Business Law, 8e (Cheeseman)
Chapter 15 Third-Party Rights and Discharge
1) Privity of contract refers to the transfer of contractual rights by an obligee to another party.
2) A party who is owed a right under a contract is called the obligor.
3) An obligee who transfers the right to receive performance is called an assignor.
4) Terms such as sell, convey, and give indicate the intent to transfer a contract right.
5) In the United States, sales contracts and contracts for the payment of money are not
assignable.
6) Contracts for the provision of personal services are generally not assignable.
7) A person is permitted to assign a currently nonexistent right that he or she expects to have in
the future.
8) The right to sue another party for a violation of personal rights can be assigned.
9) A legal right that arises out of a breach of contract may be assigned.
10) The obligor can raise any personal defenses he or she may have directly against the assignee.
11) 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.
12) Anti-assignment clause in a contract prohibits the assignment of rights under the contract.
13) Approval clauses require that the assignee approve any assignment of a contract.
14) The American rule provides that the first assignment in time prevails, regardless of notice.
15) The English rule provides that the final assignment in time prevails, regardless of notice.
16) Under the possession of tangible token rule, the first assignee who receives delivery of the
tangible token prevails over subsequent assignees.
17) The party to whom the duty is owed is the delegatee.
18) In a case of assumption of duties, the delegatee is not liable for nonperformance.
19) If a delegatee has not assumed the duties under a contract, the delegatee is not liable to the
obligee for nonperformance.
20) An assignment and delegation occurs when there is a transfer of both rights and duties under
a contract.
21) 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.
22) The promisee is the contracting party who agrees to confer performance for the benefit of the
third person.
23) A creditor beneficiary refers to an original creditor who becomes a beneficiary under the
debtor’s new contract with another party.
24) An incidental beneficiary has no rights to enforce or sue under other people’s contracts.
25) A covenant is an unconditional promise to perform.
26) Nonperformance of a covenant is not considered a breach of contract because a covenant is
an unconditional promise.
27) If the conditions are met, a qualified promise becomes a covenant.
28) 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.
29) A reasonable person test is a subjective test that applies to contracts involving personal taste
and comfort.
30) Condition subsequent exists when the parties to a contract must render performance
simultaneously.
31) The reasonable person test is used to judge contracts involving mechanical fitness.
32) In a concurrent condition, each party’s duty to perform is conditioned on the other party’s
duty to perform.
33) Unilateral rescission of a contract constitutes a breach of that contract.
34) A substituted contract substitutes a new party for one of the original contracting parties.
35) A statute of limitations establishes the time period during which a lawsuit must be brought.
36) A party who owes a duty of performance under a contract is called the ________.
A) obligor
B) assignor
C) assignee
D) obligee
37) An obligee who transfers the right to receive performance is called the ________.
A) subsequent assignor
B) obligor
C) assignor
D) assignee
38) Kimlon Informatics has to recover $5000 from a client for its services. The recovery period
is 100 days but Kimlon needs the money immediately. It sells the right of collecting money from
its client to Quikcollect, a collection agency. Here, Kimlon Informatics is the ________.
A) obligor
B) obligee
C) subassignee
D) assignee
39) Which of the following rights is generally assignable in the United States?
A) personal service contract
B) a future right
C) legal action
D) recovery of debt
40) A famous actor signs a contract with a movie studio where she agrees to star in a comedy.
Which of the following is true of assignment of such a contract?
A) The movie studio can assign the contract to another movie studio.
B) The movie studio is at liberty 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.
41) Mr. Jacob, who is terminally ill, writes a will transferring all his assets to his daughter Silvia,
in the event of his death. The doctors say that Mr. Jacob will live for about six months. The day
after the will is written, Silvia wishes to transfer her expected inheritance to her son, Jacob Jr.
This assignment will be ________.
A) valid
B) conditionally valid
C) invalid
D) re-assignable by Jacob Jr
42) Ellen, who has a safe driving record, purchases automobile insurance from an insurance
company. Ellen cannot assign her rights to be insured to another driver for which of the
following reasons?
A) The assignment would materially alter the risk and duties of the insurance company.
B) Claiming insurance is a future right and hence cannot be assigned.
C) Insurance is a personal service contract and hence cannot be assigned.
D) Personal contracts like insurance are assignable only with the agreement of all parties
involved in the contract.
43) Howard is injured by Penny in a car accident, caused due to Penny’s negligence. Which of
the following statements holds true for Howard’s right to assign?
A) Howard cannot assign the recovery of punitive damages from Penny.
B) Howard can only assign the recovery of his medical expenses from Penny.
C) Howard’s right to sue Penny cannot be assigned.
D) Howard can only assign his right to take the case to the appellate court.
44) A legal right that arises out of a breach of contract is ________.
A) assignable
B) not assignable
C) subject to approval clause
D) considered a future right
45) Which of the following is true of an assignment of a right?
A) Unconditional assignment of a contract right retains all the assignor’s rights.
B) The obligor is entitled to performance from the assignor.
