Question 1

Union Bank lent $200,000 to Wagner.Union required Wagner to obtain a life insurance policy naming Union as beneficiary.While the loan was outstanding,Wagner stopped paying the premiums on the policy.Union paid the premiums,adding the amounts paid to Wagner's loan.Wagner died and the insurance company refused to pay the policy proceeds to Union.Union may:

Accepted Answer

If the promisor's performance is intended to satisfy a legal duty that the promisee owes to a third party,the third party is a creditor beneficiary.The creditor beneficiary has rights against both the promisee (because of the original obligation)and the promisor.Union is the intended beneficiary in the contract with Wagner and has the right to recover the money from the insurance company.

Question 2

The Uniform Commercial Code states that a party to a contract may delegate his duty to perform unless the other party has a substantial interest in having the original obligor perform the acts required by the contract.Which of the following is not considered in determining whether there is a substantial interest?

Accepted Answer

Section 2-210(1)of the UCC and section 318(2)of the Restatement (Second)of Contracts take the position that a party to a contract may delegate his duty to perform to another person unless the parties have agreed to the contrary or unless the other party has a substantial interest in having the original obligor perform the acts required by the contract.The key factor used in determining whether the obligee has such a substantial interest is the degree to which performance is dependent on the individual traits,skill,or judgment of the person who owes the duty to perform.

Question 3

A third party who is unable to establish that the contract was made with the intent to benefit her is called a(n):

Accepted Answer

A third party who is unable to establish that the contract was made with the intent to benefit her is called an incidental beneficiary.

Question 4

Which of the following statements about a novation is false?

Accepted Answer

A novation requires more than the obligee's consent to having the delegatee perform the duties.Rather,there must be some evidence that the obligee agrees to discharge the old obligor and substitute a new obligor.

Question 5

In Sogeti USA LLC v.Scariano,the case in the text,the court held that:

Accepted Answer

The court held that express consent of an employee is not required before an employer's contractual rights can be assigned to,and enforced by,a successor company.

Question 6

Which of the following contracts would likely not be delegable?

Accepted Answer

An employee could not normally delegate her duties under an employment contract to some third person,because employment contracts are made with the understanding that the person the employer hires will perform the work.

Question 7

In Johnson v.Bank of America,N.A. ,the case in the text,the court held that:

Accepted Answer

The court held that the contractual duty was delegable because it did not materially change the benefit of the bargain and Johnson did not have any interest in Bank of America performing the contract.

Question 8

Courts have held that a beneficiary's rights cannot be lost by modification or discharge.This is known as:

Accepted Answer

Courts have held that there is a point,at which the rights of the beneficiary vest,that is,the beneficiary's rights cannot be lost by modification or discharge.

Question 9

Rice contracted with Locke to build an oil refinery for Locke.The contract provided that Rice was to use United Pipe Fittings.Rice did not do so.United learned of the contract and,anticipating the order,manufactured additional fittings.United sued Locke and Rice.United is:

Accepted Answer

United Pipe is an incidental beneficiary and not one of the parties to the actual contract.Hence,it cannot recover damages from either Rice or Locke.

Question 10

Mr.Green contracts with Mr.Brown for $500 to landscape the home of Roy,who is Mr.Green's son.What is Roy's status in the contract with Mr.Green and Mr.Brown?

Accepted Answer

If the promisee's primary purpose in contracting is to make a gift of the agreed-on performance to a third party,that third party is classified as a donee beneficiary.

Question 11

Zack buys a house from Steven,agreeing to assume the outstanding mortgage on the property held by Big Bank.Zack fails to make the mortgage payment.Which of the following statements is true?

Accepted Answer

If Big Bank sues Zack but gets nothing-it can sue Steven.In turn,Steven can sue Zack for breach of contract.Steven bears the risk of Zack's performance because he introduced Zack into the relationship.

Question 12

Most courts hold that as long as the ________ intended to benefit a third party,the third party is an intended beneficiary.

Accepted Answer

For a third person (other than an assignee)to have the right to enforce a contract,she must be able to establish that the contract was made with the intent to benefit her.A few courts have required that both parties must have intended to benefit the third party.Most courts,however,have found it to be sufficient if the person to whom the promise to perform was made (the promisee)intended to benefit the third party.

Question 13

In the case in the text,Filer,Inc.v.Staples,Inc. ,the court held that Article 9 of the Uniform Commercial Code was inapplicable to the assignment because:

Accepted Answer

The court held that the assignment of accounts receivable was simply for purposes of collection on the account-not for a security interest.Since Article 9 of the Uniform Commercial Code only applies to security interests,it was inapplicable to the case.

Question 14

In ascertaining intent to benefit the third party,a court will look to all of the following,except:

Accepted Answer

In ascertaining intent to benefit the third party,a court will look at the language used by the parties and all the surrounding circumstances.One factor that is frequently important in determining intent to benefit is whether the party making the promise to perform (the promisor)was to render performance directly to the third party.

Question 15

Hugo sells his pharmacy,Prescriptions Plus,to Andrew.Their contract of sale contains a covenant whereby Hugo agrees not to operate a competing pharmacy within a 30-mile radius of Prescriptions Plus for five years after the sale.Two years later,Andrew sells Prescriptions Plus to Marvin.Within a month of the sale,Marvin learns that Hugo opened a new pharmacy within 25 miles of Prescriptions Plus.Which of the following statements is true?

Accepted Answer

Covenants not to compete are generally considered to be assignable to buyers of businesses.

Question 16

In The Industrial Development Board of the City of Montgomery v.Russell,the case in the text,the court held that:

Accepted Answer

The court held that IDB should not be relieved from liability based on its assignment of its rights under the option agreements.

Question 17

Which of the following statements about gratuitous assignments is false?

Accepted Answer

Gratuitous assignments (those for which the assignee gives no value)are generally revocable until such time as the obligor satisfies the obligation,however.They can be revoked by the assignor's death or incapacity or by notification of revocation given by the assignor to the assignee.

Question 18

Which of the following statements about delegable duties is false?

Accepted Answer

A duty is nondelegable if delegation would violate public policy or if the original contract between the parties forbids delegation.

Question 19

Martha purchases a book from Just Books on credit and later sells the book to her friend,Christina.Christina in turn sells the book to David,who agrees to pay the balance to Just Books.Who is the creditor beneficiary in this exchange?

Accepted Answer

If the promisor's performance is intended to satisfy a legal duty that the promisee owes to a third party,the third party is a creditor beneficiary.

Question 20

Hailey contracts with Construction Inc.to build a valuable structure on her land.The performance of the contract would constitute a benefit to Connie,Hailey's next-door neighbor,by increasing the value of Connie's land.In this situation,Connie is a(n):

Accepted Answer

Intended beneficiaries are often classified as either creditor or donee beneficiaries.If the promisee's primary purpose in contracting is to make a gift of the agreed-on performance to a third party,that third party is classified as an intended donee beneficiary.

Quiz 17: Rights of Third Parties

A third party who is unable to establish that the contract was made with the intent to benefit her is called a(n) :