⚡ 10-Second Rule
If two people make a deal meant to benefit you, you can enforce it — but only after your rights lock in.
🧒 ELI-10 Scene
Grandma calls the bakery and pays for a birthday cake to be delivered to her grandson Theo on Saturday. The whole point of the deal is Theo's cake. If the bakery never shows, Theo is the one left with no cake at his party. Meanwhile, the party-supply store next door was hoping Theo's guests would wander in and buy balloons. The store loses out too — but nobody made the deal for the store. Theo was the target of the promise. The store was just standing nearby, hoping.
⚖️ Actual Rule
A third party may enforce a contract only if it is an intended beneficiary: recognizing the third party's right to performance must be appropriate to effectuate the parties' intention, and either the performance satisfies the promisee's monetary obligation to the third party (a creditor beneficiary) or the circumstances show the promisee intended to give the third party the benefit of the performance (a donee beneficiary). Anyone else who happens to benefit is an incidental beneficiary with no enforcement rights (Restatement (Second) of Contracts §§ 302, 304, 315, paraphrased). The rule that the beneficiary can sue the promisor directly traces to Lawrence v. Fox, 20 N.Y. 268 (1859), which allowed a creditor to sue the promisor who had promised the debtor to pay the debt. The contracting parties remain free to modify or rescind the contract until the beneficiary's rights vest — which occurs when the beneficiary manifests assent to the promise at a party's request, materially changes position in justifiable reliance on it, or brings suit to enforce it; after vesting, no modification is effective without the beneficiary's consent (Restatement (Second) of Contracts § 311, paraphrased). The promisor may assert against the beneficiary any defense arising from the contract that it could assert against the promisee (Restatement (Second) of Contracts § 309, paraphrased). The promisee may also enforce the contract — and in donee situations, where the promisee's damages are often nominal, specific performance may be available; a creditor beneficiary may sue the promisee on the underlying debt, the promisor on the contract, or both, but may collect only one satisfaction (Restatement (Second) of Contracts § 305, paraphrased).
ELI-10 translation: the person the deal was aimed at can enforce it; a bystander who just hoped to gain cannot.
🔍 Ask These Questions
- Is the third party intended or incidental? (Was the deal aimed at Theo, or is he just a lucky bystander?)
- If intended, is it a creditor or donee setup? (Is the promise paying off a debt to Theo, or giving Theo a gift?)
- Have the beneficiary's rights vested? (Did Theo say yes when asked, change his plans in reliance, or sue?)
- Did the parties modify or rescind before vesting? (Before Theo's rights lock in, Grandma and the baker can still change the deal.)
- What defenses can the promisor raise? (The baker can use any excuse against Theo that works against Grandma.)
- What can the promisee still do? (Grandma can sue the baker too — and a creditor beneficiary can also chase the promisee, once total.)
⚠️ Bar Trap
Exam language: The fact pattern names the third party in the contract at formation, then has the contracting parties modify or rescind the agreement before the beneficiary learns of, assents to, or relies on it. The bait answer reasons that the beneficiary's rights became enforceable — and immutable — the moment the contract was formed. Being an intended beneficiary at formation is not vesting; until assent, reliance, or suit, the original parties may freely modify or rescind.
ELI-10: Being named in the deal is not the same as owning the deal. Until Theo says yes, leans on the promise, or sues, Grandma and the baker can still rewrite it.
🧪 Question
A retiring dentist sold her practice to a buyer for $500,000, payable in monthly installments. The written agreement provided that the buyer would pay the final $50,000 installment directly to the dentist's nephew "as a gift to help fund his education." Neither the dentist nor the buyer told the nephew about the provision. Eight months later, before the nephew had learned of the agreement, the dentist and the buyer signed an amendment redirecting the final $50,000 to the dentist herself in exchange for the buyer receiving additional patient files. The nephew later discovered the original provision and, when the final installment came due and was paid to the dentist, sued the buyer for $50,000.
Is the nephew likely to prevail?
(A) Yes, because he was an intended donee beneficiary of the original agreement. (B) Yes, because a modification eliminating a named beneficiary's interest requires the beneficiary's consent. (C) No, because the parties modified the agreement before the nephew's rights vested. (D) No, because a donee beneficiary may never maintain an action on a contract supported only by the promisee's consideration.
Answer: (C). The nephew was an intended donee beneficiary, but his rights never vested: he had not assented, relied, or sued before the amendment, since he did not even know of the provision. The parties therefore retained the power to modify, and the amendment validly redirected the payment.
💡 Why the Wrong Answers Are Wrong
- (A) stops the analysis at beneficiary status; intended-beneficiary standing at formation means nothing once the parties validly modified before vesting.
- (B) states the post-vesting rule; consent is required only after the beneficiary's rights have vested through assent, reliance, or suit.
- (D) is flatly wrong on the law — since Lawrence v. Fox and under Restatement § 304, intended donee beneficiaries can sue the promisor once their rights are enforceable.
- ELI-10: The misconception is thinking a named gift is locked in on day one. The gift stays changeable until the receiver says yes, leans on it, or sues.
