Bar Exam (Uniform) Quiz: Third Party Beneficiaries

20 questions · exam conditions

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Third Party BeneficiariesQuestion 1 of 20

A patient was injured in an accident and received treatment at a hospital. The patient had a health insurance policy. The hospital submitted a claim to the insurance company for the cost of the patient's treatment. The insurance company sent a letter to both the patient and the hospital, acknowledging the claim and promising to pay the hospital directly. Relying on this, the hospital did not pursue collection from the patient. Later, the insurance company discovered a policy exclusion and refused to pay.

If the hospital sues the insurance company, which theory gives the hospital the strongest ground for recovery? Select one.

The hospital is a creditor beneficiary whose rights vested when it detrimentally relied on the insurer's promise.

The insurance company's letter created a new, independent contract with the hospital.

The insurance company's promise is enforceable under the doctrine of promissory estoppel.

The patient assigned his rights to insurance proceeds to the hospital when he accepted treatment.

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Bar Exam (Uniform) Quiz

Bar Exam (Uniform) Quiz: Third Party Beneficiaries

Practice Third Party Beneficiaries in Bar Exam (Uniform) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Third Party Beneficiaries, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Uniform).

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

If the hospital sues the insurance company, which theory gives the hospital the strongest ground for recovery? Select one.

The hospital is a creditor beneficiary whose rights vested when it detrimentally relied on the insurer's promise. (correct answer)
The insurance company's letter created a new, independent contract with the hospital.
The insurance company's promise is enforceable under the doctrine of promissory estoppel.
The patient assigned his rights to insurance proceeds to the hospital when he accepted treatment.

Explanation: The hospital is an intended creditor beneficiary of the insurance contract between the patient (promisee) and the insurance company (promisor), as the insurer's performance satisfies the patient's debt to the hospital. The hospital's rights vested when it materially changed its position in justifiable reliance on the insurer's promise to pay (by refraining from collection efforts against the patient). Once vested, the insurer cannot unilaterally refuse to perform based on a defense it might have against the patient, unless that defense relates to the formation of the contract itself. Detrimental reliance provides a strong basis for vesting. While B and C are plausible theories, A is the most direct application of third-party beneficiary doctrine to these facts. D is a possibility but is not stated in the facts, whereas the beneficiary status is clear.

Question 2

A father and a caterer entered into a written contract for catering services for his daughter's wedding. The contract identified the daughter and the wedding date. Two weeks before the wedding, the caterer called the father and repudiated the contract. The daughter immediately hired a different, more expensive caterer to avoid a disaster and paid the new caterer herself. The daughter then sued the original caterer for the difference in price.

Is the daughter likely to succeed in her lawsuit? Select one.

No, because only the father, as the promisee, can sue for breach of the contract.
No, because the daughter provided no consideration for the caterer's promise.
Yes, because a contract for services for a specific event automatically makes the subject of the event an intended beneficiary.
Yes, because her rights as a donee beneficiary vested when she materially relied on the promise by hiring a replacement. (correct answer)

Explanation: This question tests third-party beneficiary law, which determines when someone who isn't a party to a contract can still sue for its breach. When you encounter contract questions involving non-parties seeking remedies, focus on whether they qualify as intended beneficiaries and whether their rights have vested. The daughter can sue because she's a donee beneficiary whose rights vested through detrimental reliance. A donee beneficiary receives a gift through someone else's contract - here, the father contracted for catering services as a gift for his daughter's wedding. The contract clearly identified the daughter and wedding date, showing the father intended to benefit her. Crucially, her rights vested when she detrimentally relied on the contract's performance by hiring a replacement caterer after the breach, making her rights legally enforceable. Answer A is wrong because third-party beneficiaries can sue for breach when their rights have vested - it's not limited to the original promisee. Answer B incorrectly focuses on consideration; donee beneficiaries don't need to provide consideration since they receive contract benefits as gifts. Answer C creates a false rule - there's no automatic intended beneficiary status for "specific event" contracts. The analysis requires examining whether the promisee actually intended to benefit the third party. Remember this pattern: for third-party beneficiary questions, ask (1) is this person an intended beneficiary (creditor or donee), and (2) have their rights vested through performance beginning, detrimental reliance, or manifestation of assent? Both elements must be present for a successful lawsuit.