C) The assignor loses the right to sue the obligor directly for nonperformance in an unconditional
assignment.
D) The obligor cannot raise personal defenses against the assignee.
46) Who should provide a notice of assignment to the obligor?
A) assignee
B) assignor
C) obligee
D) facilitator
47) Karen borrows $10,000 from Celeste. Karen is to pay Celeste the principal amount, with 8
percent interest, over five years in 60 equal monthly payments. After one year of receiving
proper payments from Karen, Celeste assigns this right to receive future payments to Larry. Who
has the duty to notify Juan about the assignment?
A) Celeste
B) Larry
C) Karen’s attorney
D) the authority who drafted the contract
48) Which of the following is true in the event that an assignee does not provide a notice of
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.
49) A(n) ________ is used if the obligor does not want to deal with or render performance to an
unknown third party.
A) anti-assignment clause
B) approval clause
C) novation agreement
D) anti-delegation clause
50) Approval clauses require that the ________ approve any assignment of a contract.
A) obligee
B) obligor
C) assignor
D) assignee
51) What does the American Rule for successive assignments provide?
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 notified assignments prevail.
52) Which of the following is used to resolve a case where the obligee fraudulently makes
successive assignments of the same right to several assignees?
A) the English rule
B) an approval clause
C) anti-assignment clause
D) novation agreement
53) 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 receives a tangible token prevails.
54) Which of the following is an illustration of the possession of tangible token rule?
A) An obligee who is owed $10,000 assigns the right of collection $5,000 each to two assignees.
B) The right of collecting $10,000 is recorded in the assignee’s savings account passbook.
C) The assignee can re-assign the right only to a sub-assignee selected by the obligee.
D) An obligee cannot assign a right to collection of more than once.
55) The party to whom a duty is owed is the ________.
A) delegator
B) delegatee
C) obligor
D) obligee
56) 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) express condition
D) discharge
57) A(n) ________ occurs when there is a transfer of both rights and duties under a contract.
A) assignment and delegation
B) declaration of duties
C) assumption of duties
D) discharge
58) The term ________ 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) third-party contractor
B) third-party assignee
C) sub-assignee
D) intended third-party beneficiary
59) A(n) ________ refers to a contracting party who directs that the benefit be conferred on
another person.
A) assignee
B) promisor
C) promisee
D) donee beneficiary
60) 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 creditor
D) subsequent assignee
61) Which of the following is true of 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) Incidental beneficiary is a third party who is benefitted intentionally.
62) Which of the following phrases describes the term covenant?
A) an unconditional promise to perform
B) a breach of contract
C) mutual rescission of a contract
D) successive assignments of a right
63) Which of the following is true of covenants and conditions?
A) A covenant is a conditional promise to perform.
B) A condition becomes a covenant if it is met.
C) A contract cannot contain conditions to excuse performance.
D) A party cannot sue over breach of a covenant by the other party.
64) KnockKnock is a manufacturer of stainless-steel locks which are well known for their
durability. The company contacts a new supplier and forms a supply contract. The contract states
that KnockKnock would only purchase steel from the supplier if the material supplied was high-
grade Type 102 stainless steel. This is an instance of a ________.
A) condition subsequent
B) concurrent condition
C) covenant
D) condition precedent
65) ________ is an objective test that applies to commercial contracts and contracts involving
mechanical fitness.
A) Reasonable person test
B) Personal satisfaction test
C) Express condition test
D) Cognitive inventory test
66) ________ 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
67) ________ 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
68) 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 weeks into the job, James finds out that Franco is also working for a painting agency two
blocks away and terminates his employment. This is an instance of ________.
A) condition precedent
B) condition subsequent
C) concurrent condition
D) implied condition
69) In which of the following conditions is a party’s absolute duty to perform conditioned on the
other party’s absolute duty to perform?
A) condition precedent
B) condition subsequent
C) concurrent condition
D) implied condition
70) 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
71) Which of the following is true of 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 is allowed to rescind a contract without the consent of the other party.
D) Unilateral rescission is not regarded as breach of contract.
72) 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) novation
B) substituted contract
C) mutual rescission
D) accord
73) ________ is a clause in a contract in which the parties specify certain events that will excuse
nonperformance.
A) Approval clause
B) Express condition
C) Force majeure
D) Implied-in-fact condition
74) Lionel Richmond is a soccer player who has a six-year contract with the Christshire United
soccer team. Two years into the contract, he meets with an accident which results in the complete
amputation of his right leg. On what basis is Richmond discharged from further performance of
the contract?
A) novation
B) substituted contract
C) accord and satisfaction
D) discharge by impossibility
75) The injured party loses the right to sue if the lawsuit is brought after the ________ expires.
A) privity of contract
B) notice of assignment
C) future right
D) statute of limitations
76) Explain the process of transfer of rights.
77) What happens when an obligor does not get a notice of assignment?
78) Harry’s grandmother leaves him a house and a Rolls Royce in her will. What rights does
Harry have, in the context of his new inheritance?
79) Distinguish between conditions and covenants.
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80) When is nonperformance by a contractual party excusable?