This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The next serious question is this: is the doctrine that a third party may sue, confined to cases like the foregoing, where the promisee transfers property to the promisor to induce him to make such promise, or does it apply to other classes of cases ? In some jurisdictions it is held that a promise by A to B, on consideration, to pay B's debts to C is not enforceable unless A has in his hands funds or property transferred by B to him out of which such debt was to be paid. Thus where A agreed with B, a corporation, to discharge B's debt to C, in consideration whereof A was to receive B's stock at par in payment of such advances, C cannot enforce such promise against A.1 In the majority of the jurisdictions which allow a third person to sue on contracts for his benefit, the doctrine is not thus limited. Thus a contract on valuable consideration between A and B whereby A agrees to support C, can be enforced by C, as a contract whereby A agrees with B his brother-in-law, to support B's wife C,2 or a contract by A with B his father-in-law, to support his sister-in-law C.3 If one insurance company reinsures with another, such other company is directly liable to beneficiaries under policies issued by the first company, if it has assumed and agreed to pay losses under such policies.4 So a covenant by a lessee with lessor that he will sell no beer upon the premises leased except that manufactured by a specified brewing company, may be enforced by such brewing company by an injunction in equity;5 a covenant between a landlord and a third person who thereby agrees to maintain a fence on the landlord's property may be enforced by a tenant to whom the landlord has leased such property;6 and a contract between the stockholders of a corporation whereby one of them agrees to surrender his stock to the corporation to avoid paying an assessment levied thereon may be enforced by the corporation.7 Among other examples of contracts which are intended primarily for the benefit of a third person are the following: A contract between A and B whereby A agrees to pay B's attorney C,8 a contract by A, C's husband, whereby A is to furnish B with money to aid in contesting X's will and B agreeing to pay C a large sum of money in the event of success,9 a contract between brothers and sisters to whom realty has descended in common that the land shall be held in joint tenancy and on the death of the survivor, it shall pass to the child of one of the brothers,10 a covenant in a fire insurance policy that the loss, if Y. Tilden, was entitled to come in and share with the other heirs and next of kin the large fund that had been freed from the provisions of the will. When this equitable right or interest is coupled with the relation of husband and wife, we have presented a situation that affords ample consideration for the contract sued upon,- a situation that distinguishes this action from any of the cases where the party suing upon a promise rests exclusively upon a debt of duty owed him by the promisee. Another general feature of this case, to which we think the court below has failed to give due prominence, is the extent of the legal and moral obligation resting upon a husband to support and provide for his wife."
1 Washburn v. Investment Co., 26 Or. 436; 36 Pac. 533; 38 Pac. 620. The court said: "The contract is not made for the direct benefit of the creditor, but of the promisee to enable him to obtain money with which to discharge his liability, and if enforceable at all is enforceable by him. The creditors are, of course, indirectly interested in its performance, for if the contract is complied with, their claims will be paid, and this may be said of any executory contract whereby a debtor expects to receive money with which to pay his debts; but it has never been held, to our knowledge, that such an interest is sufficient to entitle a stranger to maintain an action to enforce the stipulations of the contract."
2 Coleman v. Whitney, 62 Vt. 123; 9 L. R. A. 517; 20 Atl. 322.
3 Eitscheid v. Baker, 112 Wis. 129; 88 X. W. 52.
4 Whitney v. Ins. Co. (Cal.), 56 Pac. 50; Bartlett v. Ins. Co., 77 la. 155; 41 N. W. 601: Barnes v. Ins. Co., 56 Minn. 38; 45 Am. St. Hep. 438; 57 N. W. 314.
5 Ferris v. Brewing Co., 155 Ind. 539; 52 L. R. A. 305; 48 N. E. 701. (Citing Ransdel v. Moore, 153 Ind. 393, 405; 53 L. R. A. 753; 53 N. E. 767; Warren v. Farmer, 100 Ind. 593; Rodenbarger v. Bramblett, 78 Ind. 213; Tinker v. Swaynie, 71 Ind. 562; Devol v. Mcintosh, 23 Ind. 529.)
6 Lake Erie, etc., Ry. v. Power, 15 Ind. App. 179; 43 N. E. 959.
7 Hill v. Mining Co., 124 Mo. 153; 46 Am. St. Rep. 429; 25 S. W. 926; 32 S. W. 111.
8 Tyler v. Mayre, 95 Cal. 160; 27 Pac. 160; 30 Pac. 196.
9 Buchanan v. Tilden, 158 N. Y. 109; 70 Am. St. Rep. 454; 44 L. R. A. 170; 52 N. E. 724. (In this case there were peculiar facts on which the court laid great stress. B was X's heir. C was the adopted daughter of X's brother. The court said: "Plaintiff, in equity and good conscience, as an adopted child of Moses
10 Murphy v. Whitney, 140 N. Y. 541; 24 L. R. A. 123; 35 N. E. 930. (Such child can enforce such contract.) any, is payable to C as his interest may appear,11 a contract between the father and the mother of an illegitimate child, where the mother surrenders the custody of the child, in consideration whereof the father agrees to support the child, to educate him, and to convey certain property to him,12 and a bond given by a sub-agent of an insurance company to a general agent containing a clause that the insurance company may sue thereon.13 So under a contract between an express company and an employe, whereby he agrees to exempt the express company from, certain forms of liability, and the contract provides that this provision shall inure to the benefit of the railroad company, the railroad may use such provision as a defense, even if it had no knowledge thereof before action was brought to enforce such liability.1*