Question 3

A city entered into a contract with a private company to operate the city's water treatment facility. The contract required the company to maintain specific purity standards for the water supplied to city residents. Due to the company's negligence, the water was contaminated for a week, causing widespread illness among the residents who drank the water. A group of affected residents filed a class-action lawsuit against the company for breach of contract.

What is the company's best defense against the breach of contract claim? Select one.

The residents lack standing because they are merely incidental beneficiaries of the city's contract. (correct answer)
The residents' exclusive remedy is in tort law for negligence, not contract law.
The doctrine of sovereign immunity bars suits against a contractor performing a government function.
The residents failed to provide the company with notice and an opportunity to cure the breach.

Explanation: Generally, members of the public are considered incidental beneficiaries of government contracts, even if the contract's purpose is to serve the public. To have standing as an intended beneficiary, the contract must show a clear intent to confer a right of enforcement upon that specific party or class of persons. Here, the contract was for the benefit of the public as a whole, not for specific, individual residents, making them incidental beneficiaries who cannot sue for breach. Choice B is incorrect because while a tort claim may exist, it doesn't automatically preclude a contract claim if one were available. Choice C is incorrect as sovereign immunity typically protects the government entity, not the private contractor. Choice D is incorrect because notice and cure provisions are relevant to the duties between the contracting parties (the city and the company), not to the standing of a third party.

Question 4

A corporation was negotiating the sale of one of its divisions to a buyer. The division's employees were members of a union with a collective bargaining agreement (CBA) that was set to expire in six months. In the sale contract between the corporation and the buyer, the buyer expressly promised to 'assume and honor the current CBA for its remaining term.' Three months after the sale closed, the buyer refused to pay a cost-of-living adjustment required by the CBA. The union filed a lawsuit against the buyer for breach of contract.

Is the union likely to succeed? Select one.

Yes, because the union is an intended creditor beneficiary of the buyer's promise to the corporation. (correct answer)
No, because the buyer's promise was made to the corporation, not to the union.
No, because federal labor law preempts state contract law claims concerning collective bargaining agreements.
Yes, because the sale of a business automatically transfers all labor obligations to the new owner.

Explanation: The union, on behalf of the employees, is an intended creditor beneficiary of the sale contract. The corporation (the promisee) had a pre-existing duty to its employees under the CBA. The buyer (the promisor) made a promise to the corporation that was intended to discharge that duty. Therefore, the union can sue the buyer directly to enforce the promise to honor the CBA. Choice B is incorrect because it ignores the third-party beneficiary doctrine. Choice C is a plausible distractor, but while federal labor law governs many aspects of CBAs, it does not prevent the enforcement of an assumption agreement through basic third-party contract principles. Choice D is an overstatement; a successor employer does not automatically assume all labor contracts, which is why the express assumption clause in the contract is the key fact here.

Question 5

An aging philanthropist entered into a contract with a university to fund the construction of a new law library. The contract stipulated that the philanthropist would donate $20 million, and in return, the university would name the library after the philanthropist's late spouse. After the philanthropist paid the first installment of $5 million, the university's board of trustees voted to name the new library after a different, larger donor. The philanthropist died shortly thereafter, and her estate is now being administered.

The philanthropist's estate has brought suit against the university for breach of contract. What is the estate's strongest argument for relief? Select one.

The estate can sue as a third-party beneficiary of the promise to name the library.
The estate, standing in the shoes of the philanthropist, can sue as the promisee to enforce the university's promise. (correct answer)
The estate cannot sue because the late spouse, as the intended donee beneficiary, is the only party with an enforceable claim.
The estate can only seek restitution of the $5 million paid, as damages for failing to name a building are too speculative.

