CONCEPT REVIEW:

At its core, a contract is between two$(2)$ parties. However, a third party may be involved in some way. The contract between the two$(2)$ principals could be a contract for the benefit of a third party, as in the case of a life insurance policy. Or one of the two$(2)$ principal parties may decide to transfer a right or a duty to someone else who is outside the original contract, as when a new bank begins servicing a borrower$$s loan.

Another way third parties may obtain rights or duties to a contract is through being a beneficiary to the contract. A third$-$party beneficiary is created when two$(2)$ parties enter into a contract with the purpose of benefiting a third party, called the intended beneficiary.

Case Analysis

Read the following scenario which deals with a car and a car dealership that have each been passed on to new owners and answer the questions that follow.

In $2015,$ Ray Wilkins purchased an automobile$$ at Peterson Auto Sales $($Peterson$).$ He made one$-$half of the payments before he sold the car to Darla Cunningham $($Cunningham$)$ in $2016.$ Ray sold the car to Cunningham subject to the condition that she make all of the remaining payments to Peterson.

In $2017,$ Hal Peterson, the owner of Peterson Auto Sales, dissolved the business and sold its assets to Epic Auto Sales $($Epic$).$ Epic did not notify Cunningham of the change in ownership until $2019.$ Through $2018,$ Cunnigham had been making payments to Peterson. In $2020,$ Cunningham became delinquent on her payments.

Which of the following is correct in this case regarding the year $2020?$

Multiple Choice

Unless a novation occurred, Wilkins owes Epic the remaining debt.

Wilkins owes Peterson the remaining debt, even if a novation did not occur.

Wilkins owes both Epic and Peterson the remaining debt, even if a novation occurred.

Wilkins owes Epic the remaining debt, but only if Peterson does not pay it in full.

Unless a novation occurred, Wilkins owes Peterson the remaining debt.