15: Third-Party Rights and Discharge

A party who owes a duty of performance under a contract is called the ________.

A) obligor

B) assignor

C) assignee

D) obligee

A) obligor

An obligee who transfers the right to receive performance is called the ________.

A) incidental beneficiary

B) obligor

C) assignor

D) assignee

C) assignor

Koala Informatics Corporation (Koala) must recover $5,000 from a client for services rendered. The recovery period is one hundred (100) days, but Koala needs the money immediately. It sells the right of collecting the money from its client to QwikCollect, a collection agency. In this case, Koala is the ________.

A) incidental beneficiary

B) assignor

C) third party beneficiary

D) assignee

B) assignor

Which of the following rights is generally assignable in the United States?

A) a personal service contract

B) a future right

C) a legal action

D) the recovery of a debt

D) the recovery of a debt

A famous actor signs a contract with a movie studio in which she

agrees to star in a comedy. Which of the following is correct

regarding the assignability of such a contract?

A) The movie studio can assign the contract to another movie

studio.

B) The movie studio is free to include the actor in a different movie.

C) If the actor is injured, she can assign the contract to another popular actor.

D) Both the actor and the studio can agree that their contract can be assigned.

D) Both the actor and the studio can agree that their contract can be assigned.

Mr. Jacob, who is terminally ill, writes a will designating his daughter Sylvia as his sole heir. According to his treating physician, Mr. Jacob will live for about another six (6) months. The day after the will is written, Silvia transfers her expected inheritance to her son, Jeffrey. Such an assignment is ________.

A) valid

B) conditionally valid

C) invalid

D) re-assignable by Jeffrey

C) invalid

Ellen, who has a good driving record, purchases automobile insurance from All-Risk Insurance Company (All-Risk). For which of the following reasons is Ellen prohibited from assigning her right to be insured to another driver?

A) The assignment would materially alter the risk and duties of All-Risk.

B) Claiming insurance is a future right and therefore cannot be assigned.

C) Insurance is a personal service contract and therefore cannot be assigned.

D) Personal contracts like insurance are assignable only with the agreement of all parties involved in the contract.

A) The assignment would materially alter the risk and duties of All-Risk.

Howard is involved in an automobile accident with Penny.

The accident resulted from Penny's negligence.

Which of the following is correct regarding Howard's

right to sue Penny?

A) Howard can assign his right to recover compensatory

damages from Penny, but he cannot assign the right to recover

punitive damages from her.

B) Howard can only assign his right to recover medical expenses

from Penny.

C) Howard's right to sue Penny cannot be assigned.

D) Howard can only assign his right to appeal the trial court decision.

C) Howard's right to sue Penny cannot be assigned.

A legal right that arises out of a breach of contract is ________.

A) assignable

B) not assignable

C) subject to an approval clause

D) considered a future right

A) assignable

Which of the following is correct regarding the assignment of a right?

A) In the unconditional assignment of a contract right, the assignor retains all his rights.

B) The obligor is entitled to performance from the assignor.

C) In an unconditional assignment, the assignor loses the right to sue the obligor directly for nonperformance.

D) The obligor cannot raise personal defenses against the assignee.

C) In an unconditional assignment, the assignor loses the right to sue the obligor directly for nonperformance.

When an assignment occurs, who should provide notice of the assignment to the obligor?

A) the assignee

B) the assignor

C) the obligee

D) the incidental beneficiary

A) the assignee

Karen borrows $10,000 from Celeste. Karen is to pay Celeste the principal amount, along with eight (8) percent interest, over the next five (5) years in sixty (60) equal monthly payments. After one (1) year of receiving proper payments from Karen, Celeste assigns the right to receive future payments to Larry. Who has the duty to notify Karen of the assignment? A) Celeste

B) Larry

C) Karen's attorney

D) the attorney who drafted the debt instrument

B) Larry

Which of the following is correct if the assignee does not provide notice of the assignment to the obligor?

A) The assignee's only course of action is to sue the obligee for damages.

B) The assignee cannot sue the assignor for damages.

C) The obligor's only recourse is to sue the assignee for damages.

D) The assignee cannot sue the obligor to recover payment.

D) The assignee cannot sue the obligor to recover payment.

Which of the following is used if the obligor does not want to deal with or render performance to an unknown third party?

A) an anti-assignment clause

B) an approval clause

C) a novation agreement

D) an anti-delegation clause

A) an anti-assignment clause

An approval clause requires that the ________ approve any assignment of a contract.

A) obligee

B) obligor

C) assignor

D) assignee

B) obligor

According to the American Rule, if an obligee fraudulently makes successive assignments of the same right to a number of assignees, ________.

