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.
A serious question which arises in jurisdictions in which the beneficiary is recognized as having a right to enforce a contract for his benefit is whether the doctrine that a third party may sue is confined to cases like the foregoing, where the promisee transfers property to the promisor to induce him to make such promise, or whether it applies 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 can not enforce such promise against A.1 In most jurisdictions in which the right of the beneficiary to enforce the contract is recognized, his right is not limited to cases in which property is put into A's hands by B, in order to secure the payment of money to A's creditor, or other beneficiaries.2 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,3 or a contract by A with B, his father-in-law, to support his sister-in-law, C.4 A contract by which B agrees to convey certain realty to his son, A, in consideration of future support, and B also agrees to convey certain realty to B's daughter, C, may be enforced by C.5 Restrictive covenants in conveyances of realty may be enforced by adjoining property owners, when they are inserted in such conveyances, in accordance with a general plan, and when they are thus intended for the mutual benefit of the respective property owners.6 If B, who is the lessor of a mine, has entered into a contract by which C is to have the exclusive right of selling coal from such mine in a certain town, and B subsequently leases such mine to A by a lease which contains a covenant to the effect that C shall have such right. C may enforce such covenant against A.7 If B, the owner of realty, conveys a right of way to a railway, A, under a contract by which certain switch privileges are secured, at certain specified rates, to B, or to parties other than B, who might operate furnaces upon such realty, another party operating such furnaces may maintain an action against the railway upon such covenant;8 and he may have reformation against A to show the intention of the parties to benefit such third person in case the contract, as originally drawn, does not show such intention.9 If B, a wholesale dealer in certain commodities, sells such commodities to A, a retailer, under a contract fixing the price at which A shall sell such commodities, and such contract is intended for the benefit of the manufacturer, C. C may enforce such covenant by injunction against A, if such covenant is not monopolistic in character.10
17 Hawley v. Bank, 97 Ia. 187, 66 N. W. 152.
18 Blakeley v. Adams, 113 Ky. 392, 68 S. W. 393.
19King v. Scott, 76 W. Va. 58, 84 S. E. 954.
20King v. Scott, 76 W. Va. 58, 84 S. E. 954.
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 California. Berryman v. Hotel Savoy Co., 160 Cal. 559, 37 L. R. A. (N-S.) 5, 117 Pac. 677; D. Ghirardelli Co. v. Hunaicker, 164 Cal. 355, 128 Pac 1041.
Kentucky. Gregory v. Harlan Home Coal Co., 182 Ky. 524, 206 8. W. 765.
Nebraska. Wright v. Pfrimmer, 99 Neb. 447, L. R. A. 1917A, 323. 156 N. W. 1060.
New York. Little v. Banks, 85 N. Y. 258; Korn v. Campbell. 192 N. Y. 490. 37 L. R. A. (N.S.) 1, 85 N. E. 687; Baird v. Erie Ry. Co.. 210 N. Y. 225, 104 X E. 614.
North Carolina. Withels v. Poe, 167 N. Car. 372, 83 S. E. 614.
3 Coleman v. Whitney, 62 Vt. 123. 9 L. R. A. 517. 20 Atl. 322.
4 Eitcheid v. Baker, 112 Wis. 129, S8 X. W. 52.
5 Sedgwick v. Blanehard. 164 Wis. 421. 160 X. W. 267.
6 Berryman v. Hotel Savoy Co.. 160 Cal. 559. 37 L. R. A. (N.S.) 5. 117 Pac. 677; Wright v. Pfrimmer. 99 Neb. 447, L. R. A. 1917A. 323. 156 X. W. 1060; Korn v. Campbell. 192 X. Y. 490, 37 L. R. A. (X.S.) 1. 85 N. E. 687.
7 Gregory v. Harlan Home Coal Co., 182 Ky. 524, 206 S. W. 765.
8 Baird v. Erie Ry. Co., 210 N. Y. 225, 104 X. E. 614.
9 Baird v. Eric Ry. Co., 210 N. Y. 225, 104 X. E. 614.
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.11 A covenant by a lessee to his 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;12 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;13 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.14 The creditors of an insolvent corporation may enforce a contract between its directors and its stockholders,15 or between its different stockholders,16 by which the directors or stockholders agree to pay debts due from such corporation. If A and B, the creditors of an estate, enter into a contract, by which A agrees to pay the debts and the expenses of administration, in consideration of B's acknowledging payment of a judgment against the estate, and in consideration of the conveyance of certain tracts of land by the heirs to A and B, C, the administrator of the estate, may enforce such contract against A.17 If A agrees with B to make certain payments to C, in consideration of B's withdrawing opposition to a will and permitting A to be appointed executor, C may recover upon such contract.18 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;19 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;20 a contract between a father and his prospective son-in-law, by which the father agrees to make certain annual payments to his daughter;21 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;22 a covenant in a fire insurance policy that the loss, if any, is payable to C as his interest may appear;23 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,24 and a bond given by a subagent of an insurance company to a general agent, containing a clause that the insurance company may sue thereon.25