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.In this case:
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.

Question

Quizplus · Accepted Answer

The agreement among Brice, Paul, and the First National Bank is a novation. This is because the parties agreed to substitute Paul as the new debtor and release Brice from all further liability on the mortgage. As a result, if Paul defaults, the bank cannot collect from Brice as he has been discharged from the mortgage. This is different from an assignment, where Brice would remain liable on the mortgage if Paul defaults. Additionally, there are no third-party beneficiaries in this scenario as the agreement was made solely for the benefit of Brice and Paul.

Brice Owns a Parcel of Land That Is Encumbered by a Mortgage