21. Is the lender likely to succeed in an action against the homeowner for $10,000?

A contract generally only confers rights and imposes duties on the parties to the contract, not anyone else. However, an exception exists when a party seeks to transfer rights or duties under a contract to a third party, usually in the form of an assignment of rights or a delegation of duties.

A valid assignment requires the assignor to manifest an intent to transfer his rights under the contract completely and immediately to the assignee. This intent may be determined by examining the terms or language used to effectuate the assignment. Using the word «assign» is not necessary, and alternative words such as convey, sell, or transfer will suffice.

A third party may recover under a contract if he is an «intended beneficiary,» which means he has the right to sue to enforce the contract. A person is an intended beneficiary when two contracting parties intended to benefit that third party. However, a third-party beneficiary who benefits from a contract but whom the parties had no specific intent to benefit is said to be merely an incidental beneficiary with no enforceable rights.

B is correct. This question turns on whether the builder (the «assignor) effectively assigned the right of receiving payment from the homeowner to the lender (the «assignee»). The writing stated: «Any money I receive from the homeowner will be paid immediately to the lender, regardless of any demands from other creditors.» To be an assignment, this writing would have had to show the builder's intent to transfer his rights under the contract with the homeowner completely and immediately to the lender, extinguishing the builder's rights under the contract. This document did not contain a sufficiently clear intent to do this, but rather, was unclear as to whether the builder would even remain the go-between with the homeowner and the lender regarding payments. The builder may have wanted the money to go from the homeowner to the lender, but this intent was not sufficiently manifested in the writing. Therefore, this was not an extinguishment of the builder's rights, but a promise to somehow remit payment to the lender. Without fully transferring the right, it was not an effective assignment.

A is incorrect. This answer reaches the correct answer with the wrong reasoning. The lender is unlikely to succeed in recovering the $10,000 from the homeowner, but not because the builder's death terminated the lender's previously-existing rights. As explained above, the lender did not receive a valid assignment from the builder of the rights under the contract. The writing between the builder and the lender thus did not establish a full transfer of rights to the lender, so the builder's death is of no consequence.

C is incorrect. The builder indicated that he wanted the $10,000 to go to the lender, but the intent that the homeowner would pay directly to the lender was not clear based on the language used in the writing (i.e., «Any money I receive from the homeowner will be paid immediately to the lender...»). Based on this language, even though the builder might have subjectively wanted the money to go directly from the homeowner to the lender, it may also have been possible for the payment to go to the builder to be remitted to the lender. Either way, no effective assignment was made and the lender does not have enforceable rights under the contract.

D is incorrect. There is no indication that the builder-homeowner contract intended to benefit the lender. In order for the lender to have been an intended beneficiary of that contract, the parties would have had to intend for that to be the lender's status. There is no evidence that supports such an intention, especially not by the homeowner. There is no contract language that indicates performance of the homeowner's payment is to run directly to the lender. If anything, the lender was only an incidental third-party beneficiary who would have benefitted but had no enforceable legal rights under the contract.