Darrell owns a parcel of land that is encumbered by a mortgage held by the First National Bank. Darrell agrees to sell the land to Paul for $50,000. Darrell and Paul together go to the First National Bank to discuss the sale and purchase with the banker. Darrell, Paul, and the banker sign an agreement stating that Paul will assume the mortgage and that Darrell 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 Darrell if Paul defaults.
C) Darrell 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 the three parties constitutes a novation, which is a new contract that replaces the original one, releasing Darrell from liability and making Paul responsible for the mortgage.

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