Title: Schwinghammer v. Alexander
Citation: 21 Utah 2d 418, 446 P.2d 414
Docket Number: 11066
State: Utah
Issuer: Utah Supreme Court
Date: October 28, 1968

446 P.2d 414 (1968) 21 Utah 2d 418 Donald M. SCHWINGHAMMER and Catherine Schwinghammer, Plaintiffs and Respondents, v. Kenneth P. ALEXANDER, Defendant, Prudential Federal Savings &amp; Loan Association, Defendant and Appellant. No. 11066. Supreme Court of Utah. October 28, 1968. Harold R. Boyer, of Romney &amp; Boyer, John B. Anderson, Salt Lake City, for defendant-appellant. David R. Bowen, Salt Lake City, for plaintiffs-respondents. CALLISTER, Justice: Plaintiffs commenced this action for damages for defective and incomplete construction of their home against the contractor-seller, Alexander, and the mortgagee, Prudential. The trial court determined in the second cause of action that plaintiffs were third-party beneficiaries of an escrow agreement between Prudential and Alexander and awarded judgment to the plaintiffs. Prudential appeals. In January 1965 plaintiffs executed an earnest money agreement with Alexander to purchase a home. Alexander agreed to complete the home including the unfinished basement area, which entailed the additional construction of a family room, two bedrooms and a bath. Plaintiffs made an application to Prudential for a loan to finance their purchase. Prudential directed that an appraisal be made of the home as if the work were completed. The appraiser recommended the loan be approved upon the condition that $1900 be withheld to assure completion of the basement and installation of a garbage disposal in the kitchen sink. On March 3, 1965, the loan was closed, and plaintiffs authorized the payment of the proceeds to Alexander. However, Prudential, independently of plaintiffs' authorization to pay the funds and without their knowledge, insisted that an escrow agreement be executed, whereby Alexander deposited with Prudential $1900, with release *415 thereof contingent upon the aforementioned items being satisfactorily completed. Completion was to be determined by inspection. Subsequently, and unknown to plaintiffs, Prudential made an inspection and found the basement completed and the disposal installed and released the funds to Alexander. The trial court found that the escrow agreement was made for the express purpose of benefiting plaintiffs, and the protection of Prudential's security was only incidental. The trial court determined that it was the intention of the parties to include the basement stairs with the work to be completed under the terms of the escrow agreement, although the stairs had been installed with covering prior to plaintiffs' and Alexander's execution of the earnest money agreement. By reason of the variation in the risers of the stairs, the trial court concluded that the stairs were incomplete and awarded plaintiffs, as third-party beneficiaries of the escrow agreement, judgment of $521 against Prudential.[1] On appeal, Prudential contends that the plaintiffs were, at most, incidental beneficiaries of the escrow agreement between Alexander and Prudential. *416 Corbin illustrates an "incidental beneficiary" in Section 779D, pp. 43-46, in the following language: In the instant action, are the plaintiffs donee or creditor beneficiaries? The promisor, Prudential, promised to pay a sum of money to Alexander, the promisee, upon his completion of the basement of the home and the installation of the disposal. Independently thereof, Alexander had an obligation to the plaintiffs to complete the home in accordance with the earnest money agreement. In the escrow agreement, Prudential did not promise to fulfill this obligation Alexander owed to plaintiffs. Furthermore, Prudential's payment of a sum of money in no way discharged Alexander's obligation to plaintiffs nor did it in any other way affect the legal relations between them; therefore, plaintiffs were not creditor beneficiaries. Nor is there anything to indicate that Alexander, in buying the promise of Prudential to pay a sum of money, expressed an intention that plaintiffs were to receive the benefit of Prudential's performance as a gift, thus disqualifying plaintiffs as donee-beneficiaries. We are compelled to conclude that plaintiffs were incidental beneficiaries under the escrow agreement, and the trial court erred in awarding them judgment against appellant, Prudential. This case is reversed and remanded, with costs to appellant. CROCKETT, C.J., and TUCKETT, HENRIOD and ELLETT, JJ., concur. [1] The judgment against Prudential was in plaintiffs' second cause of action; in addition, plaintiffs received judgment against Alexander on their first cause of action for his failure to complete the house in accordance with the terms of the earnest money agreement. [2] Restatement, Contracts, § 147, p. 176. [3] 4 Corbin on Contracts, § 776, pp. 18-19. [4] 4 Corbin on Contracts, § 779C, pp. 40-41.