Chapter 16

Question 1

The voluntary transfer of a contractual right to a third party is known as a(n):
a. implied warranty.
b. assignment.
c. delegation.
d. novation.

Answer 1

assignment.

Question 2

A(n) ____ is a method of discharging a contract in which a third party becomes bound upon a promise to the
obligee.
a. assignment
b. delegation
c. partial assignment
d. novation

Answer 2

novation

Question 3

A(n) ____ is a third party who obtains possible benefits but no rights under a contract.
a. incidental beneficiary
b. intended beneficiary
c. assignor
d. donee beneficiary

Answer 3

incidental beneficiary

Question 4

A(n) ____ is an intended beneficiary of a contract who receives the benefits of the contract as a gift.
a. incidental beneficiary
b. intended beneficiary
c. assignor
d. donee beneficiary

Answer 4

donee beneficiary

Question 5

Anita owes Brad $75,000. Brad signs a written statement granting Glen a gratuitous assignment of his rights
from Anita. Brad delivers the signed statement to Glen before Brad dies.
a. The delivery of the statement makes the assignment irrevocable.
b. The assignment is terminated upon Brad’s death.
c. The signing of the statement makes the assignment irrevocable.
d. The assignment is invalid, because it is revocable.

Answer 5

The delivery of the statement makes the assignment irrevocable.

Question 6

Which of the following duties would not be delegable?
a. John has a contractual duty to pay Isaac $50.
b. Karl has a contractual duty to deliver 50 bushels of corn to Michael by October 1.
c. Jeffrey has a duty to mow Georgia’s lawn at least once a week.
d. Arthur has a duty to teach an accounting class at a community college during the fall
semester.

Answer 6

Arthur has a duty to teach an accounting class at a community college during the fall
semester.

Question 7

Theresa has a contract to teach eighth grade at Washington Middle School. She decided she could make
more money writing a book, so she assigns her teaching contract to her friend, Stephanie, who is also a
licensed teacher.
a. The duties under the teaching contract are nondelegable.
b. The duties which Theresa has attempted to delegate are personal in nature.
c. If the school district agrees to accept Stephanie’s services, a novation would occur, which
would relieve Theresa of her obligation to the school district.
d. All of the above are correct.

Answer 7

All of the above are correct.

Question 8

Annette entered into a contract with a local truck dealer to have a new truck delivered to her daughter, Sue,
as a graduation present. In this contract, Sue is:
a. an incidental beneficiary.
b. a donee beneficiary.
c. a creditor beneficiary.
d. an assignor.

Answer 8

a donee beneficiary.

Question 9

Professor Dought has a life insurance policy on his own life that provides that in the event of his death, his
mother will receive the proceeds. Professor Dought’s mother is a(n):
a. incidental beneficiary.
b. creditor beneficiary.
c. donee beneficiary.
d. assignee.

Answer 9

donee beneficiary.

Question 10

Bill wants to buy a new car. He goes to the bank to get a loan for the purchase, and signs an agreement to
pay $10.00 per month in premiums on a term life insurance policy which names the bank as the recipient of
the policy proceeds in the event of his death before the loan is repaid. The bank is a(n):
a. incidental beneficiary.
b. creditor beneficiary.
c. donee beneficiary.
d. assignee.

Answer 10

creditor beneficiary.

Question 11

Betty owes Agatha $1,000. On March 1 Agatha, for value, assigned the debt to Clara. Thereafter, on March
30 Agatha assigned the same right to Diane.
a. Under the American rule, Clara will prevail over Diane.
b. Under the English rule, the first assignee to notify Betty will prevail.
c. Under the Restatement rule, the first assignee to notify Betty will prevail.
d. Both (a) and (b) are correct.

Answer 11

Both (a) and (b) are correct.

