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Chapter 17
Third Party Rights
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
B1. A transfer of contract duties to a third party is an assignment.
B2. Banks may not assign their loan contracts to other firms.
B3. In an assignment, the party receiving the rights is the assignee.
B4. An assignee has a right to demand performance from the obligor.
B5. An assignee’s rights are subject to the defenses that the obligor has against
the assignor.
2 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B6. As long as a contract is personal in nature, all rights under the contract can be
assigned.
B7. In most cases, a contract that prohibits its assignment cannot be assigned.
B8. A right can be assigned even if the assignment will significantly alter the risks
or duties of the obligor.
B9. It is legally necessary to notify the obligor of any assignment of rights to a third
party.
B10. The assignment of the same contract right to two different parties automatically
cancels both assignments.
B11. Without exception, any duty can be delegated.
B12. No contract can prohibit delegation of the duties of the contract.
B13. A valid delegation of duties relieves the delegator of obligations under the
contract.
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B14. Intended beneficiaries can sue to enforce a contract.
B15. Vested is the condition in which rights have taken effect and cannot be taken
away.
B16. A life insurance contract involves an intended beneficiary.
B17. The rights of a third party beneficiary under a contract vest if the third party
materially changes his or her position in justifiable reliance on the promise.
B18. The rights of a third party beneficiary under a contract vest if the third party
brings a lawsuit on the promise.
B19. An incidental third party beneficiary cannot sue to enforce the contract because
the benefit is unintentional.
B20. Expressly designating a third party as a beneficiary in a contract does not
indicate whether the beneficiary is intended or incidental.
4 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
MULTIPLE CHOICE QUESTIONS
B1. Merry Music Inc. and Nayda enter into a contract for Nayda to write six songs
for which Merry Music agrees to pay her. Nayda transfers her right to payment
under the contract to Omni Artists Agency. In the transfer of rights, Nayda is
a. a delegator.
b. an assignor.
c. an obligor.
d. an alien.
B2. Qiana has the right under a contract with Runway Retail, Inc., to buy the
retailer’s clothing overstock. Qiana’s sale of this right to Sade’s Style House is
a. a delegation.
b. an assignment.
c. prohibited.
d. a third-party beneficiary contract.
B3. Bobbie enters into a contract with Claire, who agrees to paint Bobbie’s studio
apartment for $500. Claire is the
a. obligor.
b. obligee.
c. assignee.
d. assignor.
B4. Orchid and Peony enter into a contract for the sale of Orchid’s textbook at the
end of the fall semester for which Peony agrees to pay Orchid $75. Peony
wants to transfer her right to payment for the book to Queenie. This transfer
a. is prohibited.
b. may be oral or written.
c. must be implied.
d. must be in writing.
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B5. Illya owes Jenny $1,000. In a separate deal, Kasey owes Illya $1,000. Illya
unconditionally assigns his rights in the deal with Kasey to Jenny. Illya’s right to
the $1,000 is then
a. unchanged.
b. extinguished.
c. incidental.
d. assigned to a court.
B6. A contract between Laser Maintenance, Inc., and Medical Vision Operation
Corporation contains a clause stating that any assignment is “void.” This
ordinarily prohibits
a. any assignment.
b. no assignment.
c. only an assignment of contract rights to personal services.
d. only an assignment that would change the obligor’s risk.
B7. Richly Merchandise, Inc., contracts with Stand-Rite Contractors to build a store.
Stand-Rite assigns the contract to Town Builders, which has a poor record of
completing projects. Richly could most successfully argue that the contract
cannot be assigned because
a. Richly did not consent to the assignment.
b. Richly did not receive adequate consideration for the assignment.
c. an assignment will significantly increase the risk of nonperformance.
d. Town Builders was not an original party to the deal.
B8. Devon and Edmond enter into a contract for the closing of a sale of Devon’s
recording studio. When Edmond’s schedule conflicts, he asks Ferdie to perform
his duties at the closing. This transfer of duties is
6 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
a. a delegation.
b. an assignment.
c. prohibited.
d. a negotiation.
B9. Uri and Victor enter into a contract by which Uri promises to deliver business
cards, advertising banners, and other marketing materials to Victor. Uri later
transfers his duty under the contract to Wren. Uri is
a. a delegator and an obligor.
b. a delegate and an obligee.
c. an assignor and an assignee.
d. none of the choices.