Explanation: The estate represents the interests of the philanthropist, who was the promisee in the contract with the university (the promisor). A promisee has the right to sue the promisor for breach of contract, regardless of whether a third-party beneficiary also has rights. Here, the university breached its promise to name the library. The estate can enforce this promise. Choice A is incorrect because the philanthropist (and thus her estate) is the promisee, not a third-party beneficiary. Choice C is incorrect because the promisee can always sue the promisor for breach, and the deceased spouse's estate could also potentially sue as a donee beneficiary. Choice D is incorrect because courts can award damages for such a breach, and specific performance might also be an available remedy, making it an inaccurate statement of the available relief.

Question 6

Your client is a general contractor who built a custom home for a homeowner. To finance the project, the homeowner secured a loan from a bank, which was to be disbursed to your client in stages upon completion of certain milestones. The loan agreement between the homeowner and the bank expressly stated that loan disbursements were to be paid directly to your client. The home is now complete, but the homeowner has instructed the bank not to make the final payment, alleging minor cosmetic defects. The bank has complied with the homeowner's instruction.

What is the best legal theory for your client to assert in a claim against the bank for the final payment? Select one.

Promissory estoppel, because your client relied on the bank's promise to disburse the funds.
Equitable subrogation, because your client has satisfied the homeowner's construction obligations.
Intended third-party beneficiary, because the bank's promise to pay was intended to benefit your client. (correct answer)
Assignment, because the homeowner effectively assigned the right to the loan proceeds to your client.

Explanation: Your client is an intended creditor beneficiary of the loan agreement between the homeowner (promisee) and the bank (promisor). The performance of the promise (payment of loan proceeds) was intended to satisfy a duty owed by the promisee to your client. The contract expressly directed payment to your client, showing clear intent. Therefore, your client can sue the bank directly to enforce the promise. Choice A is less direct; a contract claim is stronger than an equitable claim of promissory estoppel. Choice B is inapplicable. Choice D is incorrect; while similar in effect, the rights arise from the original contract itself (beneficiary rights) rather than a subsequent transfer of rights (assignment).

Question 7

A landlord entered into a contract with a painter to have the exterior of a two-unit apartment building painted for $10,000. The tenant in the first-floor apartment, who ran a small business from her home, was excited about the project as it would improve her business's curb appeal. Before the painting began, the landlord and painter mutually agreed to rescind the contract because the landlord decided to sell the building instead. The tenant learned of the rescission and sued the painter for breach of contract, seeking damages for the lost opportunity to enhance her business's appearance.

Is the tenant likely to succeed in her lawsuit against the painter? Select one.

Yes, because she was an intended beneficiary who detrimentally relied on the promise to paint.
Yes, because her rights as a creditor beneficiary vested as soon as the contract was formed.
No, because the original contracting parties were free to rescind the contract before her rights had vested. (correct answer)
No, because only the landlord, as the promisee, can sue the painter for non-performance.

Explanation: Even assuming the tenant could qualify as an intended beneficiary (which is questionable, as she is more likely incidental), her rights had not yet vested. A beneficiary's rights vest upon assent, bringing suit, or material reliance. The facts do not indicate any of these occurred. The tenant was merely 'excited.' Before a third party's rights vest, the original contracting parties are free to modify or rescind the contract without the third party's consent. Because the landlord and painter rescinded the contract before the tenant's rights could have vested, the tenant has no enforceable claim. Choice A is incorrect because there is no evidence of detrimental reliance. Choice B is incorrect because she is not a creditor beneficiary and rights do not vest automatically upon formation. Choice D is incorrect because an intended beneficiary with vested rights can sue the promisor.

Question 8

A mother wanted to help her son purchase his first home. She entered into a contract with a builder for the construction of a house on a lot the son owned. The contract specified that the house was being built for the son and that he was the intended recipient. The mother paid the builder in full. After the house was completed, the son discovered numerous significant construction defects that violated the contract's quality standards. The son sued the builder for breach of contract.

What is the most likely outcome of the son's lawsuit? Select one.

The son will lose, because he was not in privity of contract with the builder.
The son will lose, because only the mother, who paid for the construction, has standing to sue.
The son will win, because he is an intended donee beneficiary of the contract. (correct answer)
The son will win, but his recovery will be limited to the amount the mother paid the builder.