A) the last assignment in time prevails, regardless of notice

B) the first notified assignment prevails

C) the first assignment in time prevails, regardless of notice

D) only notarized assignments prevail

C) the first assignment in time prevails, regardless of notice

Which of the following is used to resolve a situation where the obligee fraudulently makes successive assignments of the same right to a number of assignees and holds that the first assignee to give notice to the obligor prevails?

A) the English rule

B) the New York rule

C) the London rule

D) the American rule

A) the English rule

What does the English rule for successive assignments provide?

A) The first assignment in time prevails, regardless of notice.

B) The first assignment in time prevails, pending notice.

C) The first assignee to give notice to the obligor prevails.

D) The first assignee who initiates litigation with the filing of a complaint prevails.

C) The first assignee to give notice to the obligor prevails.

According to the possession of tangible token rule, which of the following is an example of a tangible token?

A) forbearance

B) a savings account passbook

C) a promise

D) the performance of an act

B) a savings account passbook

The party to whom a duty is owed is the ________.

A) delegator

B) delegated

C) obligor

D) obligee

D) obligee

Privity of contract refers to the transfer of contractual rights by an obligee to another party.

FALSE

A party who is owed a right under a contract is called an obligor.

FALSE

An obligee who transfers the right to receive performance is called an assignor.

TRUE

Terms such as "sell," "convey," and "give" indicate the intent to transfer a contract right.

TRUE

In the United States, sales contracts and contracts for the payment of money are not assignable.

FALSE

Contracts for the provision of personal services are generally not assignable.

TRUE

A person is permitted to assign a currently nonexistent right that she expects to have in the future.

FALSE

The right to sue another party for a violation of personal rights can be assigned.

FALSE

A legal right that arises out of a breach of contract may be assigned.

TRUE

An obligor can raise any personal defenses he may have directly against an assignee.

TRUE

If the assignee fails to provide notice of assignment to the obligor and the obligor continues to render performance to the assignor, the assignee can sue the obligor.

FALSE

An anti-assignment clause in a contract prohibits the assignment of rights under the contract.

TRUE

An approval clause requires that the assignee approve any assignment of the contract.

FALSE

The American rule provides that the first assignment in time prevails, regardless of notice.

TRUE

The English rule provides that the final assignment in time prevails, regardless of notice.

FALSE

Under the "possession of tangible token" rule, the first assignee who receives delivery of the tangible token prevails over subsequent assignees.

TRUE

Where there is a valid delegation of duties but the delegatee has not assumed the duties under a contract, the delegation is called a(n) ________.

A) condition precedent

B) declaration of duties

C) condition subsequent

D) denigration of duties

B) declaration of duties

Which of the following contractual duties can be delegated?

A) a professional, well-known singer hired to perform at a concert delegates to an unknown singer

B) a plastic surgeon hired to perform a complex surgery delegates to a new surgeon

C) a law firm hired to represent a client delegates to a new but qualified lawyer in the firm

D) an artist hired to paint a portrait delegates to his art student

C) a law firm hired to represent a client delegates to a new but qualified lawyer in the firm

Which of the following occurs when there is a transfer of both rights and duties under a contract?

A) an assignment and a delegation

B) a declaration of duties

C) an assumption of duties

D) a contractual discharge

A) an assignment and a delegation

The party to whom a duty is owed is the assignee.

FALSE

If an assumption of duties occurs, the delegatee is not liable for nonperformance.

FALSE

If a delegatee has not assumed the duties under a contract, the delegatee is not liable to the obligee for nonperformance.

TRUE

An assignment and a delegation occur when there is both a transfer of rights and duties under a contract.

TRUE

Which of the following refers to a third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor?

A) a delegatee

B) an incidental beneficiary

C) a subassignee

D) an intended third-party beneficiary

D) an intended third-party beneficiary

Which of the following refers to a contracting party who directs that a benefit be conferred on another person?

A) an assignee

B) a promisor

C) a promisee

D) a donee beneficiary

C) a promisee

A(n) ________ is an original creditor who becomes a beneficiary under the debtor's new contract with another party.

A) donee beneficiary

B) creditor beneficiary

C) incidental beneficiary

D) subsequent assignee

B) creditor beneficiary

Which of the following is correct regarding third-party beneficiaries?

A) A creditor beneficiary is an unintended beneficiary.

B) An intended third-party beneficiary cannot enforce the

contract against the promisor.

C) An incidental beneficiary cannot sue under other people's

contracts.

D) An incidental beneficiary is a third party who receives a direct,

specifically intended benefit under a contract.

C) An incidental beneficiary cannot sue under other people's contracts.

A third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor is called an incidental beneficiary.

FALSE

The promisee is the contracting party who agrees to confer performance for the benefit of the third person.

