From the FDIC site, the defense preservation notice states that:
"Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder."
This is known as the Holder-in-Due-Course rule. That means when borrower W financed purchase of a car from S , S assigned that loan to R. R is now liable for the state of the car.
Refer to the case Exchange Bank Trust v Lone Star Life Insurance (546 SW2d 948).
1) Bank is suing an insurance company as third party beneficiary claiming that the insurance company failed to adhere to a loan promise to the bank's debtor.
2) The trial court granted summary judgment in favor of insurance company. Bank appealed.
Relevant Terms, Laws, and Cases
Third person beneficiary contract An individual or organization that is not a party to the contract, known as third party, but the contract is made for their benefit e.g. life insurance policy and a contract to purchase an item for a third party.
Intended beneficiary is a third party which was intended to benefit from contract.
Incidental beneficiary an unintended party that benefits from the contract, they are not third party beneficiary and can't enforce contract.
Appeals court affirmed the decision.
The loan promised made by insurance company and bank's debtor mentioned the bank but did not express mention them as the intended beneficiary. The court refused to bank's claim on this ground stating that at most they were an incidental beneficiary.
a) True. The insurance policy was bought naming the bank as a beneficiary. A creditor beneficiary is naming a third party as beneficiary to resolve loans. In this case, the insurance was probably purchased to insure payment to the bank in case of the debtor W 's passing.
b) False. There are outstanding loans due by W. He is not "donating" to the bank.
c) False. Intended beneficiaries such as the bank are entitled to recover. It doesn't have to be a party signing the contract.
d) False. This was not incidental beneficiary, that under some circumstances the bank happens to be a benefited party. The bank is directly named in the policy.