Explanation: The son is an intended donee beneficiary. The purpose of the contract between the mother (promisee) and the builder (promisor) was to confer the benefit of a completed house upon the son as a gift. As an intended beneficiary whose rights have vested (at the latest, upon completion of the house), the son has the right to sue the promisor directly for breach. Choice A is incorrect because the third-party beneficiary doctrine creates an exception to the privity requirement. Choice B is incorrect because while the mother (promisee) could also sue the builder, the intended beneficiary (son) also has standing to sue. Choice D is incorrect; the son's damages would be measured by the cost to repair the defects or the diminution in value of the home, not limited to the contract price.

Question 9

A farmer owned a large tract of land. He sold a portion of it to his neighbor. In the sales contract, the neighbor covenanted that she would maintain a drainage ditch on her property that also served to prevent the farmer's remaining land from flooding. The neighbor later sold her property to a new owner. The contract between the neighbor and the new owner made no mention of the drainage ditch. The new owner filled in the ditch, causing the farmer's land to flood.

If the farmer sues the new owner for damages based on the promise in the original sales contract, which legal doctrine is most relevant to the farmer's claim? Select one.

Third-party beneficiary.
Assignment of contractual rights.
Real covenant running with the land. (correct answer)
Promissory estoppel.

Explanation: This question tests the ability to distinguish third-party beneficiary rights from other legal concepts. The farmer's claim is not based on being a beneficiary of the contract between the neighbor and the new owner. Instead, the farmer is trying to enforce a promise made in the original contract against a successor in ownership of the burdened land. This is the domain of real property law, specifically the concept of real covenants that 'run with the land' and bind subsequent owners. Choices A, B, and D are incorrect because they relate to personal contract rights, not to obligations that attach to and pass with the ownership of real property.

Question 10

A man took out a loan from a bank, secured by a mortgage on his home. Later, the man sold the home to a buyer who, in the purchase contract, 'assumed the outstanding mortgage.' The buyer made payments to the bank for a year and then defaulted. The bank foreclosed on the property, but the sale proceeds were less than the outstanding loan balance.

Can the bank obtain a deficiency judgment against the original homeowner? Select one.

No, because the buyer's assumption of the mortgage created a novation, releasing the original homeowner.
No, because by accepting payments from the buyer, the bank waived its right to pursue the original homeowner.
Yes, because the bank was merely an incidental beneficiary of the assumption agreement.
Yes, because the original homeowner remains secondarily liable as a surety unless the bank expressly released him. (correct answer)

Explanation: When you encounter mortgage assumptions and deficiency judgments, focus on the distinction between who becomes primarily liable versus who remains secondarily liable as a surety. When a buyer assumes a mortgage, they become primarily liable to the lender for the debt. However, this assumption doesn't automatically release the original borrower unless the lender specifically agrees to a novation (complete substitution of parties). Instead, the original homeowner typically becomes a surety - secondarily liable if the primary obligor defaults. Answer D is correct because absent an express release from the bank, the original homeowner remains secondarily liable as a surety. The bank can pursue a deficiency judgment against him after the buyer's default, since his liability continues despite the assumption. Answer A mischaracterizes the legal effect of mortgage assumption. A novation requires the lender's agreement to release the original borrower and substitute the new one entirely. Mere assumption by the buyer doesn't create this release. Answer B incorrectly applies waiver doctrine. The bank accepting payments from the buyer doesn't constitute waiver of rights against the original borrower. Lenders routinely accept payments from assumptors while preserving their rights against original borrowers. Answer C misuses contract terminology. The bank isn't a "beneficiary" of the assumption agreement - it's the creditor in the original mortgage relationship. The assumption affects who owes the debt, not the bank's creditor status. Remember: In mortgage assumptions, look for express language releasing the original borrower. Without clear release terms, the original borrower typically remains secondarily liable even after assumption.

