Question

Third Party Rights and Discharge

Five years ago, Hensley purchased a house. At that time, being unable to pay the full purchase price, she borrowed funds from Thrift Savings and Loan, which in turn took a mortgage at 6.5 percent interest on the house. The mortgage contract did not prohibit the assignment of the mortgage. Then Hensley secured a new job in another city and sold the house to Sylvia. The purchase price included payment to Hensley of the value of her equity and the assumption of the mortgage debt still owed to Thrift. At the time the contract between Hensley and Sylvia was made, Thrift did not know about or consent to the sale. On the basis of these facts, if Sylvia defaults in making the house payments to Thrift, what are Thrift’s rights? Discuss. (see Assignments and Delegations.)

Answer this using the IRAC writing Format

I-Describe the issue at hand (the question being asked)

R-Describe the rule that is applicable in this situation

A-Apply the rule to the facts of yor situation

C-Draw a conclusion

Answer 1

ISSUE AT HAND:-In the case of Allan v. Nersesova 307 S.W.3d 564 (Tex. App. – Dallas 2010) the trial court issued judgment in favor of Allan for damages, but received nothing for the breach of contract claim. The contract for purchase was voided. The appellate court reversed the trial court's judgment in part, affirmed in part, and remanded the case for further proceedings.

RULE THAT IS APPLICABLE:- Beneficiaries: donee, creditor, and incidental. Donee and creditor beneficiaries may bring suit to enforce a contract; incidental beneficiaries may not. A party is a creditor beneficiary if no intent to make a gift appears from the contract, but performance will satisfy an actual or asserted duty of the promisee to the beneficiary, and the promisee must intend that the beneficiary will have the right to enforce the contract.

CONCLUSION:-

Thrift is a creditor beneficiary.To be a creditor beneficiary one must be the creditor in a previously established debtor-creditor relationship, and then the debtors subsequent contract terms with a third party must confer a benefit on the creditor. The contract made between the debtor and third party is not made expressly for the benefit of the creditor (as is required for a donee beneficiary). Rather, it is made for the benefit of the contracting parties. In this case, the original mortgage contract created a debtor-creditor relationship between Hensley and Thrift. Hensleys contract of sale in which Sylvia agreed to assume the mortgage payments conferred a benefit on Thrift as to payment of the debt. The primary purpose of the contract was strictly to benefit the contracting parties. Hensley was to receive money for the sale of the house, and Sylvia was to receive the low mortgage interest rate. Thrift still has the house and lot as security for the loan, can hold Hensley personally liable for the mortgage note, and as a creditor beneficiary can hold Sylvia personally liable on the basis of her contract with Hensley to assume the mortgage.