Question 12

Courts will enforce contracts for the benefit of all but which of the following?
a. Donee beneficiaries
b. Creditor beneficiaries
c. Incidental beneficiaries
d. Intended beneficiaries

Answer 12

Incidental beneficiaries

Question 13

Bill has a right against Heather and assigns it for $100 to Dan. Later, Bill grants Heather a release. Bill:
a. is liable to Dan for damages because he breached an implied warranty.
b. has no liability to Dan because he did not expressly warrant that he would not impair the
assignment.
c. has no liability to Dan because the only implied warranty he made was that the assigned
right actually existed at the time of the assignment.
d. was acting contrary to public policy by assigning a contractual right for money.

Answer 13

is liable to Dan for damages because he breached an implied warranty.

Question 14

Stark enters into a contract with a contractor to build a large shopping mall in River City. Donner will
benefit from this contract since his restaurant is adjacent to the planned mall. Donner in this instance is a(n):
a. implied beneficiary.
b. partial beneficiary.
c. donee beneficiary.
d. incidental beneficiary.

Answer 14

incidental beneficiary.

Question 15

The party to whom a contractual duty of performance is owed is known as the:
a. obligee.
b. obligor.
c. assignee.
d. assignor.

Answer 15

obligee.

Question 16

Mr. Homayer hired Blake Painters to paint his house. Blake decides it has too many jobs and delegates the
duties to the Andrews Company. Andrews does a poor job, and drips paint on the Homayers’ flowers and
windows.
a. Mr. Homayer can sue both Blake and Andrews.
b. Mr. Homayer can sue Blake, but he cannot sue Andrews.
c. Mr. Homayer can sue Andrews, but he cannot sue Blake.
d. Mr. Homayer cannot sue, because he has accepted the benefits of the assignment.

Answer 16

Mr. Homayer can sue both Blake and Andrews.

Question 17

Mary goes to a stockbroker, purchases 50 shares of a certain stock, and instructs the broker to register the
stock in her husband Warren’s name. If this stock is intended as a Valentine’s Day gift, Warren becomes a(n):
a. donee beneficiary.
b. transferee.
c. delegatee.
d. assignee.

Answer 17

donee beneficiary.

Question 18

When contract terms prohibiting the assignment of rights exist, most courts will:
a. strictly construe them.
b. interpret a general term prohibiting assignments as rendering any assignment ineffective.
c. award the obligor no right to damages for breach of a general term prohibiting
assignments.
d. All of the above.

Answer 18

strictly construe them.

Question 19

Which of the following is NOT true concerning the requirements for an effective assignment?
a. The assignment must be voluntary.
b. Consideration is required.
c. There must be an intention to make the assignee the owner of the right.
d. The assignment may be either written or oral.

Answer 19

Consideration is required.

Question 20

Which of the following involves a creditor beneficiary relationship?
a. A contract where the insured names a bank with which he has a loan as the beneficiary of a
life insurance policy
b. A contract between an employer and a union representing the employees, which contract is
made for the benefit of the employees
c. A contract between the owner of a building and the contractor stating that the contractor
will pay his employees at a stated rate
d. A contract between a governmental unit and business for services to be rendered to area
citizens

Answer 20

A contract where the insured names a bank with which he has a loan as the beneficiary of a
life insurance policy

Question 21

Lynne is the intended beneficiary of a third-party contract. Her rights have vested. In an action by Lynne to
enforce the promise, the promisor may assert the defense of:
a. rescission.
b. contractual modification.
c. fraud.
d. All of the above.

Answer 21

fraud.

Question 22

Which of the following involves an invalid assignment that a court would not enforce?
a. An assignment of a savings account accompanied by the delivery of the passbook
b. An assignment lacking consideration
c. An assignment of an automobile liability insurance policy accompanied by the delivery of
the policy
d. An assignment in writing signed by the assignor and delivered to the assignee

Answer 22

An assignment of an automobile liability insurance policy accompanied by the delivery of
the policy

Question 23

Which of the following is correct with regard to successive assignments of the same right?
a. It is impossible for an assignor to assign the same right more than once.
b. In England, the first assignee to notify the obligor prevails.
c. The Restatement does not recognize the validity of any successive assignments.
d. All of the above are correct.

Answer 23

In England, the first assignee to notify the obligor prevails.