FALSE

A creditor beneficiary refers to an original creditor who becomes a beneficiary under the debtor's new contract with another party.

TRUE

An incidental beneficiary has no rights to enforce or sue under other people's contracts.

TRUE

A covenant is ________.

A) an unconditional promise to perform

B) a breach of contract

C) the mutual rescission of a contract

D) successive assignments of a right

A) an unconditional promise to perform

Which of the following is correct regarding a contract covenant?

A) A covenant is an unconditional promise to perform.

B) The nonperformance of a covenant does not constitute a breach of contract.

C) The nonperformance of a covenant does not give the other party the right to sue.

D) A contract provision is rarely a covenant.

A) A covenant is an unconditional promise to perform.

A covenant is an unconditional promise to perform.

TRUE

The nonperformance of a covenant is not considered a breach of contract because a covenant is an unconditional promise.

FALSE

Deadbolt Security, Inc. (Deadbolt) is a manufacturer of

stainless-steel locks that are well-known for their durability.

The company contacts a new stainless-steel supplier and

enters a supply contract. The contract states that Deadbolt

will purchase the supplier's steel only if it is high-grade

Type 102 stainless steel. This is an example of a ________.

A) condition subsequent

B) concurrent condition

C) covenant

D) condition precedent

D) condition precedent

The ________ test is an objective test that applies to commercial contracts and contracts involving mechanical fitness.

A) reasonable person

B) personal satisfaction

C) express condition

D) subjective person

A) reasonable person

A(n) ________ refers to a condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract.

A) condition precedent

B) condition subsequent

C) concurrent condition

D) implied condition

A) condition precedent

A(n) ________ refers to a condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform.

A) condition precedent

B) condition subsequent

C) concurrent condition

D) implied condition

B) condition subsequent

James hires Franco for a painting job. Their contract explicitly states that Franco's employment can be terminated if he is employed by another party during the contract period. Two (2) weeks into the job, James finds out that Franco is also working for a painting agency in the neighborhood and terminates his employment. This is an example of a(n) ________.

A) condition precedent

B) condition subsequent

C) concurrent condition

D) implied condition

B) condition subsequent

For which of the following is a party's absolute duty to perform conditioned on the other party's absolute duty to perform?

A) a condition precedent

B) a condition subsequent

C) a concurrent condition

D) an implied condition

C) a concurrent condition

A contract between a retailer and a supplier provides that payment is due upon delivery of goods by the supplier. The retailer's duty to pay and the supplier's duty to deliver constitutes ________.

A) an implied condition

B) a condition precedent

C) a condition subsequent

D) concurrent conditions

D) concurrent conditions

If the conditions are met, a qualified promise becomes a covenant.

TRUE

A condition precedent refers to a condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract.

TRUE

The reasonable person test is a subjective test that applies to contracts involving personal taste and comfort.

FALSE

A condition subsequent exists when the parties to a contract must render performance simultaneously.

FALSE

The reasonable person test is used to judge contracts involving mechanical fitness.

TRUE

With concurrent conditions, each party's duty to perform is conditioned on the other party's duty to perform.

TRUE

Which of the following is correct regarding discharge of

performance by agreement?

A) A partially executed contract cannot be rescinded.

B) Mutual rescission requires parties to enter into a second agreement that expressly terminates the first one.

C) A party can rescind a contract without the consent of the other party.

D) Unilateral rescission is not considered a breach of contract.

B) Mutual rescission requires parties to enter into a second agreement that expressly terminates the first one.

Which of the following refers to an agreement that substitutes a new party for one of the original contracting parties and relieves the existing party of liability on the contract?

A) a novation

B) a substituted contract

C) a mutual rescission

D) an accord

A) a novation

Which of the following is a clause in a contract in which the parties specify certain events that will excuse nonperformance?

A) an approval clause

B) an express condition

C) a force majeure clause

D) an implied-in-fact condition

C) a force majeure clause

Lionel Richmond is a soccer player who has a four-year contract with the Christshire United soccer team. Two (2) years into the contract, he suffers a horrifying injury on the field which results in the partial amputation of his right leg below the knee. On what basis is Richmond discharged from further performance of the contract?

A) an accord

B) subjective impossibility

C) a satisfaction

D) objective impossibility

D) objective impossibility

Unilateral rescission of a contract is a breach of contract.

TRUE

A substituted contract substitutes a new party for one of the original contracting parties.

FALSE

An aggrieved party loses the right to sue if the lawsuit is not ________.

A) attested to by at least two (2) disinterested witnesses

B) brought within the parol evidence period

C) attested to by at least one (1) disinterested witness

D) brought within the statute of limitations period

D) brought within the statute of limitations period

A statute of limitations establishes the time period during which a lawsuit must be brought.

TRUE