B10. Laramie contracts to provide cattle-herding services to Miles for $1,400 per
month. Laramie cannot transfer this duty
a. under any circumstances.
b. without continuing to be potentially liable.
c. without Miles’s consent.
d. without paying Miles at least one monthly fee.
B11. Julia, a world-famous chef, signs a contract to give lessons in French cooking
to Kyle. Julia wants to transfer her duties under the contract to Leila, a short-
order cook at Mom’s Café. The transfer is
a. valid because the performance required is of a nonpersonal nature.
b. valid if Leila is a highly regarded short-order cook.
c. not valid because performance depends on Julia’s personal skills.
d. not valid if Kyle does not hold Leila in high regard.
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B12. Animal Feed Corporation and Beneficial Trucking, Inc., enter into a contract for
Beneficial to transport a truckload of hay for which Animal Feed agrees to pay.
Due to schedule conflicts, Beneficial contacts Crop Transport Company, to
which Beneficial “assigns all rights under the contract.” This transfer is
a. an assignment and a delegation.
b. an alienation and a negotiation.
c. an obligation and a cancelation.
d. prohibited.
B13. Leon contracts to install automatic watering troughs in Kendall’s dairy barn.
Leon then becomes seriously ill and contracts with Jake to install the troughs.
Jake is unreliable and never shows up to install the troughs. Kendall can sue
a. no one.
b. Jake only.
c. Leon only.
d. Jake or Leon.
B14. Jean promises to paint Katy’s house in exchange for Lila’s promise to plant
trees on Jean’s property. This is
a. a delegation.
b. an assignment.
c. a third party beneficiary contract.
d. none of the choices.
Fact Pattern 17-B1 (Questions B15–B18 apply)
Able Contractors, Inc., enters into a contract with Beau to repair, rebuild, and remodel
Coastal Marina & Boardwalk, using products from Delta Lumber & Marine. Eatwell
Café is next to Coastal Marina.
B15. Refer to Fact Pattern 17-B1. Halfway through the project, Able Contractors
refuses to finish the job. The contract can be enforced against Able Contractors
by
8 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
a. Beau only.
b. Beau or Coastal Marina only.
c. Beau, Coastal Marina, or Delta Lumber only.
d. Beau, Coastal Marina, Delta Lumber, or Eatwell Café.
B16. Refer to Fact Pattern 17-B1. Coastal Marina is
a. a delegatee.
b. an assignee.
c. an incidental beneficiary.
d. an intended beneficiary.
B17. Refer to Fact Pattern 17-B1. The value of Eatwell Café’s property will increase
after Coastal Marina store is refurbished. Eatwell Café is
a. a delegatee.
b. an assignee.
c. an incidental beneficiary.
d. an intended beneficiary.
B18. Refer to Fact Pattern 17-B1. Delta Lumber will realize a profit from the sale of
products to Bayside to remodel Coastal Marina. Delta Lumber is
a. a delegatee.
b. an assignee.
c. an incidental beneficiary.
d. an intended beneficiary.
B19. Mai is a third party beneficiary under a contract between Novia and Otis. Novia
and Otis can modify or rescind their contract without Mai’s consent
CHAPTER 17: THIRD PARTY RIGHTS 9
a. at any time.
b. at no time.
c. after Mai’s rights have vested.
d. before Mai’s rights have vested.
B20. App Developers, Inc. (ADI), enters into a contract with Carmen, the chief
executive officer of SalesCorp, to create an app for the firm. To fulfill the
contract, ADI hires Max and ten other student interns. With respect to the
contract, Max is
a. an intended beneficiary.
b. an incidental beneficiary.
c. a delegatee.
d. an assignee.
ESSAY QUESTIONS
B1. Motors Repair Company contracts to sell a car to Nikki for $3,500. Nikki gives
Motors Repair a worthless check for the price. Nikki assigns her right to the car
to Opie. If Motors Repair refuses to deliver the car to Opie and Opie sues, can
Motors Repair raise Nikki’s fraud as a defense against delivery of the car to
Opie? Explain.
B2. Greensward Landscaping Company enters into a contract with Kent to
landscape Hillview Country Club’s golf course, using Intown Nursery to supply
trees and shrubbery. Jonas owns a lot next to Hillview’s course that will benefit
10 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
from the improved landscaping. The landscaping is a gift from Kent, a wealthy
club member, to Hillview. What type of beneficiary is Hillview? What type of
beneficiary is Jonas? What type of beneficiary is Intown Nursery? If
Greensward refuses to do the job, who can enforce the contract against it?