## Facts

- Lot purchasers contracted with a subdivision developer to buy lots in Flagstaff, Arizona.
- A city ordinance required the developer to post security to guarantee completion of off-site improvements (e.g., streets and utilities) necessary for the subdivision.
- The developer obtained a performance bond from First Federal Savings to satisfy the ordinance’s security requirement.
- The developer failed to complete the required off-site improvements.
- Purchasers sued, later adding First Federal and seeking damages under two theories:
  - As intended third-party beneficiaries entitled to enforce the performance bond.
  - That a separate assignment agreement between the developer and First Federal made First Federal directly responsible for the developer’s obligations to purchasers.
- The trial court granted partial summary judgment for First Federal on both theories, and the purchasers appealed.

## Issues

1. Whether subdivision lot purchasers were intended third-party beneficiaries of the developer’s performance bond such that they could sue the bond issuer directly.
2. Whether an assignment agreement between the developer and the bond issuer/lender constituted an assumption of the developer’s duties to the purchasers, creating direct liability.

## Decision

- The Arizona Supreme Court affirmed partial summary judgment for First Federal.
- The court held the purchasers were not intended third-party beneficiaries of the performance bond.
- The court held the assignment agreement did not amount to an assumption by First Federal of the developer’s contractual obligations to the purchasers.

## Legal Principles

- A nonparty may recover as a third-party beneficiary only if the contract itself indicates an intent to benefit that person.
- The contemplated benefit must be intentional and direct; incidental or foreseeable benefits from contract performance do not create enforceable third-party rights.
- Courts determine third-party-beneficiary status primarily from the contract’s language rather than from general policy concerns or economic expectations.
- An assignment generally transfers rights; an assignee’s assumption of the assignor’s duties to third parties requires clear agreement to undertake those duties.
- Absent an express undertaking creating a direct promise to the claimant, an assignment between contracting parties does not make the assignee liable to the claimant for the assignor’s obligations.

## Conclusion

The court concluded that neither the performance bond nor the separate assignment agreement showed a clear contractual intent to confer enforceable rights on the lot purchasers; the purchasers therefore could not hold First Federal liable for the developer’s failure to complete required off-site improvements.


Norton v. First Fed. Sav., 624 P.2d 854 (Ariz. 1981)