Question 1

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.

Accepted Answer

Arthur may assert the defense of fraud in the inducement against Carl because Carl stands in the shoes of Bob and takes any defenses that would have been available against Bob.

Question 2

An incidental beneficiary has no right to enforce a contract.

Accepted Answer

An incidental beneficiary is someone who may benefit from a contract between two parties but was not intended to receive any direct benefit. As such, they have no legal right to enforce the contract or receive any benefits from it. Only intended beneficiaries and the contracting parties have rights and responsibilities under the contract.

Question 3

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

Accepted Answer

The promisor and promisee can agree to limit the vesting of benefits to only themselves and prevent a third person from receiving any benefit under the contract.

Question 4

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.

Accepted Answer

This statement is true. While contractual duties are generally delegable, there are some situations where they are not. If the duties are of a personal nature, meaning that the obligee has a substantial interest in having the original person perform the contract, then a delegation will not be permitted. This is because the obligee's interest in having the original person perform the contract is more important than the delegator's interest in delegating the duties to someone else.

Question 5

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

Accepted Answer

The right to property, including goods and land, is generally assignable unless restricted by law, contract, or the nature of the property right itself.

Question 6

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

Accepted Answer

This is true. Such statutes are aimed at protecting employees from being exploited by lenders or creditors who may require the employee to assign their future wages as collateral for a loan.

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.

Accepted Answer

This concept is known as the "doctrine of notice and assent" or "doctrine of beneficiary's consent." In some states, a third-party beneficiary's rights under a contract only vest when they learn of the contract and agree to it. This means that the beneficiary must have knowledge of their status as a third-party beneficiary and must explicitly agree to accept the benefits of the contract.

Question 8

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.

Accepted Answer

If Ben transfers his right to the $8,000 to Firewood Financial, then Firewood Financial becomes the assignee and Tomas remains the obligor. Ben would no longer be a party to the transaction.

Question 9

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

Accepted Answer

A valid assignment does not necessarily require that notice be given to the obligor for the assignment to be effective between the assignor and assignee, though notice can affect the obligor's obligations and protections.

Question 10

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

Accepted Answer

Delegation of a duty transfers the responsibility for performing the duty to someone else, but the delegator still remains ultimately responsible for ensuring that the duty is performed correctly.

Question 11

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.

Accepted Answer

This is the general rule of assignment in contract law. The assignee steps into the assignor's position and acquires the same rights and obligations as the assignor had. There are some exceptions to this rule, but in general, the assignee does not receive any new or additional rights beyond what the assignor had.

Question 12

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

Accepted Answer

An assignor does not guarantee that the obligor will pay the assigned debt. They only transfer their right to receive payment from the obligor to the assignee. The assignor does not assume any responsibility for the obligor's payment.

Question 13

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

Accepted Answer

Once an assignment is made, the assignee becomes the new owner of the right to receive performance from the obligor, and the original assignor no longer has any right to such performance.

Question 14

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.

Accepted Answer

When consideration is given in exchange for an assignment, a contract is formed between the assignor and assignee that prohibits the assignor from revoking the assignment without the assignee's agreement. This is because consideration is an essential element of a contract, and without it, there would be no binding agreement.

Question 15

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

Accepted Answer

An intended donee beneficiary is a third party who is not a party to the contract but is intended to benefit from the performance of the contract. This beneficiary may enforce the contract only against the promisor, who is the party who made the promise to provide the benefit to the intended donee beneficiary. Therefore, option A is correct.

Question 16

Consideration is required in order to have a valid assignment.

Accepted Answer

Consideration is not required for an assignment to be valid; an assignment can be made without consideration, as it primarily involves the transfer of rights from one party to another.

Question 17

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.

Accepted Answer

Automobile insurance policies typically cannot be transferred to a new owner without the consent of the insurer, and simply notifying the insurance company of a change in ownership does not guarantee the continuation of coverage for the new owner.

Question 18

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.

Accepted Answer

This statement accurately defines a third party beneficiary contract.

Question 19

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

Accepted Answer

This is correct. In a novation, the original party (delegator) is released from liability and a new party (third party) takes on the obligation, becoming directly bound to the obligee.

Question 20

A gratuitous assignment is generally valid and enforceable.

Accepted Answer

A gratuitous assignment, where one party transfers rights or property to another party without receiving anything in return, is generally considered valid and enforceable as long as it meets the legal requirements for a valid contract, such as intent and acceptance.

Quiz 16: Third Parties to Contracts