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.
In Pennsylvania the general rule seems to be that the beneficiary can not maintain an action upon a contract for his benefit.1 Such rule is, however, subject to a number of exceptions, the chief of which is that where B puts money into A's hands for the specific purpose of paying such money to C, C may enforce such contract.2 If B transfers his interest in his own name upon a contract to which he was not a party. 'This rule is well established in this country, and is recognized by both the state and federal courts. There are, however, exceptions to the rule which, in this state, are as well settled as the rule itself. For nearly three quarters of a century, since the decision in Blymire v. Boistle, 6 Watts. 182 (31 Am. Dec. 458), the decisions of this court have uniformly recognized and enforced the exceptions whenever the facts of a case required it.' Howes v. Scott, 224 Pa. 7 (73 Atl. 186). These exceptions include contracts where one person agrees with another to pay money to a third, or to deliver some valuable thing, and such third party is the only one interested in the payment or the delivery; or where the promise to pay the debt of a third person rests upon the fact that money or property is placed in the hands of the promisor for that purpose; or where one buys out the stock of a to the promisee.6 A bond which is given by A, as surety for the principal contractor, to B, the property owner, and which is conditioned upon "the payment of all subcontractors" can not be enforced by C, who furnished materials to the chief contractor, and who knew of the bond and relied thereon, on the theory that the "manifest purpose of the bond was protection" to B.7
5 Signs v. Bush's Estate, 199 Mich. 192, 165 N. W. 820.
6 Public Acts , No. 314, ch. 12, Sec. 2.
7 Signs v. Bush's Estate, 199 Mich. 192, 165 N. W. 820.
8 Palmer v. Bray, 136 Mich. 85, 98 N. W. 849.
1 Kountz v. Holthouse, 85 Pa. St. 235; Merriman v. Moore, 90 Pa. St. 78; Sweeney v. Houston, 243 Pa. St. 542, L. R. A. 1915A. 779, 90 Atl. 347; In re Edmundson's Estate, 259 Pa. St 429, 103 Atl. 277.
2 Kountz v. Holthouse. 85 Pa. St. 235 (if C's receipt will discharge A as against B); Adams v. Kuehn. 119 Pa. St. 76, 13 Atl. 184; Delp v. Bar-tholomay Brewing Co., 123 Pa. St. 42, 15 Atl. 871; Cox v. Philadelphia Pottery Co., 214 Pa. St. 373, 63 Atl. 749; Howes v. Scott, 224 Pa. St. 7, 73 Atl. 186; In re Edmundson's Estate, 250 Pa. St. 429, 2 A. L. R. 1150, 103 Atl. 277. "That rule of the common law is that no one can maintain an action in a partnership to A, in consideration of which A promises B that he will "assume and pay all indebtedness or liability" of B, on account of such partnership transactions, C, who is a creditor of such partnership, can not maintain an action against A upon such promise.3 On the other hand, in the case in which B transferred his business to a corporation, A, in part consideration of which A assumed and agreed to pay all the debts of B which arose out of such business. C, who is one of B's business creditors, may enforce such contract against A.4 If B conveys realty to A under a contract by which A agrees to pay to C the amount which C's father, X, has invested in such realty, C may enforce such contract against A.5 It is said that the beneficiary can sue if a release would operate as a discharge of the promisor, but not if it would leave the promisor liable tradesman and undertakes to take the place, fill the contracts, and pay the debts of the vendor. 'These cases, as well as the case of one who receives money or property on the promise to pay or deliver to a third person, although not a party. to the contract, may be fairly said to be a party to the consideration on which it rests. In good conscience the title to the money or thing which is the consideration of the promise passes to the beneficiary, and the promisor is turned in effect into a trustee. But when the promise is made to, and in relief of, one to whom the promise is made, upon a consideration moving from him, no particular fund or means of payment being placed in the hands of the promisor out of which the payment is to be made, there is no trust arising in the promisor, and no title passing to the third person. The beneficiary is not the original creditor, who is a stranger to the contract and the consideration, but the original debtor, who is a party to both, and the right of action is in him alone.' Adams v. Kuehn, 119 Pa 76 (13 Atl. 184). In following what was thus said, we sustained a recovery in Delp v. Bar-tholomay Brewing Co., 123 Pa. 42 (15 Atl. 871), because Delp, the defendant below, by the very terms of the agreement, held the property and effects of Bingham & Spencer for the benefit of such of their creditors as had just claims contracted in the course of their business; he assumed the payment of these debts, and the property was put into his hands for this express purpose.' No such cause of action appears in this statement. Nothing is set forth in it except an alleged promise by the defendants to pay an existing indebtedness of the firm of Thos. Sweeney & Company, without any averment that any assets were placed in their hands for that purpose, and, the promise being but for the protection of the promisee, the right of action to enforce it, or to recover damages for the defendants' failure to perform is in the promisee alone. This has been the undeviating rule from Blymire v. Boistle, 6 Watts. 182 (31 Am. Dec. 458), down through all the succeeding cases." Sweeney v. Houston, 243 Pa. St. 542, L. R. A 1915A, 779, 90 Atl. 347.
3 Sweeney v. Houston, 243 Pa. St. 542, L. R. A. 1915A, 779, 90 Atl. 347.
4Cox v. Philadelphia Pottery Co.. 214 Pa. St. 373, 63 Atl. 749.
5 In re Edmundson's Estate, 259 Pa. St. 429, 2 A. L. R. 1150, 103 Atl. 277.