Question 11

A subcontractor entered into an agreement with a general contractor to perform electrical work for a new office building being constructed for a property owner. The contract between the general contractor and the property owner required the general contractor to obtain a payment bond to protect all subcontractors from nonpayment. The general contractor failed to obtain the bond. The general contractor subsequently went bankrupt without paying the subcontractor.

Can the subcontractor successfully sue the property owner for breach of the contract between the owner and the general contractor? Select one.

Yes, because the subcontractor is a creditor beneficiary of the owner's promise to require a payment bond.
No, because the property owner's promise was made to the general contractor, not to the subcontractor.
Yes, because the owner would be unjustly enriched if allowed to retain the benefit of the electrical work without payment.
No, because the subcontractor is an incidental beneficiary of the promise to obtain a payment bond. (correct answer)

Explanation: This question tests third-party beneficiary law, which determines when someone who isn't a party to a contract can still enforce it. When you see a subcontractor trying to sue based on a contract between others, analyze whether they're an intended beneficiary with enforceable rights. The correct answer is D because the subcontractor is merely an incidental beneficiary. While the payment bond requirement was intended to protect subcontractors generally, the primary purpose of the contract between the owner and general contractor was to construct a building, not specifically to benefit this particular subcontractor. The subcontractor's potential benefit from the bond requirement was incidental to the main contractual purpose. Incidental beneficiaries cannot enforce contract terms. Answer A is wrong because being a "creditor beneficiary" requires that the promisee (general contractor) owed a duty to the third party (subcontractor) that the contract was meant to satisfy. Here, no pre-existing duty existed between the general contractor and this specific subcontractor when the owner-contractor agreement was formed. Answer B incorrectly suggests that third parties can never sue on contracts made between others. This misstates the law—intended beneficiaries can absolutely enforce contracts even when they weren't parties to the agreement. Answer C fails because unjust enrichment is a separate legal theory from contract breach. The subcontractor is specifically trying to sue for breach of the owner-contractor contract, not for unjust enrichment, and the owner didn't directly receive the electrical work—the general contractor did. Remember: distinguish between intended beneficiaries (who can sue) and incidental beneficiaries (who cannot) by examining the contracting parties' primary purpose.

Question 12

A man contracted to sell his vintage car to a buyer for $50,000. Before the closing date, the buyer validly assigned her right to purchase the car to her friend. The friend notified the seller of the assignment. On the closing date, the friend tendered $50,000 to the seller, but the seller refused to deliver the car, having received a higher offer from someone else.

If the friend sues the seller for breach of contract, what is the friend's legal status? Select one.

A donee beneficiary.
A creditor beneficiary.
An incidental beneficiary.
An assignee of contract rights. (correct answer)

Explanation: This question tests your understanding of contract assignments versus third-party beneficiary relationships. When you see a fact pattern involving someone stepping into another's contractual position, you need to determine whether this person is an assignee or a third-party beneficiary. The friend is an assignee of contract rights because the buyer transferred her existing right to purchase the car directly to the friend. In an assignment, the original party (assignor) transfers their contractual rights to another party (assignee), who can then enforce those rights against the original contracting party. Here, the buyer assigned her purchase rights to the friend, who properly notified the seller and attempted to perform by tendering the contract price. Answer choice (A) is incorrect because a donee beneficiary is someone who benefits from a contract made for their benefit as a gift, but who wasn't a party to the original contract. The friend didn't benefit from the original contract—she obtained rights through assignment. Answer choice (B) is wrong because a creditor beneficiary is someone to whom one of the contracting parties owes a debt, and the contract is made to satisfy that debt. There's no indication the buyer owed the friend money. Answer choice (C) is incorrect because an incidental beneficiary is someone who coincidentally benefits from a contract but has no enforcement rights, which doesn't describe the friend's position. Remember this key distinction: assignees step into the shoes of an original contracting party, while third-party beneficiaries are intended to benefit from contracts made between others. Look for language indicating a transfer of existing rights (assignment) versus contracts made to benefit someone else (third-party beneficiary).