Question 24

Noel and Lyle have a contract whereby Noel is to perform routine construction services according to the
blueprints that Lyle has provided. Noel assigns the contract to David. As a result of this assignment:
a. Lyle can bring suit based upon detrimental reliance.
b. Noel has no more rights or responsibilities with regard to the contract.
c. Noel no longer has any rights under the contract, but he remains responsible for the duties
he agreed to perform.
d. Noel has all of his rights under the contract, but he has no responsibility for the
performance of the duties.

Answer 24

Noel no longer has any rights under the contract, but he remains responsible for the duties
he agreed to perform.

Question 25

Brice owns a parcel of land that is encumbered by a mortgage held by the First National Bank. Brice agrees
to sell the land to Paul for $50,000. Brice and Paul together go to the First National Bank to discuss the sale
and purchase with the banker. Brice, Paul, and the banker sign an agreement stating that Paul will assume
the mortgage and that Brice will be discharged from all further liability on the mortgage.
a. The bank is a third party donee beneficiary.
b. The bank can collect from Brice if Paul defaults.
c. Brice is a third party beneficiary of the agreement between Paul and the bank.
d. The agreement among the three is a novation.

Answer 25

The agreement among the three is a novation.

Question 26

Anita owes Brad $75,000. Brad signs a written statement granting Carla a gratuitous assignment of his rights
from Anita. Brad dies prior to delivering the statement to Carla.
a. Brad’s death has no effect on the assignment.
b. The assignment is terminated upon Brad’s death.
c. The signing of the statement makes the assignment irrevocable.
d. The assignment is invalid because it is gratuitous.

Answer 26

The assignment is terminated upon Brad’s death.

Question 27

Odessa owes Kevin $2,000. On July 1, Kevin assigns the right to the $2,000 to Troy. Thereafter, on July 15,
Kevin assigns the same right to Donna, who in good faith gives value for it and knows nothing about the
first assignee.
a. Troy has the right to the payment of $2,000.
b. Donna has the right to the $2,000.
c. Neither Troy nor Donna can claim the $2,000.
d. The rule differs in different states. Depending on which rule a state follows, the answer
will vary.

Answer 27

The rule differs in different states. Depending on which rule a state follows, the answer
will vary.

Question 28

Barbara owes Arturo $2,000. On July 1, Arturo assigns the debt to Charles. Thereafter on July 15, Arturo
assigns the same right to Dennis, who in good faith gives value for it and knows nothing about the first
assignee. Dennis immediately notifies Barbara of the assignment.
a. Under all of the rules, Charles has priority since he was the first assignee in time.
b. Under the majority rule, Dennis has priority.
c. Under the English Rule, Dennis has priority.
d. Under the English Rule, Charles has priority.

Answer 28

Under the English Rule, Dennis has priority.

Question 29

Under Section 2-210 of the Code, unless circumstances indicate to the contrary, a contract that prohibits an
assignment:
a. prohibits both an assignment of rights and a delegation of duties under the contract.
b. prohibits only a delegation of the delegator’s duty of performance and not the assignment
of rights.
c. renders any subsequent assignment ineffective.
d. Both (a) and (c).

Answer 29

prohibits only a delegation of the delegator’s duty of performance and not the assignment
of rights.

Question 30

Notice of an assignment:
a. must be given to the obligor.
b. cuts off any defenses based on subsequent agreements between the obligor and assignor.
c. precludes subsequent setoffs and counterclaims of the obligor that arise out of entirely
separate matters.
d. All of the above.
e. Only (b) and (c).

Answer 30

Only (b) and (c).

Question 31

The law governing assignments is found in Articles ____ and ____ of the Uniform Commercial Code
(UCC), as well as the common law.
a. 1 and 2
b. 2 and 4
c. 2 and 9
d. 3 and 4

Answer 31

2 and 9

Question 32

A gratuitous assignment is rendered irrevocable if, prior to the attempted revocation, the assignee:
a. receives payment of the claim from the obligor.
b. obtains a judgment against the obligor.
c. Neither of the above. A gratuitous assignment is always revocable.
d. Both (a) and (b).

Answer 32

Both (a) and (b).