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

question 24

Multiple Choice

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.

---

Definitions:

Raw Materials

the unprocessed or minimally processed resources used to manufacture finished goods, such as metals, plastics, or textiles.

Retained Earnings

Cumulative net income of a company that is retained within the business rather than distributed to shareholders as dividends.

Cost of Goods Sold

The total cost directly associated with producing goods, including materials and labor expenses, that a company sells during a specific period.

Collections

The process of recovering amounts owed to a business by its debtors or customers.