Question 13

A homeowner entered into a contract with a roofer to replace the roof on his house. The homeowner had an outstanding debt of $5,000 to his brother. To settle the debt, the homeowner and roofer signed a written modification to their contract stating: 'Homeowner's payment obligation of $5,000 to Roofer is hereby discharged. In its place, Roofer shall accept a new promise from Homeowner's brother to pay Roofer $5,000.' The brother orally agreed to this arrangement. The roofer completed the work, but the brother has refused to pay.

If the roofer sues the homeowner for the $5,000, is the homeowner obligated to pay? Select one.

Yes, because the brother's promise is unenforceable under the Statute of Frauds.
No, because the modification constituted a valid novation that discharged the homeowner's original duty. (correct answer)
Yes, because the roofer was an intended beneficiary of the agreement between the homeowner and his brother.
No, because the homeowner's original duty was discharged by an accord and satisfaction.

Explanation: When you encounter contract modification questions involving third parties, focus on distinguishing between novations, accord and satisfaction, and third-party beneficiary arrangements. The key is identifying whether the original obligor's duty has been completely discharged. Here, the written modification explicitly states that the homeowner's payment obligation "is hereby discharged" and replaced with the brother's promise to pay the same amount. This creates a novation—a three-party agreement that substitutes a new obligor (the brother) for the original obligor (the homeowner), completely discharging the original duty. The roofer accepted this substitution by agreeing to the modification and performing the work. Since the homeowner's obligation was validly discharged through novation, he cannot be held liable. Looking at the wrong answers: (A) incorrectly focuses on the Statute of Frauds, but even if the brother's promise were unenforceable, this wouldn't revive the homeowner's discharged obligation under the novation. (C) mischaracterizes the arrangement—the roofer isn't a beneficiary of an agreement between the homeowner and brother; rather, the roofer is a party to the novation itself. (D) confuses accord and satisfaction with novation. An accord involves a new agreement to discharge an existing duty through different performance, but here the duty itself was transferred to a new party. Remember: In novation questions, look for clear language of discharge combined with substitution of parties. The original obligor is completely released, regardless of whether the substitute performs.

Question 14

What is the company's best defense against the breach of contract claim? Select one.

The residents lack standing because they are merely incidental beneficiaries of the city's contract. (correct answer)
The residents' exclusive remedy is in tort law for negligence, not contract law.
The doctrine of sovereign immunity bars suits against a contractor performing a government function.
The residents failed to provide the company with notice and an opportunity to cure the breach.

Question 15

A software company contracted with a consultant to develop a new application. The contract required the company to pay the consultant $50,000 upon completion. The consultant owed a supplier $30,000 from a prior transaction. To satisfy this debt, the consultant and the software company modified their contract to state, "Upon completion of the application, the $30,000 portion of the fee shall be paid directly to the supplier." Before the consultant finished the work, he discovered the software company had fraudulently induced him into the original contract by misrepresenting key specifications. The consultant properly rescinded the contract.

If the supplier sues the software company for the $30,000, what is the software company's strongest defense? Select one.

The supplier's rights had not yet vested because the consultant's performance was not complete.
The supplier is an incidental beneficiary because the primary purpose of the contract was to develop software.
The promisor can assert any defenses against the beneficiary that it could have asserted against the promisee. (correct answer)
The modification directing payment to the supplier is invalid for lack of new consideration.

Explanation: A promisor (the software company) can generally assert against the third-party beneficiary (the supplier) any defenses that the promisor would have against the promisee (the consultant). Here, the software company has the defense of fraudulent inducement against the consultant, which allows for rescission of the contract. This defense is equally effective against the supplier, whose rights are derivative of the consultant's. Choice A is incorrect; vesting is about when the parties can no longer modify the contract, not about whether the promisor has defenses to performance. Choice B is incorrect because the modification shows a clear intent to benefit the supplier, making the supplier an intended creditor beneficiary. Choice D is incorrect because under both common law and the UCC, a modification to a contract does not require new consideration to be binding, provided it is made in good faith.

