Chapter 16 Business Law

Express warrant

explicitly made contractual promise regarding the property or contract rights tansfered

Not assignable if

1. materially increase the duty, risk, or burden upon the obligor 2. transfer highly personal contract rights 3. expressly prohibited by the contract 4. are prohibited by law

1. A gratuitous assignment is: a. valid even though not supported by consideration. b. not revocable by the assignor. c. not terminated by the assignor's death. d. all of the above.

A

13. Arthur and Bob enter into a contract. Bob later delegates his duty of performance to Clark. Which of the following is true? a. If Clark fails to perform, Bob has a duty to perform. b. Arthur will always have to accept Clark's performance. c. The delegation is valid only if all three parties agree. d. Bob must compensate Clark for accepting the delegation.

A

15. CPA: Krieg was the owner of an office building encumbered by a mortgage securing Krieg's promissory note to Muni Bank. Park purchased the building that was subject to Muni's mortgage. As a result of the sale to Park: a. Muni is not a third party creditor beneficiary. b. Krieg is a third party creditor beneficiary. c. Park is liable for any deficiency resulting from a default note. d. Krieg was automatically released from any liability on the note.

A

4. An assignee of a contract right: a. acquires all of the rights of the assignor. b. acquires new, additional rights by virtue of the assignment. c. takes the assigned rights free of all of the defenses to which the rights would be subject in an action by the assignor against the obligor. d. all of the above

A

7. A delegation of contractual duties will not be permitted if: a. the duties are of a personal nature. b. the contract is silent with respect to the assignment. c. the delegation is for payment of money. d. None of the above will be permitted.

A

9. A contract in which the promisor agrees to render a certain performance to a third person is called: a. a third-party beneficiary contract. b. an assignment of rights. c. a delegation of duties. d. a novation.

A

2. Distinguish between an assignment of rights and a delegation of duties. How does an assignor's rights after an assignment differ from a delegator's duties after a delegation?

An assignment of rights is the voluntary transfer to a third party (the assignee) of the rights arising from a contract. A delegation of duties, on the other hand, is a transfer to a third party (the delegatee) of the contractual duty to perform. An effective assignment extinguishes the assignor's right of performance by the obligor. Therefore, only the assignee has a right to the obligor's performance. A delegation of duty, however, does not extinguish the delegator's duty to perform. It only results in an additional party, the delegatee, being obligated as well.

12. Clara sells her house to Donald. The house has a mortgage which is held by First Bank. As part of the transaction, First Bank agrees to discharge Clara from the mortgage and to allow Donald to assume the obligation. This is a(n): a. assignment of rights. b. novation. c. delegation of duties. d. third-party creditor beneficiary contract.

B

6. In the absence of an expressed intention to the contrary, an assignor who receives value makes all of the following implied warranties to the assignee with respect to the assigned right EXCEPT: a. that he will do nothing to defeat or impair the assignment. b. that the obligor will pay the assigned debt. c. that the assigned right actually exists. d. that he has no knowledge of any fact that would impair the value of the assignment.

B

10. An intended creditor beneficiary of a third-party beneficiary contract has rights against: a. the promisee/debtor only. b. the promisor only. c. both the promisee and the promisor. d. neither the promisee nor the promisor

C

11. A life insurance policy naming a spouse as a beneficiary is a common example of a(n): a. assignment. b. delegation of duties. c. third-party donee beneficiary contract. d. third-party incidental beneficiary contract.

C

14. CPA: Graham contracted with the city of Harris to train and employ high school dropouts residing in Harris. Graham breached the contract. Long, a resident of Harris and a high school dropout, sued Graham for damages. Under the circumstances, Long will: a. win, because Long is a third-party beneficiary entitled to enforce the contract. b. win, because the intent of the contract was to confer a benefit on all high school dropouts re¬siding in Harris. c. lose, because Long is merely an incidental beneficiary of the contract. d. lose, because Harris did not assign its contract rights to Long.

C

5. Which of the following would not be assignable? a. A owes B $50. B assigns to C the right to collect the money. b. Pedro assigns a contract right to land to Chung. c. Teacher assigns to her best friend her contract right to teach. d. All of the above

C

8. The delegator remains bound to perform her contractual duties even after a delegation unless the delegation is: a. a gratuitous delegation. b. a delegation for value. c. a novation. d. none of the above

C

2. In the case of a gratuitous assignment, which of the following would not be revocable? a. The donee-assignee receives payment of the claim from the obligor. b. The donee-assignee obtains a judgment against the obligor. c. The donee-assignee obtains a new contract with the obligor. d. None of the above would be revocable.

D

3. Which of the following assignments of contract rights are not assignable? a. Assignments that would materially increase the risk or burden on the obligor b. Assignments which would transfer a personal contract right c. Assignments which are prohibited by law d. All of the above

D

2. After an effective assignment of rights, both the assignor and the assignee have a right to the obligor's performance

False, an effective assignment of rights terminates the assignor's right to receive performance by the obligor

13. Harold sells his used car to Tina and assigns his rights in his auto liability insurance policy to her. This is a valid assignment.

