A) assignment of rights.
B) delegation of duties.
C) revocability of assignment.
D) partial assignment.

Question 57

Will 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 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 58

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 59

According to the Restatement, unless circumstances indicate the contrary, a contract term prohibiting assignment of the contract bars both the assignment of rights and the delegation to the assignee of the assignor's duty of performance.

Question 60

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

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

Question 61

The court in Public Service Commission of Maryland v. Panda-Brandywine, L.P.:

A) held that there is no legal distinction between the transfer of contractual rights and duties.
B) found the issue was whether an assignment or delegation could be made in this case.
C) found that the provisions in the Asset Purchase and Sale Agreement did not constitute an assignment or transfer within the meaning of the parties' agreement.
D) held that there was an assignment of rights and delegation of duties in contravention of the parties' agreement and the transfer was therefore invalid and unenforceable.

Question 62

Barbara owes Arthur $2,000. On July 1, Arthur assigns the debt to Caleb. Thereafter on July 15, Arthur assigns the same right to David, who in good faith gives value for it and knows nothing about the first assignee. David immediately notifies Barbara of the assignment. In this case:

A) under the majority rule, David has priority.
B) under the English Rule, a second assignment of the same claim can never be effective.
C) under the English Rule, David has priority.
D) under all of the rules, Caleb has priority since he was the first assignee in time.

Question 63

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

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

Question 64

Discuss defenses available to the promisor in an action by an intended third-party beneficiary to enforce the promise.

Question 65

Anita owes Brad $75,000. Brad signs a written statement granting Cal a gratuitous assignment of his rights from Anita. If Brad dies prior to delivering the statement to Cal:

A) Brad's death has no effect on the assignment.
B) the assignment is terminated upon Brad's death.
C) the signing of the statement makes the assignment irrevocable.
D) the assignment is invalid, because it is gratuitous.

Question 66

All but which of the following is true about a delegation of duties?

A) When the delegatee assumes the delegated duty, both the delegator and the delegatee are liable for performance of the contractual duty to the obligee.
B) Contractual duties are generally delegable.
C) The courts will examine an assignment more closely than a delegation.
D) A delegation will not be permitted if the nature of the duties are personal in that the obligee has a substantial interest in having the delegator perform the contract.

Question 67

In which of the following situations is there a third party incidental beneficiary who would be unable to enforce the agreement?

A) Wholesalers, when the buyer of a business promises the seller that he will pay outstanding debts to wholesalers who have supplied inventory for the business.
B) Workers, where a contractor agrees to post a performance bond to assure payment of workers and material suppliers.
C) A debtor, where a new partner enters an accounting firm and agrees to pay a share of debts incurred prior to his admission to the firm.
D) A doctor, when an automobile accident policy states that the insurance company will reimburse the insured for medical expenses incurred as a result of an automobile accident.

Question 68

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 69

Under the Restatement, if there are successive assignments of the same right:

A) the first assignee to notify the obligor prevails.
B) the latest assignee is usually entitled to the assigned right.
C) a prior assignee is entitled to the assigned right to the exclusion of a subsequent assignee in most circumstances.
D) a subsequent assignee is entitled to the assigned right unless a prior assignee gave value and obtains either a judgment against the obligor or a new contract with the obligor.

Question 70

Harold hired Blake Painters to paint his house. Blake decides he has too many jobs and delegates the duties to the Andrews Company. If Andrews does a poor job, and drips paint on Harold's flowers and windows, Harold:

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 71

In the case of Speelman v. Pascal , the court held that:

A) a gratuitous assignment is terminated by the assignor's death, even if the assignor made an effective delivery of the assignment prior to his death.
B) assignments of rights to sums that are expected to become due to the assignor are enforceable.
C) assignments cannot be made of sums that are not presently due but are expected to become due in the future.
D) personal contracts are not assignable.

Question 72

Mary goes to her stockbroker, purchases 30 shares of P & G stock, and instructs the broker to register the stock in her husband Warren's name. If this stock is intended as a Valentine's gift, Warren becomes:

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

Question 73

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

A) Caleb has the right to the payment of $2,000.
B) David has the right to the $2,000.
C) neither Caleb nor David can claim the $2,000.
D) The rule differs by state.

Question 74

List the implied warranties imposed by law on an assignor who has received value for the assignment.

Question 75

Kellie owes a duty to Grant and Kellie delegates the duty to Hank. Hank:

A) is not obligated to either Kellie or Grant to perform the duty unless Hank agrees to do so.
B) becomes liable for nonperformance to both Kellie and Grant only if Hank promises both Kellie and Grant that he will perform Kellie's duty.
C) cannot create contractual rights in Grant.
D) All of these.

Question 76

Darrell owns a parcel of land that is encumbered by a mortgage held by the First National Bank. Darrell agrees to sell the land to Paul for $50,000. Darrell and Paul together go to the First National Bank to discuss the sale and purchase with the banker. Darrell, Paul, and the banker sign an agreement stating that Paul will assume the mortgage and that Darrell 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 Darrell if Paul defaults.
C) Darrell is a third party beneficiary of the agreement between Paul and the bank.
D) the agreement among the three is a novation.

Question 77

Which one of the following assignments would probably be prohibited by a court?

A) Mary is in debt. A credit card company calls and threatens to sue. Mary orally assigns her next bimonthly paycheck to her creditor.
B) John is a house painter. He is scheduled to paint Molly's home on Monday. John wakes up Monday morning with a stiff neck. He calls Ed, who is also a painter, to begin the job at Molly's.
C) Ron has a contract with Bonett Bank to service their coffee machines. He assigns the remainder of his contract with Bonett to Michelle, who also owns a coffee service.
D) All of these.

Question 78

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 79

The privilege to play tennis and socialize at the Capital City Country Club (CCCC) is obtained through application, references, resumes, and fees. Steven and Chanel want to assign the remaining 4 years of their 5-year membership to Charles and Prissy so that Steven and Chanel may join the posh Silver Hawk Tennis and Polo Club. CCCC sues to enjoin Steven and Chanel from assigning their membership. CCCC will most probably:

A) not prevail because all contract rights are assignable.
B) prevail because the parties intended the contract to be personal and non-assignable.
C) prevail because assigning the membership contract would violate public policy.
D) None of these.

Question 80

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 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 the contractor's employees at a stated rate.
D) A contract between a governmental unit and business for services to be rendered to area citizens.