Question 16

A developer owed a lender $100,000. The developer then entered into a valid written contract to sell a parcel of land to a buyer for $150,000. The contract expressly stated, "As part of the purchase price, Buyer shall pay $100,000 directly to Lender to satisfy Developer's outstanding debt." The buyer paid the developer the initial $50,000 but subsequently failed to pay the lender. The lender was notified of the contract and sent a letter to the buyer stating that it approved of the arrangement.

If the lender sues the buyer for $100,000, what is the most likely outcome? Select one.

The lender will win, because the lender is an intended creditor beneficiary whose rights have vested. (correct answer)
The lender will lose, because the lender was not a party to the contract between the developer and the buyer.
The lender will lose, because the developer is the only party who can enforce the contract against the buyer.
The lender will win, but only if the developer has first assigned its contract rights to the lender.

Explanation: The lender is an intended creditor beneficiary because the buyer's performance was intended to satisfy a pre-existing debt owed by the promisee (developer) to the lender. As an intended beneficiary, the lender has enforcement rights once those rights have vested. A third party's rights vest when the party learns of the contract and manifests assent to it. Here, the lender assented by sending an approval letter. Therefore, the lender can sue the promisor (buyer) directly. Choice B is incorrect because lack of privity is the very issue the third-party beneficiary doctrine overcomes. Choice C is incorrect because both the promisee and the intended beneficiary have the right to sue the promisor. Choice D is incorrect because third-party beneficiary rights are created by the contract itself and are distinct from rights created by a subsequent assignment.

Question 17

An author entered into a contract with a publisher. The contract granted the publisher the exclusive right to publish the author's next novel. In return, the publisher promised to pay the author a $100,000 advance. The contract also included a clause stating, "Publisher shall pay 10% of the author's advance directly to the Author's Agent." Before the publisher paid anyone, the author had a dispute with the agent and sent a written notice to the publisher, revoking the instruction to pay the agent and directing that the full advance be paid to the author.

If the agent sues the publisher for 10% of the advance, what is the publisher's best argument for non-payment? Select one.

The agent is an incidental beneficiary and has no right to enforce the contract.
The author, as promisee, modified the contract with the publisher before the agent's rights had vested. (correct answer)
The agency relationship between the author and agent was terminated, extinguishing the agent's rights.
The clause was a mere payment direction that did not create an enforceable third-party right.

Explanation: The agent is an intended creditor beneficiary, as the publisher's performance satisfies a debt (commission) owed by the author to the agent. However, the original parties (author/promisee and publisher/promisor) can modify or rescind the third-party provision until the beneficiary's rights vest. The facts do not state that the agent assented to, sued upon, or relied on the promise before the author's revocation. Therefore, the author's instruction to the publisher was an effective modification of the payment term, extinguishing the agent's right to sue the publisher. Choice A is incorrect; the agent is a classic creditor beneficiary. Choice C is plausible, but the contract right, once vested, would survive the termination of the agency relationship; the key is that it didn't vest. Choice D is incorrect because the contractual language is strong enough to create a third-party right, not just a suggestion for payment.

Question 18

If the lender sues the buyer for $100,000, what is the most likely outcome? Select one.

The lender will win, because the lender is an intended creditor beneficiary whose rights have vested. (correct answer)
The lender will lose, because the lender was not a party to the contract between the developer and the buyer.
The lender will lose, because the developer is the only party who can enforce the contract against the buyer.
The lender will win, but only if the developer has first assigned its contract rights to the lender.

Question 19

If the roofer sues the homeowner for the $5,000, is the homeowner obligated to pay? Select one.

Yes, because the brother's promise is unenforceable under the Statute of Frauds.
No, because the modification constituted a valid novation that discharged the homeowner's original duty. (correct answer)
Yes, because the roofer was an intended beneficiary of the agreement between the homeowner and his brother.
No, because the homeowner's original duty was discharged by an accord and satisfaction.

Question 20

Is the union likely to succeed? Select one.

Yes, because the union is an intended creditor beneficiary of the buyer's promise to the corporation. (correct answer)
No, because the buyer's promise was made to the corporation, not to the union.
No, because federal labor law preempts state contract law claims concerning collective bargaining agreements.
Yes, because the sale of a business automatically transfers all labor obligations to the new owner.