False, can't assign insurance policies

4. Although no special words or particular form are necessary to create an assignment, an assignment must be supported by consideration to be effective.

False, consideration is not required for an effective assignment. gratiotous assignments are effective

11. In an action by the intended beneficiary of a third-party beneficiary contract, the promisor may assert any defense that would have been available to him had the action been brought by the promisee.

False, he cannot maintain ana ction against the promisee, because the promisee was under no obligation to him

15. An implied warranty is an explicitly made contractual promise regarding contract rights transferred.

False, imposed by law upon the transferor of property or contract rights

10. The rights of an intended beneficiary vest at the time of the making of the contract or at the time he learns of its making, whichever is later.

False, the contract provides the terms

1. Identify the parties involved in an assignment/delegation.

Parties involved might be the assignor, the assignee, the delegator, the delegatee, the obligor, and the obligee. The assignor would be the party transferring her rights under a contract to some third party known as the assignee. Duties may sometimes be delegated and the delegator would be the person transferring her duty to perform to some third party known as the delegatee. The person who then must perform the obligations imposed by the contract would be the obligor and the person to whom that performance is owed would be the obligee.

4. The Student Center at ABC University contracts with Rocky Nelson, a famous rock singer, to perform at the university. Can Rocky assign his rights and delegate his duties under this contract? Explain.

Rocky's duty to perform at the university is a nondelegable duty because it is personal in nature; therefore his duty may not be delegated. However, his right to payment of money may be assigned.

1. An assignment of rights is the voluntary transfer to a third party of the rights arising from the contract..

True

12. Most contract rights, including rights under an option contract, are assignable.

True

14. Sarah orders a microwave oven from Myriad's Department Store and requests that it be delivered to her sister Theresa. Theresa is a third-party intended beneficiary.

True

3. After an effective delegation of duties, both the delegator and the delegatee are liable to the obligee for performance of the contractual duty.

True

5. Where the assignee gives consideration in exchange for an assignment, a contract exists between the assignor and the assignee and the assignor may not revoke the assignment.

True

6. In a novation, the delegator will be discharged and the third party will become directly bound on her promise to the obligee.

True

7. Under the Restatement and the Code, unless the language or circumstances indicate otherwise, an assignment of "all my rights under the contract" is both an assignment of rights and a delegation of the assignor's duties under the contract.

True

9. A third party is an intended beneficiary if the promisee's purpose in bargaining for and obtaining the promisor's promise was to make a gift to the beneficiary.

True

3. Briefly explain the majority rule with regard to successive assignments of the same right.

Under the majority rule, the first assignee in point of time prevails over the later assignees. This is contrasted with the minority rule that the first assignee to notify the obligor will prevail.

5. Identify the classes of third party beneficiaries and discuss the relative enforcement rights of each.

Where contracts are made which benefit a third party, i.e. not a party to the contract, the third party may be classified as either an intended beneficiary or an incidental beneficiary. The intended beneficiary may be either a donee or creditor beneficiary and in either case the beneficiary may enforce the agree¬ment against the obligor. The incidental beneficiary, however, does not have the right of enforcement.

donee beneficiary

a third party intended to receive a benefit from the contract as a gift enforce the contract against the promisor only

creditor beneficiary

a third person intended to receive a benefit from the agreement to satisfy a legal duty owed to him may sue both parties

Third-party beneficiary contract

contract in which one party promises to render a performance to a third person

novation

contract to which the promisee is a party, substituting a new promisor for an existing promisor who is consequently no longer liable on the original contract and is not liable as a delegator

8. If successive assignments have taken place, the majority rule is that the first assignee to notify the obligor will prevail in a dispute among the successive assignees.

false, the first person to be the assignee

Vesting rights

if the beneficiry's rights vest, the promisor and promisee may not thereafter vary or discharge vested rights

implied warranty

obligation imposed by law upon the tranferor of property or contract right 1. he will do nothing to defeat or impair the assignment 2. that the assigned right actually exists and is subject to no limitations or defenses other than those stated or apparent at the time of the assignment 3. that any writing that evidences the right the right and is delivered to the assignee or exhibited to him as an inducement to accept the assignment is genuine and what it puports to be 4. that the assignor has no knowledge of any fact that would impair the value of the assignment

Delegator

party delegating his duty to a third party

Assignor

party making an assignment

Obligor

party owning a duty under original contract

Obligee

party to whom a contractual duty of performance is owed

assignee

party to whom contractual rights are assigned

intended beneficiary

third party intended by the two contracting parties to receive a benefit from their contract

Delegatee

third party to whom the delegator's duty is delegated

incidental beneficiary

third party whom the two parties have no intention of benefiting by their contract and who acquires no rights under the contract

Partial assignment

transfer of a portion of contractual rights to one or more assignees

Delegation of duties

transfer to a third party of a contractual obligation

Assignment of rights

voluntary transfer to a third party arising from a contract